There is increased interest in tax automation technology (see Figure 1). The reason can be down to the benefits it offers enterprises, such as the promise of regulatory compliance, and error-free and on-time reporting, scalability, and integrability.
Our aim in this article is to delve deeper into these top 4 benefits that companies can enjoy by leveraging a tax automation solution. But it’s not going to be all hypothetical, as we will also showcase some real-life case studies of companies who have managed to successfully reap the benefits of tax automation.
1.1) Expansion of business activities
As the size of the company grows, so will its financial and tax responsibilities. For instance, if a company purchases its own office space, and the office’s value rises, it will have to pay a capital gains tax that wasn’t applicable before, when the company operated out of a rented office.
This allows the tax team to enter the purchase value and current market value of the business property into the software, which then automatically calculates whether gains/losses have been incurred and calculates the tax accordingly.
For instance, a publicly-listed English brewer and pub retailer decided to automate its capital gains tax reporting after it had expanded its property portfolio. They leveraged a Capital Assets Database (CAD) software to automate the process of calculating and paying its capital gains tax on time2.
1.2) Expansion into new geographical markets
Or if the company expands its reach into new geographical markets, its activities will be subject to unique taxing regulations. A company would naturally have to expand its accounting team to deal with these developments.
But the benefit of taxing automation software is that the company’s new international financial accounts can seamlessly be integrated into it at little to no extra cost.
2. Regulatory compliance
Tax compliance comes in different forms. It can range from applying the correct taxing percentage to your company’s income, to remembering to file the returns on the tax day.
An automated taxing solution can automatically search the governmental databases to apply the taxing bracket that your company falls into. This ensures the management that the tax they are paying is in-line with what the government expects them to pay.
For example, a Canadian certified public accounting (CPA) firm needed to quickly understand and apply region-specific tax rates to its activities in order to be compliant with local and international laws, such as the US-Canada Tax Treaties. Thanks to automating their tax filings, they were able to overcome said challenges. 1
Filing your returns on the correct day is also another important factor in keeping with regulations. So, through embedded RPA bots, the tax team can automatically program and schedule the software to pay the company’s taxes on the tax day. And if there are any hiccups along the way, such as an insufficient balance of the company’s account, the software will send the tax team an appropriate notification, informing them of the situation. The rule-based set-up of automated tax solutions means a company is in-line with regulatory compliance and that the possibilities of penalization is minimized.
For the American taxpayers, the IRS (Internal Revenue Service) estimates that, on average, a business taxpayer spends 23 hours preparing and filing their taxes. 2 Automating the process would result in faster and more efficient returns filings because, the software robots would automatically execute the preparation, calculation, and filing of taxes. The other benefit is that it reduces the workload of accounting teams.
For instance, a company was able to automate 80% of its tax-related processes. Tasks such as data entry, processing, validation, and extraction, which were previously done manually by the company’s tax teams became automated. The benefit of leveraging an automated tax software was that it improved the efficiency and speed of data extraction and data cleaning, as well as saving the tax teams’ time and resources.3
A modern business sells through different sales channels. And whether it’s sold its item on its website, through an online retail marketplace, or in store it has to account for it accordingly, and accurately.
Automated tax solutions use API to integrate with a company’s existing ERP business systems. This means that whenever a sale is made and the details of the order are automatically logged in a sales channel’s ERP, the data can then be seamlessly transferred to the tax solution via API and/or EDI. The integration ensures that all applicable taxes for the economic activities of a company or business are accurately calculated on the spot, regardless of where the sale originates.
For example, a digital real-estate company wanted one single tax solution to be integrated into its various ERP systems, such as Zuora. By leveraging a tax automation software, they were able to view their tax liabilities coming from different sales channels and ERPs on its dashboard. The biggest benefit of automating their taxes has been that now, they have a single source of Truth for their taxes. 4
For more on FinTech
If you are interested in learning more about different automation technologies in finance, read:
- Top 10 Technologies Enabling Finance Digital Transformation
- Real-Time Asset Valuation& Asset Accounting Automation
- AP Automation: The First Finance Process to Automate
And if you believe your business would benefit from adopting a FinTech solution, head over to our finance hub, where you will find data-driven lists of vendors for various use cases.
We will help you choose the best tool suited to your needs:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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