Corporate tax requirements are getting ever more complex, while the supply of tax professionals continues to shrink. It’s no wonder that almost half of business leaders say their tax departments are under-resourced. This expertise gap heightens the risk of financial and tax reporting noncompliance. It also prevents organizations from establishing and refining a tax approach that helps drive long-term success.
As a result, more and more businesses are turning to tax managed services (TMS) as an alternative to performing tax functions in-house. This evolved approach to outsourcing is a comprehensive yet flexible way to meet your business tax obligations and carries numerous benefits.
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A managed services model provides the people, processes and technology your organization needs — whether that’s for tax, procurement, IT, marketing or another department. It’s an arrangement where a single provider brings personnel, resources and expertise to your company, enabling them to function like an in-house team.
A managed services solution is viewed externally as part of your organization. Managed services providers look to automate many processes with third-party tools and find ways to implement efficiencies, freeing up your organization to focus on its core business.
Using a managed services approach for tax allows you to reap all the benefits of highly trained, experienced tax specialists with in-depth knowledge of the latest tax laws and strategies, enhanced by a comprehensive understanding of your tax activities and positions. TMS is an optimal choice for companies that:
A TMS team can relieve stress on internal resources while performing the full spectrum of an organization’s tax obligations. Benefits include improved accuracy and timeliness, a deeper bench of talent to provide need-specific tax guidance, a more strategic and coordinated approach to business taxes and significant potential overall cost savings.
TMS clients also get the advantages of the latest tax technologies to increase efficiency, accuracy and visibility into tax processes. But while niche-specific tax expertise and top-shelf tech solutions can be prohibitively expensive to acquire and maintain internally, organizations of all sizes can access these benefits by working with a qualified TMS provider.
Outsourcing encompasses a clearly defined scope of work. In a managed services model, the service provider takes on the responsibilities for your organization along with their own. This comprehensive approach distinguishes managed services from the segmented style of a typical outsourcing engagement.
The TMS provider becomes an integral part of your organization and its day-to-day tax functions. This involvement level ensures that your tax team thoroughly understands your processes, operations, business approach and financial cycles. Your TMS provider’s unified view of your entire tax landscape allows strategic insights and exceptional practical efficiencies that you won’t get from outsourced providers because they interact on a more limited basis.
Managed services is an ideal solution when you’re looking for a team to assume the tactical responsibilities of keeping a department functioning, giving you the time to focus on high-level planning and strategy. Many IT departments, for instance, use managed services to keep up with evolving technologies, take on risk, and maintain systems (such as a data or call center) and website hosting.
Intended to provide resources over a more extended period — typically years — TMS is the better option when you’re looking to oversee a tax function or department. It can be scalable to fit your needs now and in the future.
For example, in a traditional tax outsourcing arrangement, your company retrieves information, validates it and gives it to the service provider. Their responsibility would be limited to taking your validated data, putting it into a tax return and then giving it back to you. In a TMS model, the service provider would handle all the people, processes and technology your organization would need to function like it’s the in-house tax team.
Outsourcing makes more sense when you have gaps in your resources because it encompasses a clearly defined scope of work. Payroll is an excellent general example of this. With its focus on manual, routine tasks that fall within established guidelines, outsourcing payroll can streamline operations and reduce costs by unburdening in-house staff from tasks such as calculating employee pay and taxes, ensuring tax withholdings and filings, managing employee deductions and delivering bank deposits and checks.
Outsourcing can also be the right choice if you have a department comprised of a set group of people, and one person takes a leave of absence. With just one role to fill, it could be a smarter alternative than shifting responsibilities to other team members who might not have the expertise to do the job. With your overall reporting structure and processes already in place, a proficient outsourced provider can fill the temporary gap while you still retain all management responsibilities.
Flexibility is one of the key advantages that make TMS so valuable. Services can be customized to meet almost every organization’s comprehensive tax needs — large or small, across every industry segment. With TMS, you enjoy a fully customized suite of services designed around your specific tax requirements, while having immediate access to top-level expertise and tools that can effectively scale to address your evolving tax landscape.
Rather than outsourcing specific tax functions to different providers and being serviced according to their often uncoordinated needs and schedules, TMS allows your organization to have a single provider for all tax concerns that supports your needs and schedules. This lets your TMS provider develop a deeper understanding of the big picture and facilitates a coordinated approach to federal, international, state and local tax obligations for maximum saving.
The TMS provider acts as your internal tax team for everything from daily tax accounting and routine filings to handling IRS notices. Your TMS team takes virtually all tax-related tasks off your shoulders — including those that require interfacing with outside vendors, such as obtaining 1099s from service providers. TMS experts can also collaborate with your business leaders to develop an overarching tax strategy that incorporates up-to-the-minute knowledge of all regulatory changes and advances business goals.
By identifying all the types of tax services you’ll likely need over the coming year (and beyond) and taking a deep dive into your company’s current tax processes, TMS providers can determine how best to service your company and establish a set annual fee for services. While unanticipated tax activities may incur out-of-scope fees, this upfront estimated cost means you can count on predictable expenses for expected tax functions. This can make budgeting easier and help you avoid sudden spikes during filing and reporting seasons.
Regular status updates and two-way communication between you and your TMS users and providers mirrors the knowledge transfer process that should take place between internal team members (but often doesn’t). These open lines of communication ensure you have full insight into where you stand at any point. They also allow your TMS provider to stay abreast of any material changes that could impact your organization’s tax needs.
CFOs are adopting TMS for myriad reasons. Whether it’s accomplishing more with fewer resources, increasing value-add activities by finance staff or overcoming technology gaps to remain compliant and risk-ready, finance leaders are realizing that TMS can facilitate positive change and help them overcome significant barriers in their business operations.
