Efficient process optimization and cost reduction

From individual processes to end-to-end solutions − Managed Services in tax departments

  • Article
  • 6 minute read
  • 26 Apr 2024

At a time when companies are increasingly looking for efficient and cost-effective solutions, the integration of Managed Services into tax departments is a promising option. Managed Services allow companies to hand over selected processes to a Managed Services Provider that provides expertise, technology and infrastructure. This article explores the opportunities and benefits of using Managed Services in tax departments.

The key facts in 30 seconds

  • Tax departments face challenges such as constantly changing tax legislation, the selection and implementation of appropriate systems and a shortage of skilled staff. By leveraging Managed Services, companies can overcome these challenges while optimizing their tax processes.
  • Managed Services offer a wide range of applications and uses. Organizations can hand over specific processes or the entire control function to a Managed Services Provider as an end-to-end solution, depending on their needs.

Managed Services as a building block of a modern tax department

Today’s challenges for tax departments

Today’s tax departments operate in a complex and ever-changing environment. One of their main difficulties is that tax legislation is constantly changing at local, national and international levels. To ensure that companies meet their compliance requirements at all times, tax departments must keep abreast of new regulations and legislative changes. In particular, the increasing complexity of tax reporting is putting pressure on companies − and the demands in this area will increase significantly in the coming years.

Selecting and implementing the right tools and technology is another challenge for tax departments. For example, the use of technology for data analysis enables informed decisions to be made. However, tax departments must ensure that they have the resources and skills to use this technology. Selecting and implementing the right systems requires expertise and careful planning. This is the only way to ensure that new systems and technologies actually meet the tax department’s needs and can be seamlessly integrated into the existing infrastructure.

Technological developments are also driving changes in the tax profession: In addition to traditional tax knowledge, skills in data processing and analysis and the use of modern technologies are becoming increasingly important.

A related challenge is the shortage of tax professionals. The lack of qualified professionals with the necessary skills is preventing companies from realizing the full potential of their tax departments.

From complete solutions to individual processes: the wide range Managed Services application in tax

The dynamic (tax) environment is forcing companies to rethink and consider new solutions. Managed Services offer them a way to relieve and optimize their tax departments.

Managed Services can be used in a variety of ways to address the complexity and unique needs of tax departments. They can choose to outsource their entire tax function or to outsource specific processes to a Managed Services Provider.

Outsourcing the entire tax function

To enable companies focussing on their core competencies, they can outsource the entire tax function to a Managed Services Provider. The entire (global) tax lifecycle is efficiently and cost-effectively covered by one provider − from tax planning and reporting to defending against tax authorities. The focus is always on meeting all compliance requirements.

Companies benefit from experienced tax experts on call. Whether for regular activities, special issues or peak workloads, companies can access the expertise they need without having to dedicate in-house resources. A good provider will ensure that working with tax professionals is seamlessly integrated into the company's way of doing business, maintaining an in-house feel for the business.

Another important aspect of Managed Services is the high level of technology. With total outsourcing, processes can be holistically optimized with the help of the latest technologies, making them more efficient.

Integration of accounting and taxes

Due to the close interoperability between accounting and tax, it is self-evident to develop joint solutions. If one area is outsourced to a Managed Services provider, the other should be taken into account. The goal is to minimize the coordination effort and optimize the processes holistically, so that companies can benefit from efficient and accurate transaction recording and automated data transfer for tax returns. Finally, incoming and outgoing invoices must be correctly assessed from a tax perspective, so that the accounting can form the basis for various tax reporting obligations. This is especially true for VAT, but also for income tax reporting: There are a number of areas where reporting requirements will become even more complex and burdensome in the future. DAC 6 and Pillar 2 are just two examples.

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Outsourcing of specific processes

For companies that do not wish to outsource their entire tax function, Managed Services also offer solutions for specific sub-areas. Examples include tax filing, tax reporting and tax compliance management. These responsibilities can be broken down into even smaller processes, resulting in a large number of process modules that can also be handed over to a provider, regardless of their size.

One process module that lends itself to outsourcing, for example, is the processing of voluntary disclosures due to accounting errors. The provider’s expertise and automated analyses help companies to identify potential risks related to voluntary disclosures and tax audits at an early stage.

Here is an example from our project practice: In the course of a voluntary disclosure and tax audit, an investigation by the accounting department revealed that a significant number of entries (approximately 44 percent) had been handled incorrectly. These had to be included in the voluntary disclosure. At the request of the tax auditor, the investigation period had to be extended on an ad hoc basis, bringing a work load of around three months without technical support. Therefore the AI-based Augmented Data Insights (A.D.I.) Managed Service was deployed. A.D.I. analyzes the entire database, uncovers structures and anomalies in transaction data, and ensures transparency and traceability of transactions and postings. A.D.I. also provides a comprehensive view of accounting behavior. There is no need for tax professionals to pre-define audit rules. These are automatically determined by A.D.I. and applied to the analysis. PwC experts then derived corrections and actions from the analysis results. The Managed Service proved to be an effective solution for processing voluntary disclosures more quickly and accurately − ultimately reducing the timeframe to three days.

Another process for which outsourcing can pay off is in HR, and concerns the risk assessment of requests for mobile work abroad. The development of New Work has made mobile working abroad a new and sustainable trend. Employees see workations − the combination of work and vacation − in a very positive light and demand such flexible work models. Companies also benefit, as greater flexibility for personal life situations increases employee satisfaction.

However, there are legal risks associated with mobile work from abroad, some being underestimated. These include the determination of corporate tax obligations, the employer’s obligations with respect to payroll taxes, residence and employment law, and the employee’s tax and social security obligations. The review of such cases can be outsourced to a Managed Service provider. PwC offers the Remote Work Assistant (RWA), which was developed specifically for this purpose. The RWA examines each request for mobile work abroad on an individual basis using complex country-specific verification logic. Employees simply submit their request via a digital form, PwC analyzes the risk and then gives a recommendation. There is no further technical or content work for the companies. This allows them to offer their employees maximum flexibility without having to dedicate additional resources to the review process, while mitigatingrisks at the same time.

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Conclusion

Managed Services in tax offer a wide range of opportunities to help companies meet the challenges of a complex and changing environment. By outsourcing processes, having tax experts on call and using modern technology, tax departments can work more efficiently and ensure that their compliance requirements are met.

Companies can either hand over their entire tax function to a Managed Service provider or only certain processes. Either way, Managed Services give them the freedom to focus on their core competencies.

Discover our full range of Tax Managed Services

With Tax Managed Services, we can take over individual process steps or all of your tax department's tasks - tailored to your needs and requirements. You benefit from our tax and compliance expertise and our use of the latest technology.

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Klaus Schmidt

Klaus Schmidt, Partner, Global Tax and Legal Managed Services / Alliances Leader, PwC Germany

Lukasz Mehl

Lukasz Mehl, Director, Managed Services für die Steuer-, Rechts- und Peoplefunktion, PwC Germany

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