Madrid-based TaxDown, which automates income tax filing by calculating regional deductions due to users so they don’t have to navigate complex tax rules themselves, has raised €2.4 million (~$3M) in seed funding.
US-based FJ Labs has joined TaxDown’s investment board as it closes the seed round. It says all its previous investors participated in the round, including James Argalas (Presidio Union); Abac Nest, Abac’s venture capital business; Baldomero Falcones, the former Chairman at Mastercard; and the founders of Jobandtalent, Juan Urdiales and Felipe Navío (another Madrid-based startup).
For the past three years TaxDown been offering a service in Spain but is now eyeing international expansion, as well as further growth in its home market.
Last year, it says it managed more than €29M in taxes for users — delivering savings of €4M+ to users.
Its target is to hit 500,000 users in Spain this year. While international expansion is planned for the second half of 2021, with TaxDown saying it’s focused on other European and Latin American markets.
“From the beginning, our ambition has been to help people fill in their taxes all over the world. That is why we developed our proprietary software/tax language that allows a tax expert with no coding capabilities to translate the tax law into calculation and logic that can be interpreted by our backend seamlessly,” says Enrique García, CEO and co-founder. “This tax language allowed us to launch in Spain in 4 months with only one tax consultant. We are confident that we can launch a new country in only 6 months.”
“The tax filing process is far from being simple,” he goes on, explaining how its tech simplifies income tax filing in Spain. “Currently, when using the Spanish Tax Agency tax-filling tool, taxpayers need to manually apply deductions on their tax forms. The problem is, with national regional deductions being different in each region in Spain, taxpayers often do not even know they’re entitled to those deductions. Thus, by not applying them to their tax form, they lose money. What TaxDown does is leverage the advanced Spanish Tax Agency technology, which offers an API to request the financial data related to a taxpayer — always with prior authorization from the user — with 2.000+ datapoints.
“Once we have that, our algorithm ‘RITA’ is capable of understanding the user’s personal and financial data, select the optimum questions that the user needs to answer — an average of 9 over a database of 3.000+ – and precisely calculate the tax return, with no errors.”
“Technology is the heart of TaxDown,” he adds. “Besides our algorithm RITA that has been trained with over 40.000+ tax returns, today we also use AI to help our ‘taxers’ with tips on how to lower future tax bills, and we have started working on live income tax simulation for our users throughout the entire year.”
García says TaxDown calculated more than 42,000 tax returns last year with a team of just two in-house tax experts — thanks to proprietary internal tools which allow them to handle this scale (by being “80x more efficient than the Spanish average”, as he puts it). He adds that further efficiency gains are expected.
“We have developed a machine-learning tool that flags the tax returns that need to be reviewed before filing based on historical data. Thus, we continuously increase the percentage of tax returns that are automatically submitted with no manual intervention,” he tells TC, adding: “Thanks to this feature, we expect to improve our efficiency at least 5x versus last year.”
According to García, TaxDown has never had any filings rejected for inaccuracies because he says its algorithms continually run tests and validate the information with the authorities. “Furthermore, our technology can flag errors in real time in case that there is a discrepancy, so our tax experts can manually check the tax return form if needed,” he adds.
Its business model — currently — is a sort of twist on freemium, in that it will only charge users if the income tax savings it calculates for them exceed €35.
García says that so far an average of three out of 10 users see financial savings from using its tool — but he suggests it’s not only savings that motivate users; he says they also want reassurance that they are taking “the best approach with their taxes: doing them effortlessly, correctly, with all the guarantees, tapping for experts’ live help at any time, ensuring the best result they can get, and of course knowing that we have their backs in case of an audit”.
Given that wider relationship it’s building with users, TaxDown sees potential to evolve its business model by expanding to offer additional fintech services, such as financial advice, in the future.
“Our vision goes far beyond income tax return preparation, we believe that tax data is becoming one of the most valuable data assets for people (take Trump’s tax returns for example), and we want to assess our ’taxers’ based on the best and more qualitative information that we can get,” says García. “Therefore, in the future we want to be a trusted financial advisor not just for taxes, but for personal finances as well. We believe we are well positioned to be an intermediary between our users and financial institutions.”
