Episode 5 – Five Essential Factors to Understand Your Outsourcing Needs

As Barbara Barcsik, our Global Director VAT Compliance & Advisory puts it, a company often reaches a crossroads in the growth of their company when outsourcing becomes a concern. With that in mind, what steps can a business to tackle this decision in the best way possible?

Watch our Global Director VAT Compliance & Advisory, Barbara Barcsik discuss Outsourcing in VAT

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Read what our Global Director VAT Compliance & Advisory, Barbara Barcsik has to say about Outsourcing in VAT

As Barbara Barcsik, our Global Director VAT Compliance & Advisory puts it, a company often reaches a crossroads in the growth of their company when outsourcing becomes a concern. With that in mind, what steps can a business to tackle this decision in the best way possible?

Barbara Barcsik, our Global Director VAT Compliance & Advisory, offers five essential factors that need to be understood before outsourcing. Plus, a sixth factor which is often overlooked.

To start off, let’s look at some of the reasons why a business would choose to outsource their indirect tax needs.

Why would a business want to outsource?

One of the key driving factors is often simply down to cost reduction.

As Barbara points out, businesses can quickly calculate costs based on Full-Time Employees (FTEs), tax engine licensing fee elimination, as well as other additional administrative cost elements. However, it quickly becomes clear that there are other factors to be navigated in order to successfully such an organisational shift.

An Increasingly Complex Matter

Questions of costs quickly evolve into other adjacent concerns, such as, which service provider can give the service needed? What services or scope of services are required?

In one Google search, it’s possible to find a list of highly qualified service providers. Each one offering businesses the widest range of taxpayer services you could imagine. However, just because they are comprehensive doesn’t mean they’ll be cost-effective or target your specific business concerns.

These considerations can quickly become overwhelming.

So what’s the right choice for YOUR business? Here are five essential steps:

1. Defining Your Company Goals is Key

As a business, understanding your primary and secondary goals is fundamental to figuring out the kind of service you require. Unfortunately, there is no easy way to figure this out. It requires a brutally honest and careful consideration of your company and its capabilities.

Fortunately, Barbara provided a number of focused questions to guide the discussion on your capabilities and requirements.

1. Is this service for keeping to all legal deadlines and having visibility about the status of each return?

2. Does your company want to free up time for the existing in-house indirect tax team to support more complex advisory projects across the group?

3. Is this about dealing with the heavy legwork around the incomplete and inaccurate data?

4. Is this about decreasing the exposure of the company to the fluctuation within the compliance team?

5. Is this more about supporting the decision-making process of other departments and, on the management level, with underlying relevant statistical analyses?

6. Is your business after undergoing a merger or acquisition, in which case is this about adjusting and standardizing various ERP systems and the related compliance processes?

For more examples of key discussion questions, check out the full TBI Expert View video.

2. Understand Your Companies Current Capabilities

After establishing your company goals, it’s necessary to evaluate the current capabilities of the business. This will be crucial for supporting the service provider during the transitional period.

Many outsourced providers claim to solve all problems simply and smoothly but this is rarely the case. The reality for every business is a transitional process that can range anywhere from two to six months. (Global businesses may be onboarded in phases for a year or more.)

Remember this is a service you hope to benefit from for many years to come. It’s critical to work with a service that prepares and manages the transition of your business knowledge and data confidently and confidentially, regardless of timeline.

3. What will your company look like after reorganisation?

A reorganisation of your company structure can be a concern for businesses. This comes back to understanding the full scope of your required services. But before engaging in the process of outsourcing it’s necessary to will it be a strongly centralized tax team with a local finance support?

In that case, the classic end-to-end compliance process might suit best. This is where the data is provided by the company (or even extracted directly out of the EPR system with EPI / API solution, provided that the security measures allow you to do so). Preparation is done by the service provider while approval is kept with the centralized tax team. This ensures a transparent overview.

Needless to say, under this scenario country VAT expertise and even various foreign language capability is essential from the service provider. It often comes as a surprise, especially for overseas companies, that even within the European Union, language presents one of the main barriers for dealing with tax issues.

4. Factors to reflect on when choosing an extensive service.

When choosing an extensive compliance service your business should make sure that apart from extensive VAT knowledge, the service provider should also have a high level of accountancy experience, too. Preferably, compliance team members should have an in-house background.

With a more mature organization, it might be that only some data checks may be needed to support the in-house return preparation process. In this case, a service provider with expertise of an advisory nature might be required. They can effectively scan the transaction flows of the company to come up with the entity-specific reporting rules that drive efficiency and the completeness of the return preparation process.

A dedicated IT team will also ensure quick development and flexibility around regulatory changes and swift system configuration in line with changes in the scope. For example, adding to or excluding entities from the platform.

Increasingly, boutique advisory firms are being seen to build up the expertise and have started to become real competitors to the Big 4 companies in configuring tax engine functionality. (E.g SAP S4 HANA or for various tax determination tools in cooperation with the in-house project team.)

5. What to look for from third-party providers

  • Process-driven compliance – the ideal service provider should have clear, standardized processes around compliance or around updating the tax technology platform. This should include built-in safeguards and control points described in detail and shared.
  • Reasonable agility should be present to adapt to the continuously changing legal and economic environment.
  • Innovation fostering – It might be good to launch a conversation about recent technology development of the service provider or even about the future roadmap if it could be disclosed. But even a retrospective journey, for example, about the development of the templates or the dashboard solution could give us a reasonable hint about their actual in-house development capability.
  • Possibility to extend the scope even in terms of onboarding new countries.
  • Deadline driven process management tool is used to manage external statutory deadlines and internal process steps.
  • File structure is clear and data security measures are applied to avoid data loss.
  • Newsletters, blogs etc. which reflect the local compliance expertise of the company providing insightful, practical approaches to compliance-related matters instead of just general headlines.
  • Advisory capacities should also be available if needed, going hand-in-hand with professional integrity in judgement calls on compliance and VAT related matters.
  • Stability of team – However, knowledge retention should be ensured in other ways (e.g. master files etc).

The Human Factor

The last element Barbara highlights is, in her opinion, unworthily underestimated. This is, of course, the human factor.

At the end of the day, a business will have to work closely with whichever service and the people behind that service for many years. These are going to be people you must rely on during challenging times, having your back and supporting you to prove your decisions internally.

In one way or another beyond cost reduction, procedural safeguards, and country expertise, what we are engaging here is establishing one cohesive team and we should not forget this fact. While cost reduction might be the main driver for outsourcing compliance services, it is far from the last factor to consider.

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