How AI and Intelligent Systems are Advancing Indirect Tax Compliance

Indirect tax compliance is undergoing a profound transformation.

Against this backdrop, the adoption of artificial intelligence (AI) and sophisticated tax engines is redefining the role and capabilities of tax teams, amplifying their performance and output within organisations.

From manual processes to intelligent tax engines

Legacy processes, often reliant on spreadsheets and custom ERP code, now struggle to keep pace with the growing intricacies of multi-jurisdictional trade. Manual approaches heighten the risk of non-compliance and inefficiencies, especially as regulatory frameworks evolve.

Intelligent systems, particularly tax engines, automate the application of rates and rules and introduce robust controls that mitigate human error and streamline tax compliance. Critically, AI-supported engines are evolving to deliver not only calculations, but defensible tax positions, supported by human validation.  

The adoption of this technology is fast becoming a strategic imperative. A recent survey by Vertex found that 80% of global tax and finance professionals view digital transformation as essential for business optimisation.

AI’s impact on tax teams

AI is rapidly addressing many of the challenges facing tax teams. Generative models and advanced analytics unify structured and unstructured data - including ERP records, contracts, and regulatory filings - into a single, actionable knowledge base. This shift enables tax professionals to move from manual research and documentation to real-time analysis and strategic decision-making.

In indirect tax, AI is accelerating content updates, improving product classification, and supporting legislative sourcing. For example, AI-enabled processes allow professionals to meet the volume and pace required to map their company’s products to the Vertex tax category tree, which is organised to achieve optimal granularity for each unique indirect tax consequence by jurisdiction, even as regulations change. The result is not only faster updates, but a more robust and defensible compliance framework.

AI’s role is also expanding to include the generation and maintenance of tax rates and rules. Continued categorisation developments are enhancing governance and consistency across tax content, while anomaly detection is streamlining tax compliance.

Research by Vertex shows that AI is already supporting tax functions and e-invoicing in several practical ways, including customer support and query resolution (54%), predictive analytics for cash flow management (50%), and fraud detection and prevention (49%).  

The importance of human expertise

Despite AI’s transformative potential, human judgement and expertise remain indispensable. Indirect tax decisions often depend on nuanced interpretations and contextual understanding that only experienced professionals can provide. To ensure defensibility and auditability, AI outputs must be reviewed by experts and supported by documentation.

Regular reviews, ongoing refinement, and expert validation are key to maintaining tax content, particularly in complex scenarios. A ‘human in the loop’ approach to implementing AI provides strategic oversight and accountability, safeguarding against the risks of automation.

Adopting AI is therefore not solely a technological challenge, but also requires people management. To be successful, businesses must invest in training employees and foster buy-in across all levels, as well as selecting the right technology.  

Towards a scaled indirect tax function

AI and tax engines are catalysts for elevating the tax function’s ability and productivity. Implementing an AI-powered tax engine requires a structured approach, clear communication, and a culture that embraces change.  

By combining technology with human expertise, tax teams can amplify their capabilities and improve governance, trust, and agility. Alongside compliance, the future of tax is about embracing innovation and driving enterprise success at scale.