Generative Artificial Intelligence (GenAI) is on the rise, offering organisations new opportunities. Marvin de Ridder and Daan Meerdink, experts in tax control at PwC, question whether GenAI could be the key to successfully establishing a Tax Control Framework (TCF).
GenAI is currently a hot topic, capable of creating new content such as text, images, videos, audio, or software code. As consultants, this raises the question: to what extent can GenAI facilitate or even improve the setup of a Tax Control Framework?
To ensure an organisation adequately manages its tax obligations, it is essential to establish a Tax Control Framework (TCF). Setting up such a framework involves several components, including formulating a fiscal strategy, mapping and documenting roles, responsibilities, and processes, identifying risks, formulating control measures, and creating a monitoring and testing plan.
AI can help set up such a plan by gathering data from the aforementioned TCF documents and making recommendations for suitable monitoring activities. GenAI can also be used to articulate the results of various monitoring activities in reports on the progress of these activities.
There are many ways in which GenAI can assist in setting up a Tax Control Framework. However, there is a caveat. How practical is the generated content, and to what extent can you trust the outcomes? The way you formulate a 'prompt,' the written command given to the AI tool, significantly influences the answer. GenAI models are trained on human language.
A broadly formulated question like 'create a tax strategy' will likely yield an answer, but often not the desired one. Additionally, the answer may be based on training data that might not be up to date with recent regulations or the latest version of certain standards.
Specifically formulating the prompt and including relevant criteria as a framework, such as guidelines from the Dutch Tax and Customs Administration's Supervisions of Large Businesses in the Netherlands or the VNO-NCW Tax Governance Code, will lead to a much more accurate result. Some prior knowledge is therefore necessary to verify the accuracy of an answer and to properly guide GenAI.
There can also be a so-called 'bias'. This mainly occurs if the prompt steers in a certain direction.
Governments have started implementing regulations for the responsible use of AI. Since August 1, 2024, the EU AI Act has been in effect. This European regulation applies to anyone who creates, uses, imports, or distributes AI systems in the EU, regardless of where they are based. Its goal is to protect EU citizens with uniform standards while promoting value creation in the field of AI. The UK tax authority, HMRC, also emphasizes the importance of responsible use of artificial intelligence. The HMRC has recently published guidelines for implementing Tax Control Frameworks. These guidelines highlight several points for the use of artificial intelligence in activities such as processing transactions and assigning the correct tax codes. For example:
It is challenging to trace the source of information used by GenAI to generate content. An answer may also contain content protected by copyright, leading to unintentional plagiarism. Conversely, there is a risk that users share sensitive information, which then becomes part of the training data and accessible to third parties, especially with free or public AI tools.
Proper training to effectively and safely use GenAI can help avoid the mentioned drawbacks. Think of courses on writing good prompts and being aware of AI pitfalls. In short, while GenAI can be a powerful tool for improving the technical and procedural aspects of a TCF, the human factor remains essential for its success.
It is therefore important to consider the following aspects:
Director, PwC Netherlands
works within the tax practice of PwC Netherlands and is based in Rotterdam. He has over twenty years of work experience in various fields, such as finance, controlling and tax risk management.Senior Manager, PwC Netherlands
works within the tax practice of PwC Netherlands and is based in Amsterdam. Within the practice, he focuses on tax strategy & operations.