Summary: Multinational companies benefit from tax engines by automating processes, enhancing compliance, and managing complex taxation.
FREMONT, CA: Tax engines offer advantages over in-house solutions for managing taxation in multinational companies. They automate updates and manual processes, enhance accuracy, reduce risks, and improve tax compliance. Managing taxation in multinational companies can be a complex and time-consuming task. In-house experts often spend extensive time researching and staying updated with various jurisdictions' ever-evolving tax rules and regulations. This process can be burdensome and prone to frequent errors, especially when changes occur.
Traditional ERP and e-commerce systems, while effective in many aspects of business operations, cannot often guide global VAT rates and input tax deduction rules. Tax departments are left responsible for continuous research and understanding of tax changes, which can be both resource-intensive and risky. Significant legislative events can necessitate costly tax consulting and IT software configuration to ensure that ERP and e-commerce systems are updated promptly to comply with new regulations.
In contrast, tax engines offer a solution that automates updates seamlessly, ensuring compliance across all connected systems. These tax engines are highly flexible and accommodate unique tax requirements and non-standard transactions. They empower tax teams to effortlessly create, test, and maintain customizable rules. Integrating a tax engine with procurement, ERP, and e-commerce systems streamlines manual processes, particularly in accounts payable. This automation enhances reliability and consistency, replacing user-dependent decisions with rules-based automation. For instance, real-time calculations of the cost of goods sold, including VAT rates, local rules, and deductibility, can be performed during purchase. This enables better budget management and decision-making within the organization.
Using tax engines reduces the likelihood of errors and enhances accuracy, ensuring that tax treatment remains consistent even when the accounts payable function operates in different regions. This is crucial as government authorities increasingly demand real-time reporting, leaving tax departments less time for month-end reviews. Accurate initial tax rate determinations are vital for efficient tax compliance.
Real-time reporting allows tax authorities to investigate individual transactions promptly, potentially leading to audits. Therefore, getting indirect tax calculations right the first time is critical. Tax engines facilitate this by providing accurate and automated calculations, reducing the risk of errors in tax returns.
Tax engines are typically operated and maintained by tax professionals rather than IT teams. This simplifies the management of tax calculations and reporting, aligning it with the expertise of the tax department. Moreover, using the same tax engine for VAT and sales tax in multiple geographies enhances centralized visibility, control, and management reporting. This approach maximizes return on investment and reduces the cost of determining global indirect taxes for multinational enterprises.
A centralized tax engine offers several advantages over using native ERP functionality for tax management. It lowers the total cost of ownership, enhances accuracy, ensures compliance, and streamlines operations. Compared to in-house solutions, investing in a certified third-party tax engine is a profitable return on investment for multinational companies.
