KPMG report: Benefits of shared service centers in tax processes such as indirect tax and transfer pricing
An article based on a report prepared by the KPMG member firm in Switzerland.
An article based on a report prepared by the KPMG member firm in Switzerland.
Realizing labor arbitrage and economies of scale for transactional processes are the traditional benefits of shared service centers. However, shared service centers are now becoming more important for non-transactional processes optimization and digitalization in finance and tax.
Background
Companies leverage the shared services concept to bundle certain parts of their business functions in a central organization—the shared service center. Typically, these business functions used to be decentralized across multiple business entities (e.g., finance or human resources). The organizational objective of shared service centers is to deliver services to internal and external business partners at a competitive price.
Enhanced capabilities of shared service centers to support tax processes
Current trends demonstrate that “non-core” finance activities, for example some tax processes such as indirect taxes and transfer pricing documentation, also possess high potential for centralization.
For example, the centralization of indirect tax functions can be a very good starting point to establish standardized processes in connection with recurring routine tasks, generate synergies, and increase efficiency in that single team. In addition, in a centralized team the indirect tax function can build overall visibility on the indirect tax processes (compliance, working capital management) and has the chance to develop a tax team-owned solution to cover the increasing and various types of digital VAT/GST* reporting requirements.
In terms of transfer pricing, given the current international transfer pricing landscape with its ever more complex compliance rules and an overall trend towards increased tax transparency, it is recommended to establish a lean, centralized transfer pricing documentation approach that tells a globally consistent story, discloses only the relevant information, and does not create mismatches between countries.
From a tax point of view, data management and process automation are key to using the advantages of centralization. According to tax professionals, data management and analytics solutions, process automation within the routine indirect tax and transfer pricing compliance processes, technology-enabled data correction at source, development of unified tax determination logic and digital reporting solutions all need to be key pillars of a tax function centralization.
It is important to highlight the importance of shared service centers in connection to process automation and digitalization. A shared service center does not increase automation and digitalization by nature, but it helps to significantly reduce process complexity. Shared service centers standardize processes and increase staff productivity through economies of scale. As a result, the shared service centers help to simplify and harmonize processes, which is a key pre-requisite to plan and execute automation and digitalization initiatives. Hence, companies can implement automated and more digital processes, increasing their market competitiveness.
Read a February 2022 report prepared by the KPMG member firm in Switzerland
*VAT/GST = value added tax / goods and services tax
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