Madrid-based TaxDown, which automates income tax filing by calculating regional deductions for users so they don’t have to comply with complex tax rules themselves, has EUR 2.4 million (~ $ 3 million) of start-up funding upset.
US-based FJ Labs has joined TaxDown’s investment board as it completes the startup round. All previous investors are said to have participated in the round, including James Argalas (Presidio Union); Abac Nest, Abac’s venture capital business; Baldomero Falcones, the former chairman of Mastercard; and the founders of Jobandtalent, Juan Urdiales and Felipe Navío (another startup based in Madrid).
TaxDown has been offering a service in Spain for the past three years, but is now aiming for international expansion and further growth in its home market.
In the past year, taxes of more than EUR 29 million were managed for users, saving users over EUR 4 million.
The aim is to reach 500,000 users in Spain this year. While international expansion is planned for the second half of 2021, TaxDown is focusing on other European and Latin American markets.
“From the beginning, our goal has been to help people raise their taxes around the world. That’s why we developed our proprietary software / tax language that allows a tax professional with no coding skills to translate the tax law into calculations and logic that can be seamlessly interpreted by our backend, ”says Enrique García, CEO and Co-Founder. “With this tax language, we were able to start with just one tax advisor in Spain within four months. We are confident that we can start a new country in just 6 months. “
“The tax return process is far from easy,” he says, explaining how his technology simplifies filing tax returns in Spain. “Currently, taxpayers are required to manually apply deductions to their tax forms when using the Spanish Tax Authority’s Tax Completion Tool. The problem is that often taxpayers do not even know they are entitled to these deductions as the national regional deductions are different in each region in Spain. If you don’t apply them to your tax form, you will lose money. TaxDown uses the advanced technology of the Spanish tax authority, which offers an API, to request a taxpayer’s financial data – always with the prior consent of the user – with more than 2,000 data points.
“Once we have that, our ‘RITA’ algorithm can understand the user’s personal and financial information, select the optimal questions the user needs to answer – an average of 9 over a database of 3,000+ – and calculate the tax return accurately with no errors. “
“Technology is at the heart of TaxDown,” he adds. “In addition to our RITA algorithm, which has been trained on more than 40,000 tax returns, today we are also using AI to give our ‘taxpayers’ tips on how to reduce future tax burdens, and we have started working on a live income tax simulation for our users that all year round. “
According to García, TaxDown, with a team of just two in-house tax experts, has calculated more than 42,000 tax returns in the past year – thanks to proprietary in-house tools that allow them to handle this scale (by being “80x more efficient than the Spanish average,” says it) . He adds that further efficiencies are expected.
“We developed a machine learning tool that flags tax returns that need to be verified against historical data before filing. We are therefore continuously increasing the percentage of tax returns that are submitted automatically without manual intervention, ”he told TechCrunch, adding:“ Thanks to this feature, we expect to be able to improve our efficiency by at least five times over the previous year. “
According to García, TaxDown has never rejected applications for inaccuracies because, in his opinion, the algorithms are continuously testing and validating the information with the authorities. “In addition, our technology can report bugs in real time if there is a discrepancy, so our tax experts can manually review the tax return form if necessary,” he adds.
The current business model is kind of a twist on freemium as it only charges users if the income tax savings they calculate exceed € 35.
So far, according to García, an average of three in ten users see financial savings from using the tool. However, he suggests that it is not just savings that motivate users. He says they also want to be sure that they are “taking the best approach to their taxes: they have to be effortless, accurate, with full guarantees, and have live expert help at all times to make sure they do achieve the best possible result, and of course to know that we have our backs in the event of an audit ”.
Given the broader relationship with users, TaxDown sees the potential to further develop its business model by adding additional fintech services such as financial advice in the future.
“Our vision goes far beyond preparing income tax returns. We believe that tax data is becoming one of the most valuable pieces of data for people (like Trump’s tax returns) and we want to evaluate our ‘taxpayers’ based on the best and most qualitative information we can get, ”says García. “That’s why we want to be a trustworthy financial advisor in the future, not only for taxes, but also for personal finances. We believe we are well positioned to be an intermediary between our users and financial institutions. “