Crunching the Numbers: Calculating the ROI of Compliance and Reporting Solutions

Jeroen Wensveen
May 7, 2018

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:

  1. 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?
  2. IT
    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?
  3. 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.

Take Action

Sovos can help analyze your business case and ROI of moving to a VAT compliance and reporting solution. Contact us to get started.  

Jeroen Wensveen
As Principal of Indirect Tax Solutions at Sovos, Jeroen is responsible for building out and managing the VAT line of products and solutions available on the Sovos Intelligent Compliance cloud platform. Jeroen is a tax lawyer with over 20 years of international VAT experience, beginning his career as a consultant for PwC before serving as VAT director for Rockwell Automation, a global leader in industrial automation. Jeroen also co-founded VAT Resource, a successful VAT services and technology company, that was acquired by Sovos in 2014. Jeroen holds a master’s degree in tax law from the University of Leiden, The Netherlands.

Relevant Posts

New York Implements Economic Nexus by Resuscitating 1980’s Law

When New York first passed its law defining what constitutes a “vendor” subject to collecting sales tax in the 1980’s, the idea of online shopping sounded like science fiction. In retrospect, NY may have effectively enacted the first “economic nexus” law when they drafted their definition of “vendor” to include a person who regularly or […]

Read More
IRS Uses Unprecedented Methods to Enforce ACA Reporting Penalties

With recent enforcement measures, the IRS has offered definitive proof that the Affordable Care Act (ACA) is still alive and that the agency plans to strictly enforce ACA reporting. Last spring, the agency issued Letter 226J to Applicable Large Employers (ALEs) that failed to cover 95 percent of employees. ALEs are companies with 50 or […]

Read More
Government Shutdown Will Not Move IRS 1099 Reporting Deadlines

UPDATE (Jan. 8): Reporting season is moving forward according to plan. The IRS has announced that it will process tax returns on schedule and without delays. While the agency will clarify its contingency plan in the coming days, organizations should proceed as planned with 1099 reporting and other seasonal filings. The IRS will recall a […]

Read More
4 Big Post-Wayfair State Sales Tax Developments to Watch 2019

The South Dakota v. Wayfair decision last June has created a lot of angst for indirect tax professionals and the businesses they work so hard to protect from the burdens of sales and use tax filing. Six months later as we begin the new year, that angst has not gotten any lighter. Any federal legislative […]

Read More
The 5 Biggest Stories in Indirect Tax Compliance 2018

2018 was a volatile year in indirect tax compliance for tax, finance and IT professionals worldwide. With an increase in globalization and tax gaps surpassing tens of billions in some countries, it’s not surprising that one of the biggest challenges governments are addressing is revenue collection. Like enterprises, governments are creating new, technology-driven processes to […]

Read More