Artificial intelligence in the tax function

Between skepticism and potential

The tax function is undergoing digital transformation. While many areas of business already use automated processes, some of the tax community continues to hesitate when it comes to using artificial intelligence (AI). Yet the potential is obvious: AI can significantly increase efficiency through automated analyses, intelligent decision-making logic, and structured data processing—provided it is used in a targeted and differentiated manner.

Why tax departments are ideal candidates for AI

The tasks of a modern tax function are complex and diverse:

• Ensuring tax compliance (declarations, deadlines, retention obligations)
• Calculation, reporting, and payment of taxes
• Advice on business and regulatory issues
• Support with annual financial statements, tax audits, and appeals
• Transfer pricing, sales tax, withholding tax, tax reporting, cash flow optimization

All these activities are based on data—both structured and unstructured—as well as clear rules and decision-making logic. This is exactly where AI comes in.

The three pillars of tax AI systems

(a) Expert systems

Expert systems process tax rules using logical if-then links. They classify business transactions based on tax regulations (e.g., UStG, EStG, AO) and generate traceable decisions – including an audit trail. The advantages:

• Audit-proof
• Transparent (rule-based)
• Quickly scalable
• Can be integrated into ERP systems (e.g., SAP, Navision)

Example: Automated checking of incoming invoices in accordance with Section 14 (4) UStG.

(b) Machine learning (ML)

ML algorithms recognize patterns in large amounts of data – for example, in the classification of business transactions, the identification of tax risks, or the prediction of transfer pricing deviations.

Examples:

• Classification of material master records into “goods” and “services”
• Identification of tax risks in foreign transactions
• Forecast models for effective tax rates or provision requirements

Important: These systems require individually trained models and high-quality data.

(c) Generative AI (GenAI)

GenAI (e.g., ChatGPT) generates new content, analyzes complex texts, and answers tax questions in natural language—based on structured knowledge databases (RAG, vector databases).

Examples:

• Automated creation of statements, appeals, or risk reports
• Review of service descriptions in invoices
• Interactive FAQ bots for sales tax, withholding tax, and transfer pricing

Success factors for AI projects in the tax function

The introduction of AI requires more than just technology. The following factors are crucial:

• Data quality: AI is only as good as the underlying data. Therefore, clean-up of master data, data modeling, and normalization are mandatory.
• Rules and expertise: Without tax expertise, AI remains ineffective. The combination of technology and tax expertise is key.
• System integration: Only those who intelligently integrate AI into existing ERP and workflow systems can exploit its full potential.
• Governance & transparency: Decisions must be traceable – especially in a highly regulated environment such as tax law.

Specific application: Invoice verification with AI

Case study: A-AG

• Problem: Incomplete or incorrect incoming invoices were found during a sales tax audit.
• Consequence: Input tax was denied – resulting in damages in the mid six-figure range.
• Solution: Use of the VAT Invoice Analyzer (combination of GenAI, expert systems, and rule-based audit logic).
• Result: Automated analysis of invoices, structured recognition of tax obligations, identification of deficiencies in accordance with § 14 UStG (German Sales Tax Act), visualization in dashboards, complete audit trail.

Application in the area of withholding tax

Case study: Group with a global service portfolio

• Problem: Lack of overview of withholding tax obligations for international invoices
• Solution: Use of the WHT Invoice Analyzer - AI-supported checking of service descriptions for withholding tax obligations
• Result: Automated classification of services, specification of the legally owed WHT amount, integration into ERP systems

AI is not a panacea – but it is a powerful tool

AI systems are like tools in a well-equipped toolbox. Depending on the task—text analysis, rule checking, forecasting—you need the right instrument:

• GPT for text evaluation
• Expert systems for rule analysis
• ML for predictions
• NLP for document comprehension
• RPA for automated routine processes

AI as a cash flow driver

In addition to process optimization, AI can also generate financial benefits. Example:

• Input tax refund procedure for international travel
• AI recognizes from travel expense receipts whether foreign input tax is refundable. Manual processing is no longer necessary. Result: automated applications, higher cash flow, less effort.

Conclusion: AI as the key to real transformation

• AI can make the tax function not only more efficient, but also more strategically relevant.
• Value creation depends largely on the quality of the data and the clarity of the objectives.
• Using AI in core tax processes frees up time for value-adding consulting and strategic tax planning.

Now is the time to invest in AI-based tax technology. Not only to become more efficient, but also to give the tax department the role it deserves: that of an equal business partner.