Rapidly changing VAT compliance and reporting regulations sweeping across Europe are forcing companies to determine the best – and most cost-effective – way to minimize the risks and burdens of these measures. These companies need to evaluate three key areas - tax/finance, IT and implementation - to calculate the potential return on investment (ROI) of solutions.
If you are preparing a business case on compliance and reporting solutions to present to your board, ROI analysis should be one of the key elements considered.
After assessing whether you need a compliance and reporting solution, companies should review how they have previously handled VAT compliance and reporting, identify what needs to change and look for potential options. From Sovos’ experience, the majority of companies use one of the following three options:
- Outsourcing – Third-party accounting companies manage the entire process.
This option is not sustainable since governments in Europe are starting to require immediate submission of transactional data. Companies must ensure that their reports are consistent to avoid audits and ultimately penalties and fines.
- In-house – Using existing employees or new hires to handle all aspects of IT, tax updates and change management, as well as tax reporting and compliance activities.
This option may seem appealing to companies that have finance and accounting, tax and IT shared services, but it is extremely resource and infrastructure intensive.
- Outsourcing technology to enable in-house compliance and reporting – Integrating purpose-built, cloud-based software within existing ERP systems to automate tax compliance and government reporting.
This option synthesizes the best of the two previous options. It frees IT and tax teams to focus on value-added tasks and projects, and at same the time gives companies visibility and control over their tax data and obligations in an efficient and effective way.
Once companies have identified potential approaches, the next step is to examine the selection criteria and costs associated with each of the following distinct categories:
- Tax and Finance
If you are handling all regulatory research and VAT preparation, generation and submission in house, ask:
- How many full-time equivalents (FTEs) are dedicated to these activities
- How many hours per month do they spend doing them?
If you outsource any of these functions, what is your total annual cost for those vendors?
IT staff must translate VAT regulations into the software your company uses, and maintain and make updates to the software as rules evolve, which is frequent.
- How many FTEs are involved in these activities, and how much time does it take them?
- How much cost is associated with deploying a solution? Consider FTEs if managed internally, or implementation pricing and project management, as well as IT and VAT internal resources, if managed externally.
- How much of your ERP spend is related to VAT compliance?
- What is the cost of storage and on-premise hosting of your current VAT solution?
- Project implementation:
Regardless of the option that you pursue, you need to budget dedicated time and resources necessary to manage or implement the project. Often, companies do not include this crucial point, and common misconceptions about VAT compliance and reporting solution implementation can hinder progress.
To make a well-informed decision, determine the ROI for each option. Sum the applicable components (including the penalties and errors that you will avoid) and compare them against to the total investment (CapEx and OpEx) made in each of the options.
Moving to a tax reporting and compliance technology solution, like the Sovos Intelligent Compliance Cloud, can reduce the costs incurred managing compliance in-house or outsourcing to third-parties. In fact, our clients reduced the time spent preparing a VAT return by 50% and maintenance costs by 80%, while gaining greater accuracy in controls and verifications to minimize the risk of audits and penalties.
Sovos can help analyze your business case and ROI of moving to a VAT compliance and reporting solution. Contact us to get started.
About the Author
Jeroen Wensveen is Solution Principal at Sovos Compliance and is based in Amsterdam, the Netherlands. He has more than 20 years of international indirect tax experience and is currently responsible for the strategy of the Sovos VAT Reporting global indirect tax software application. He works closely with Sovos clients and partners to facilitate sales, software implementations and international compliance process transformations. Before joining Sovos, Jeroen was one of the founding partners of VAT Resource, a leading European VAT services organization, where he focused on building out the European VAT compliance outsourcing practice and the development of VAT software solutions. He has worked on several indirect tax automation projects for large multinational clients. Jeroen is a Tax Lawyer and has a L.L.M. in Taxation from Leiden University in the Netherlands.More Content by Jeroen Wensveen