As multinational companies expand their operations around the world, new anti-avoidance measures and new laws are being enacted to ensure that tax authorities receive part of the revenue generated in their jurisdictions. As a result, in-house tax departments are facing complex reporting requirements in different jurisdictions, increasing the time they spend on compliance work and preventing them from focusing on more strategic planning that adds value to the business.
To solve this problem, we are seeing many multinational companies outsource aspects of their tax function such as compliance and transaction work ---- giving financial directors more time and energy to support the business.
An increasing number of global organizations are choosing India for outsourcing for reasons such as cost-effective services, increased productivity, shared risks, reduced operating costs, quality of the technically skilled workforce and increased efficiency. Using shared service centers and outsourcing tax accounting and tax compliance functionalities offers the following benefits:
- Increased focus on strategic and high-value activities;
- Improved control, accuracy and timing of tax functions; and
- Diversification of qualified tax and accounting professionals across different jurisdictions.
Not all outsourcers are the same. Some are more aggressive and see outsourcing as radical business model that can change their industries. Others see it as a way to modernize their outdated office operations to better compete. A few others see it as a way to downsize their workforce. Some of our creative clients see it as a way to free up more expensive skilled professionals, such as engineers and salespeople, from routine tasks so they can focus on value creation and spending more time with customers. By outsourcing tax compliance, a tax vice-president can better utilize skilled tax professionals to concentrate on more strategic considerations.
Benefits of Outsourcing to India
We have seen many companies outsource some of the non-core tax and accounting compliance functions to shared service centers in India. The government of India is extremely supportive, providing tax holidays and other incentives to foreign companies setting up shared service centers in India. Also, the education system in India releases over two million graduates each year with proficiency in English and strong technical and quantitative skills. Therefore, Indian shared service centers offer access to highly educated professionals, who often hold CAs (equivalent to CPAs), MBAs and master's in accounting degrees.
Another benefit is that turnaround time can be faster as a result of time zone differences. For example, because India is 10 hours ahead of the eastern U.S., a project sent to India at the end of a business day in the U.S. can be returned by the start of the next business day in the U.S.
Coordination Across National and International Tax Jurisdictions
Most commonly, companies are outsourcing their tax compliance functions, such as sales and use tax compliance, corporate tax return preparation and expatriate tax returns to make their tax departments more efficient.
For example, these companies might benefit from outsourcing their sales and use tax compliance when they expand to different states, have significant sales and use tax obligations, or move operations into states that impose sales and use tax at both the state and local levels.
For companies with global operations, preparing corporate tax returns can be challenging, complex and time-consuming. It requires the coordination of tax information among offices in different countries and requires that members of the tax team work full-time on tasks that are unattractive to the modern tax team, such as data gathering, account reconciliation and data entry. Outsourcing tax compliance has helped in-house tax departments devote more time to focus on business strategies, which adds value to the corporate tax department.
Typically, it is difficult for an in-house tax department to have expertise across different tax jurisdictions around the world. It is usually more feasible and cost-effective for a company to appoint a single provider and outsource its expatriate tax compliance.
Tax departments are running more efficiently as they automate their tax functionalities (by using programs such as Tax Stream for FAS 109, One Source, Corp Tax and Vertex). The next phase for many companies is to outsource routine tasks. By doing so, more time is available for qualified members of the tax team to add value to the business. They have more time to focus on strategic planning, to collaborate with tax departments in different jurisdictions and to convert strategic planning ideas into actionable transactions.
Alvarez & Marsal Taxand Says:
Using a shared service center for select tax and accounting compliance functionalities is becoming a best practice. The savings from lower labor costs can be appealing. But it is the impressive gains in efficiency, quality and productivity that have led companies to use shared service centers for tax. We have seen companies successfully use Indian shared service centers to free up their tax department to focus on strategic planning transactions, driving growth and improving margins.
When considering outsourcing to a shared service center in India, focus on the following:
- If there is a big turnaround of employees in your tax department, look at the reason why people are leaving. One of the reasons could be that employees are working crazy hours with no work-life balance. Could outsourcing solve this problem?
- If your tax department is not focused on supporting the business, driving growth and improving margins, but rather is focused on tax accounting and tax compliance, think about outsourcing tax compliance to give your tax department the time and energy it needs to support the business.
- Overhead costs can be reduced by automating and then outsourcing some of the tax and accounting functionalities. Consider getting appropriate tax software and putting an automated system in place that can collect the correct data, which can be then outsourced to the shared service center for verification and processing.
Senior Director, Washington DC
+1 212 688 4241
SPOTLIGHT: With over 14 years of experience in international tax compliance, Rajesh specializes in advising large multinational corporations on how to benefit from outsourcing non-core tax and accounting functions to shared service centers in India. In doing so, he has helped his clients increase productivity and efficiency, reduce operating costs, and focus on strategic planning that adds value to their businesses.
Albert Liguori, Managing Director, contributed to this article.
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The information contained herein is of a general nature and based on authorities that are subject to change. Readers are reminded that they should not consider this publication to be a recommendation to undertake any tax position, nor consider the information contained herein to be complete. Before any item or treatment is reported or excluded from reporting on tax returns, financial statements or any other document, for any reason, readers should thoroughly evaluate their specific facts and circumstances, and obtain the advice and assistance of qualified tax advisors. The information reported in this publication may not continue to apply to a reader's situation as a result of changing laws and associated authoritative literature, and readers are reminded to consult with their tax or other professional advisors before determining if any information contained herein remains applicable to their facts and circumstances.
About Alvarez & Marsal Taxand
Alvarez & Marsal Taxand, an affiliate of Alvarez & Marsal (A&M), a leading global professional services firm, is an independent tax group made up of experienced tax professionals dedicated to providing customized tax advice to clients and investors across a broad range of industries. Its professionals extend A&M's commitment to offering clients a choice in advisors who are free from audit-based conflicts of interest, and bring an unyielding commitment to delivering responsive client service. A&M Taxand has offices in major metropolitan markets throughout the US., and serves the U.K. from its base in London.Alvarez & Marsal Taxand is a founder of Taxand, the world's largest independent tax organization, which provides high quality, integrated tax advice worldwide. Taxand professionals, including almost 400 partners and more than 2,000 advisors in nearly 50 countries, grasp both the fine points of tax and the broader strategic implications, helping you mitigate risk, manage your tax burden and drive the performance of your business.