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Data-Driven and AI-Fueled: The Future of Tax Analytics

Analytics Automation   |   Andy MacIsaac   |   Feb 6, 2024

Enormous changes are underway in the world of tax analytics. As with so many things, AI looks poised to turn it upside down. I sat down recently with Mike Matias, Senior Manager of Digital Transformation & Innovation at BDO, to talk about these seismic shifts.

The future of tax analytics will be data-driven and AI-fueled. It will be boosted by the rise of prescriptive analytics, and it will spread like wildfire as more tax professionals become tax technologists with advanced analytics chops.

No one knows the future, but sometimes we get an inkling of what it will look like. How do we know this in terms of tax analytics? Because, as with most things related to analytics and AI, companies and the people who run them will always be drawn to things that help them make smarter – and faster – decisions.

The evolution of tax analytics

The changing face of tax analytics is a technology story at its core. But it’s really a story about how people are leveraging that technology to try and mitigate the impacts of economic fluctuations and other headwinds.

A recent BDO survey revealed the five main challenges tax functions are facing right now:

  • Cost and increases in total tax liabilities
  • Risk and rising complexity
  • Efficiency and being asked to do more with less
  • Talent shortages
  • Disputes – As the world’s economy and tax rules get more complicated, we’re seeing more and more tax arguments popping up.

Companies can attack these challenges head-on by doubling down on training, outsourcing work they think is beyond them, or adopting tech platforms and teaching employees to use them. Mike Matias told me that he thinks tech is the most prominent driver.

“It makes the adoption of tools like Alteryx critically imperative to organizations,” he said.

When we consider the recent evolution of tax analytics and the move from conventional methods to AI and analytics-driven approaches, it’s hard not to notice the role that scale has played. With ever-increasing volumes of data, businesses began adopting advanced analytics tools. They embraced data visualization and reporting tools. And, somewhat inevitably, they started turning to AI and machine learning technologies to help supercharge their tax analytics efforts. Their next trick? To go from predictive models to prescriptive ones.

The future is prescriptive

When we talk about Predictive Analytics as part of a tax strategy, we mean using algorithms, machine learning and data analysis to be able to forecast future trends and outcomes. The idea is to use historical (and current) data to make better decisions, prepare for issues, and optimize related strategies.

In this tax environment, there are some core capabilities organizations need to have. Data quality and accuracy. Cross-platform integration. A way to scale and adapt to changing dynamics. Security and data governance. Advanced analytic skills – and not just on your core data team.

You need to be able to look broadly at what is happening and what actions may be needed. Where is the problem? Where should we focus our attention? What’s the best or worst that could happen in the future? Can we model different behaviors, scenarios, and decisions to understand possible impacts? You want the ability to look around the corner, so to speak.

Predictive Analytics are a great start, but Prescriptive Analytics are really the new frontier. Here, we start using more advanced analytics techniques to get real guidance and actionable recommendations based on previously defined optimal tax strategies. Rather than focusing on the past, prescriptive analytics suggest specific courses of action that are most likely to achieve certain desired outcomes in the future. With that type of vision, you can begin to automate your decision-making and give your company the greatest chance of success.

The shift from predictive to prescriptive analytics is the secret sauce in the digital transformation of a tax department. It is a change of perspective from looking back to looking forward. And it leaves you with a much higher level of confidence that the decisions you make today will have a positive cascading effect tomorrow.

Overcoming analytics adoption challenges

It might surprise some people to learn that the biggest challenges companies encounter are not around new technologies themselves but rather around colleagues who may be hesitant to climb aboard.

In order to establish a data-driven culture, you must communicate the upside of new tax technology to those in your organization (from the C-suite on down) and explain how automation and AI support business objectives.

In our chat, Mike talked about what BDO is doing to turn their tax professionals into tax technologists. “We recognize the need to upskill all of our tax professionals,” he said, “with what we’re calling a data-driven mindset and to equip them with the tools that they need to navigate the changes occurring within our industry.”

Mike had four great suggestions on how your organization can overcome those pesky (human) hurdles and get started on its tax analytics transformation:

  1. Start small and make simple process improvements where you can.
  2. Leverage existing software capabilities you may have overlooked.
  3. Make friends in other departments, as they may already have access to data or data providers that can help you.
  4. Once you’ve made use of what is there and established your commitment, build a business case to direct more resources to this technology.

BDO and Alteryx: a data-driven mindset

If you’re looking for an example of how your company could approach tax analytics in the future, look no further than BDO. BDO started in 2020 with a small pilot, distributing Alteryx licenses to their tax automation team and to tax professionals in the business whom they dubbed “citizen developers.” By doing this, they were able to establish value. Then, they built out automations for a few larger clients and recognized additional value simply due to the volume of work they were able to take on. They established Alteryx as a business-critical application for those clients, which made a difference as they looked to expand it within their organization. Wins from their citizen developers further boosted their ROI.

To expand their Alteryx rollout, they created a tax analytics program for 80 tax professionals from across the business, gave them 6 months of training, and got them certified. Then, they broke them into 20 groups and tasked each with identifying a process or data challenge they wanted to solve using Alteryx. They asked each group to quantify the annual savings for each of these and made the case to management that they could pay for it with time savings thanks to Alteryx workflows. It worked.

Mike and his team turned those 80 trained professionals into Alteryx champions, establishing a monthly user group community and increasing engagement along the way. At last check, 90% of BDO’s license holders had been active within Alteryx in the previous thirty days. The results point toward the kind of sustained use that can really drive long-term success.

BDO turned their tax professionals into tax technologists – people with a data-driven mindset. That, my friends, is how you do it.

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