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Indirect Tax

Calculating the benefits of indirect tax software: Making the business case

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

Calculate benefits of indirect tax software

Corporate tax teams that want to invest in an automated indirect tax solution can’t simply declare to decision-makers that efficiencies, cost savings, and a host of other benefits will magically start boosting the bottom line once the software is activated.

Rather, to make a persuasive case for investment in automation, tax teams must explain:

  • where the promised efficiencies will come from
  • what the return on technology investment (ROI) is going to be
  • how adding such a solution will improve departmental operations, particularly in tax and IT
  • why does such an investment support the long-term interests of the organization?

But calculating ROI on an indirect tax technology implementation isn’t easy. Until now, companies believed that the product would perform as advertised. Very little in the way of reliable, objective research on indirect tax solutions exists, after all, and all too many vendors have been known to over-promise and under-deliver.

To help provide corporate tax teams with some objective data on how an automated indirect tax solution might impact their organization, Thomson Reuters recently commissioned Forrester Consulting to conduct an independent research study on the cost savings and business benefits of the company’s ONESOURCE Indirect Tax software. Aside from commissioning the study, Thomson Reuters did not participate except to provide occasional technical clarifications to Forrester’s consultants.

In order to evaluate the benefits, costs, and risks of a ONESOURCE Indirect Tax investment, Forrester conducted extensive interviews with seven ONESOURCE indirect tax customers, all of whom had transitioned from legacy tax systems. Forrester then aggregated the results into a “composite organization” to illustrate its findings.

This “composite” corporation was defined as a multinational conglomerate with:

  • products and services in 70 countries
  • $5 billion per year in annual revenue
  • 28,000 employees

How are savings and benefits quantified?

To quantify the system’s benefits, Forrester calculated the present value (PV) of return after three years of operation. The results of the full study are now available. The study’s key findings show that three years after deploying ONESOURCE Indirect Tax, the aggregate company realized total risk-adjusted PV benefits of $3.8 million. Costs for ONESOURCE Indirect Tax implementation, licensing, and training were approximately $1.74 million, resulting in a net present value of $2.1 million.

Quantifiable savings came from these four major areas:

  1. Reduced error rate on invoices to below 1%: $2.6 million saved
  2. Efficiency gains for the compliance team: $494K saved
  3. Efficiency gains for indirect tax team: $468K saved
  4. Reduced IT maintenance through automated change updates: $297K saved

Total Savings: $3.8 million

1.Reduced Error Rate:

One of the most obvious benefits of a cloud-based tax engine is that it improves the accuracy and consistency of indirect tax calculations. In the Forrester study, the composite organization experienced an invoice error rate of 3% using manual legacy systems. ONESOURCE Indirect Tax reduced the invoice error rate to less than 1%, significantly reducing the amount of time tax teams had to spend investigating invoice errors.

2. Compliance Efficiencies:

In the study, participants reported that the cloud-based architecture of ONESOURCE Indirect Tax provided tax teams with a centralized platform for tracking and managing compliance. Furthermore, the built-in reporting capabilities and automated exemption certificate management reduced the compliance team’s workload by 50% compared to their legacy system, allowing three full-time employees (FTEs) to devote their time to higher-value tasks.

3. Indirect Tax Team Efficiencies:

Using a centralized platform to manage indirect taxes provided numerous efficiencies for the indirect tax team, particularly in day-to-day tasks such as pulling reports, working with auditors, and filing taxes. ONESOURCE Indirect Tax’s  global reach also made it easier to roll out new products and services in new markets, and significantly reduced the complexity of acquiring and assimilating new businesses. Automation made all these tasks simpler, reducing the tax team’s workload by approximately 50%, and, similar to compliance, allowing three FTEs to shift their attention to more strategic areas of the business.

4.  IT Support and Maintenance Efficiencies:

For IT teams working on legacy systems, keeping up with the latest global tax rate and regulatory code changes is an extremely labor-intensive task prone to errors. But because ONESOURCE Indirect Tax automatically updates and applies tax and code changes far more accurately than a human being could, there is no need for IT to spend its time monitoring these changes, performing maintenance, or testing new rules for accuracy. In fact, Forrester found the composite organization using indirect tax saved 4,800 hours (the equivalent of over two full-time employees) of IT personnel time per year.

Unquantified benefits of indirect tax software

In addition to the quantifiable savings and efficiencies detailed in Forrester’s research, several unquantified (yet still tangible and valuable) benefits accrued to the tax team’s studies, mainly due to the superior accuracy and reliability of the overall ONESOURCE Indirect Tax system.

Among those benefits were:

  • Reduced risk of errors, violations, and over-or under-payments
  • Reduced time to value when introducing products/services to new markets
  • Improved uptime and reliability compared to legacy systems
  • Reduced costs related to legacy tax solutions (computers, licenses, etc.)
  • Peace of mind knowing calculations are accurate and no longer subject to human error

Note: This is the first in a series of three articles providing corporate tax teams with concrete data and strategies for evaluating the potential efficacy of an automated indirect tax solution in their organization. Download the complete Forrester Consulting study.