Use of Artificial Intelligence for Tax Planning Optimization and Regulatory Compliance

Abstract

Integrating Artificial Intelligence (AI) into financial systems has revolutionized numerous aspects of tax planning and regulatory compliance. This research explores the transformative role of AI in automating tax processes for both individuals and corporate entities. The study investigates how AI-based tools, particularly those leveraging machine learning and natural language processing, optimize tax burdens, detect anomalies in tax returns, and ensure compliance with increasingly complex domestic and international tax regulations. A multi-method approach was employed, combining a critical literature review with simulated model testing and analysis of current industry practices. The paper examines the efficiency of AI in identifying tax risks, automating transfer pricing assessments, and enhancing decision-making in tax consulting. Various AI models—including decision trees, neural networks, and anomaly detection algorithms—were evaluated for their performance in predictive accuracy and compliance automation. Visual tools such as charts, tables, and workflow diagrams are used to support the comparative analysis and demonstrate the effectiveness of AI applications. Key findings indicate that AI can reduce tax compliance time by up to 40%, improve anomaly detection accuracy by over 85%, and significantly minimize manual errors in tax reporting. However, the study also identifies critical challenges, including data privacy risks, algorithmic bias, and the interpretability of AI decisions in legal contexts. The implications of this research are twofold: First, AI presents a scalable and adaptive solution for tax optimization and regulatory alignment in an increasingly digitized global economy. Second, organizations must adopt ethical AI frameworks and robust data governance policies to mitigate the associated risks. This study serves as a foundational reference for policymakers, financial technologists, and tax professionals aiming to harness AI for smarter, compliant, and efficient tax systems.