Some tax functions are being brought back in-house due to government scrutiny
As tax authorities' scrutiny grows, some firms are defying the outsourcing trend and bringing specific tax services back in-house.
According to tax directors, stricter laws have compelled some businesses to bring their tax activities back in-house in order to have more control over the compliance lifecycle.
It is in line with a global push by tax authorities to implement electronic invoicing and live reporting for companies.
Tax risk management, according to Susie Cooke, partner and national tax transformation leader at KPMG in Toronto, is the main driver behind certain companies' increased in-house tax knowledge.
According to her, "There is increasing scrutiny on tax, the tax organisation and, in some cases, the CFO and finance team."
Some businesses have responded to this by seeking more ownership, control, and transparency over their tax-related activities.
According to Francesca Farina, indirect tax manager of global heating systems provider Ariston Thermo Group in Milan, tax responsibilities have also become increasingly crucial to the business strategy and success of several multinationals, particularly when they expand worldwide.
Farina refers to the in-house change by saying, "That’s the right choice."
She claims that developing internal knowledge and completing activities in-house might occasionally be more cost-effective for businesses while assuring stronger internal controls and data quality.
The three basic justifications for businesses bringing back internal tax functions are as follows: Increased control, data security, and digitalization.
The first discusses the control mechanisms offered to enterprises when they hand over management of tax-related operations to outside parties.
Tax teams have been more vocal about wanting more control over operations and how tasks are carried out. This makes it possible for tax teams to respond to any technical or compliance concerns more quickly.
This opinion is shared by Benoît Labiau, EMEA head of tax and treasury at medical technology company Terumo Europe in Brussels, who also notes that some businesses seek to keep the expense of their outside consulting to a minimum.
Dissatisfaction with certain outsourcing companies' high personnel turnover appears to be another reason influencing businesses to move tax operations in-house.
According to Labiau, "[Companies want] better csontrol of the process and not to be dependent on external advisers where teams often change."
He does, however, issue a warning that most organizations will probably find it difficult to establish internal tax knowledge.
It calls for experienced personnel, excellent automation tools, and the dedication of time to employee training.
Given the intense rivalry for tax specialists, as well as inflation and the high expenses associated with purchasing technological solutions, these can be particularly difficult to achieve.
Matthias Luther, associate partner for indirect tax at EY in Hamburg, argues that it is crucial for companies to thoroughly examine the reasons behind the duties they must outsource.
He contends that the core of a company's outsourcing strategy should be the development of processes and procedures that can be easily transferred to external workers for usage right away.
According to Luther, "The reality is that businesses struggle with their internal processes and outsource [services] in the hope that the external provider will solve their issues."
Using third parties to accomplish jobs may be a quick answer, but it still requires businesses to go through the tough process of creating efficient internal processes.
The second factor driving businesses' return to internal job completion is data security and quality control.
Businesses face some tax risks as a result of the expansion of real-time reporting and the need by international tax authorities for massive volumes of transaction-level data.
According to Cooke, outsourcing these transactional tasks can be challenging unless outsourcing companies put in a lot of effort to persistently pursue data from internal tax teams.
According to her, more businesses are beginning to understand the difficulty involved in attempting to outsource some highly integrated jobs. Given the extent to which internal workers frequently need to go in order to acquire the necessary tax information, this is especially pertinent.
Additionally, there are substantial advantages to be had by internalizing tax functions.
"Organisations can gain end-to-end ownership of the [tax] activities, data and documentation, which may make it easier to respond to audit queries," according to Cooke.
The use of technology to comply with governmental rules on live reporting comes in third on the list of justifications.
Companies have legitimately been afraid of breaking the rules for live reporting and e-invoicing compliance and paying fines.
The automation of labor-intensive tasks that were previously outsourced out to other parties has also been greatly aided by technology, according to Martin Coquery, global indirect tax director at Technicolor, a producer of communications and media equipment with headquarters in Paris.
"This makes it critical for corporations to be responsive and to avoid intermediaries such as outsourcing service providers," according to Coquery.
Utilizing automation solutions also helps firms be more nimble when it comes to improving internal procedures or resolving technological problems.
The internal information flow inside organizations may be enhanced by outsourcing tax operations.
According to Luther, sharing information internally through local communication networks is frequently simpler than doing it outside with contractors.
Coquery concurs that communicating with external parties may be difficult, particularly when working on complicated projects.
According to Coquery, "Tax firms often come with their own online collaboration platforms which cannot be seamlessly integrated with their clients’ systems."
He claims that while this could be appropriate to safeguard private corporate conversations, it complicates projects and audit trails unnecessarily.
When exchanging sensitive data or under regulatory pressure to send data to tax authorities, this disparity in procedures and information channels may be an issue.
Not everyone, meanwhile, is confident that most organizations would benefit from changing course on outsourcing.
The argument for bringing back activities in-house might be a possibility, according to David Peeters, senior director of worldwide indirect tax at energy provider World Fuel Services in the US, if businesses can create completely automated, centralized, and affordable indirect tax capabilities.
They would also be able to take advantage of economies of scale while keeping any increases in the price of processing each tax return to a minimum.
Few companies, according to him, have successfully integrated technology into their operations on a broad basis. Therefore, it still makes sense for the majority of organizations to outsource indirect tax compliance tasks to avoid using valuable staff time on low-value tasks.
"A lot of companies are actually outsourcing for reasons of business continuity, to mitigate risks of losing staff and for scalability," according to Peeters.
Of course, the final choice on whether to outsource or bring back internal tax duties rests with each individual business. There appears to be no place like home for some people.
By fLEXI tEAM