Automation And Centralisation Reduce Tax Processing Costs

Tax-News.com, New York

15 August 2001

In an article this week on his site ecommercetax.com, Professor David Hardesty examines the problem of tax-related transaction costs for business. Often, he says, it's the need to calculate, record and eventually pay sales tax, VAT and other transaction taxes that makes it difficult to automate business processes, thus increasing costs.

Difficulties faced by a global enterprise can be overwhelming, says the Professor: there are almost 7,500 sales tax jurisdictions in the United States, and over 100 countries that separately impose VAT.

Of course, there are electronic solutions in many cases. The article quotes Rain Bird, makers of irrigation products, as telling its distributors they can reduce the cost of processing a purchase order and invoice from between $50 and $150 for manual processing, to between $0.35 to $1.50 for electronic processing; and a European study pegs the cost of handling a paper VAT invoice at between ECU 1.13 and 1.65, while the cost of an electronic invoice is between ECU 0.28 and 0.47.

Professor Hardesty's article looks at how one company, Sabrix, solves the problem of global tax compliance with its new product, TaxBay, which draws its genetic code from Tektronix, the global technology company. Tektronix reportedly spent $50 million to develop for itself a global tax solution. It then spun the technology off to Sabrix, which is marketing the solution under the name TaxBay.

Four of the most important things TaxBay does for global enterprises are:

• In a single software package, TaxBay provides transaction tax compliance capability for all of the world’s major countries;
• TaxBay allows enterprises to manage worldwide tax compliance from a single location, even where transactions are processed on computers in widely disbursed countries;
• In a single installation, TaxBay manages tax compliance for multiple related and unrelated companies; and
• Robust reporting capabilities allow management to view worldwide transaction tax from one location, as it is incurred.
  

Professor Hardesty says that TaxBay is part of a trend toward centralization of functions in multinational companies. As these companies move to centralized processing they are finding that legacy systems, which cannot be easily scrapped, must be made to work with each other. Middleware products have been developed to allow systems of various vintages to work together, or work with a centrally managed system.

Centralized management of the tax function allows all sites to operate using a consistent set of rules. Using the same set of rules in an intercompany transaction minimizes the risk that both sides of the same transaction will be taxed. In addition, by maintaining a centralized rules base and transaction database, the cost of separately maintaining and synchronizing distributed sites is eliminated.

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