TMS offers efficiencies and advantages to help address challenges that include:
Given their many challenges in tax accounting and compliance, it’s easy to see why TMS is rapidly becoming a top choice for performance-focused business leaders.
When you introduce TMS, you gain the benefit of experienced experts and advanced technologies — all without having to bear the expense and disruption of hiring, managing and developing staff or upgrading to new in-house technology. Opting for TMS also frees up staff time for higher-level, strategic work that helps your organization thrive and become more competitive.
In many cases, the potential cost savings from TMS is what initially attract the attention of CFOs and other business leaders. However, after exploring the benefits and seeing how it can transform their organization, many ultimately choose TMS for its other advantages and consider the financial savings the cherry on top of an already sound decision.
While many different TMS providers offer services, it’s important to select one that can deliver the results and value you need. The provider you choose should have a reputation for industry-leading expertise, outstanding client service, and a commitment to excellence.
Look for one who will customize a solution to your specific needs rather than fitting you into a predetermined set of services. You also want a firm that answers your questions quickly, provides needed assistance promptly, maps a business-aligned managed services strategy and collaborates well with senior management.
Take the time to learn how potential providers deliver their services and exactly what a service relationship with your organization would look like. Ask as many questions as necessary to clearly understand what you get from the arrangement, how your organization’s tax responsibilities would change and what the expectations are from each party.
Be sure to address these areas:
Your TMS provider should implement standard processes that de-risk tax functions and optimize process efficiencies. By taking over all routine and exceptional tax responsibilities, the TMS team frees up your staff’s time to focus on more strategic activities.
For many organizations, moving to a TMS model completely eliminates the need to hire, train and manage tax staff. Your CFO or another decision-maker will want to meet with TMS advisors to establish a strategic tax plan and review and sign off on tax filings as part of their regular fiduciary duties. Other than that, your TMS provider does it all. Very large organizations with complex tax needs, such as Fortune 1000 companies, may wish to retain an extremely limited tax team to reduce time demands on the CFO.
Adopting TMS doesn’t have to mean laying off trusted employees. If your organization can’t use their expertise to fulfill other internal functions, they may be able to extend their role through your TMS provider. For example, Armanino works with clients to alleviate concerns by considering their internal tax staff for TMS positions at the firm.
You can continue working with familiar providers for international tax and other specialty tax services if that’s your preference. TMS is about customizing the solution that works best for you. Your TMS team can interface with existing providers to coordinate communications and data transfer, with close management to ensure an accurate and efficient process.
By wholly understanding your organization’s tax landscape, goals and business strategies, a qualified TMS provider can make authoritative tax planning recommendations to support internal leaders and work with them to develop and implement a coherent tax strategy customized for your organization.
Using the latest third-party tax tools can eliminate manual processes that increase the potential for mistakes. For example, there’s far lower error potential using an Alteryx model that validates data and confirms calculations than when staff attempt to manually search an Excel workbook for anomalous figures or conflicts in the data.
If unanticipated tax needs arise, your organization doesn’t have to scramble for services. Proceed confidently, knowing your TMS provider has a detailed understanding of your organization’s tax posture and the expertise to address the situation. While services outside the scope of the annual agreement incur an additional fee, accessing them through your existing TMS provider typically costs significantly less than similar services acquired through a standard outsourcing engagement.
The cost savings differ for each organization. However, by concentrating expertise and advanced technologies, your TMS provider can offer efficiencies that would be prohibitively expensive for your individual organization. TMS also compares favorably to traditional outsourcing costs by delivering end-to-end tax services that provide more efficiency than segmented services, which revert back to your staff at some point.
There’s more than cost savings behind the TMS trend. Shifting work models that make maintaining an internal tax department unfeasible and inefficient, constant regulatory changes that increase compliance pressures, disruptive technological advances that rapidly render investments obsolete and a historically high level of M&A activity are some of the biggest factors driving the shift to TMS.
Each TMS relationship is unique. The information transfer process involves providing access to your organization’s financial activity and data at a level with which leaders are comfortable. With full access, demands on your internal staff are minimal to nonexistent. Organizations with rigid privacy requirements due to regulatory or proprietary concerns can choose to only provide selected information to the TMS provider and limit provider data access to align with the organization’s preferences or regulatory requirements.
Communication is paramount in a TMS relationship. Be sure you understand what your TMS provider needs from you and help them determine the most efficient way to access required information. Ask questions to clarify covered services, learn about processes and understand roles and responsibilities. Your TMS provider wants to meet your organization’s needs efficiently and effectively, but their ability to do so depends on you. They need to know about anything that could alter your tax picture, whether it’s an unexpected IRS notice, a change in hiring practices or a new revenue stream.
Do you have a fully staffed tax department with a variety of highly qualified tax experts and unlimited resources? Most organizations don’t — and if you did, would building a world-class tax department represent the best way to direct those resources, when you can gain the same benefits without making that level of investment? From eliminating missed deadlines and their associated costs to gaining actionable insights and cost savings that a small tax team can’t be expected to provide, there are many reasons why organizations are better off with TMS from a respected provider than trying to go it alone.
Finance leaders who fail to consider how resource-intensive and ineffective their tax compliance is can miss out on strategic opportunities. If struggling with taxes diverts your team’s focus from more value-added work, TMS may solve that pain point and more. Check out some real-world examples of the power of TMS and find out how Armanino’s Tax Managed Services experts can reduce your compliance burden and help transform your organization.
Offload your tax burden. Contact our experts today to learn how we can transform your tax function while you focus on the strategies that grow your business.
