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TBI Expert View is our focused look into the evolving world of global VAT and what changes companies should be considering and planning for.
In Episode 5 of Series 1 of TBI Expert View, Barbara Barcsik, our Global Director of VAT Compliance & Advisory, discusses how businesses can use outsourcing of their VAT compliance needs to continue growing.
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 take 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.
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.
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:
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.
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.
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.
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.)
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.