Tax calculations on the edge

Every major transformation that a business goes through — such as moving to the cloud, expanding to new markets, or upgrading an e-commerce system — has profound implications on its operations. That also means it can have implications on how its tax team manages sales and use tax, value-added tax (VAT), and goods and services tax (GST).

The goal of these transformations is often growth or operational efficiencies. As a business grows, so does the complexity of its financial functions. Eliminating silos and developing holistic processes are key to staying efficient and competitive, and this includes ensuring that technology is consistent across the organization. Too often, the systems that service a company’s sales and purchases — and therefore the taxes associated with them — are an afterthought. This leaves tax professionals scrambling to create workarounds and manually manage tax or, worse yet, puts the business at risk of fines and penalties due to not filling accurately.

A tax management system that is always up to date with the latest tax rates, includes calculation logic, and requires zero downtime for system updates empowers tax professionals to confidently adapt to changing business needs. By staying ahead of changes to global tax rates and regulations, tax professionals can ensure tax accuracy on every transaction. When tax and IT professionals have applications that can be easily deployed and integrated seamlessly with their business’s current systems, they are better able to accelerate the tax team’s performance and minimize the use of an IT team’s valuable time.

This paper explores how a variety of transformation projects might affect a business’s tax functions. It explains why the capabilities of edge computing, when applied to tax, amplify the power of a cloud-native tax engine to automate and secure tax processes to better serve a business as it moves into the future.

Business drivers for tax automation

In our fast-changing, digital-first world, companies can’t afford to sit still and conduct business as usual. To compete, a business must regularly implement new processes or upgrade systems to help staff be more efficient and resourceful with their time. This regular need for change is driving several types of major projects that are likely affecting tax teams managing sales and use tax, VAT, and GST determination:

• Cloud migrations: Moving business functions to the cloud changes the way a business operates and, often, the tools used by tax teams.
• Digital transformations: Enterprise resource planning (ERP) software implementations that move existing business processes to a new version of a solution, including processes for which tax must be reflected, may also affect how tax is managed.
• Changes in business models: Moving from brick-and-mortar sales to an e-commerce customer experience, or from a business-to-business (B2B) sales model to a business-to-customer (B2C) sales model, will have a range of impacts on tax calculations.
• Mergers or acquisitions: Merging with another business or being acquired may entirely transform an organization’s tax function, creating a need to bring disparate business systems together, modify business processes, and account for sales in different regions or countries.
• Globalization: Whether a business is selling goods and services or manufacturing goods in different countries, these business growth strategies require tax determination and compliance capabilities that a domestically focused tax software solution may not have.
• Shifting supply chains: Supply chain networks must quickly respond to change and optimize costs for the ecosystems they serve. Managing taxes throughout the supply chain must include automated approaches that minimize the need to think about tax and help businesses focus more on their customers and partners.
• Changes in products and services: New solutions coming to market are bundling products and services together, which result in different tax implications that require unique tax treatments. For example, in the pharmaceutical industry, research and development costs are accounted for differently than taxes associated with an in-market drug.
• New tax legislation: Governments are increasingly creating new ways to tax the sale and purchase of goods and services. Oversight is rapidly expanding, and the speed with which businesses must provide information to taxing authorities continues to increase, challenging many tax departments to stay compliant.
• Strategic enablement: Business leaders are looking to indirect tax teams for deeper insights into their operations, requiring access to transparent and reliable data.

Tax and IT professionals within a business need to be empowered with the right tools to manage the tax requirements that result from these changes. The tax implications of business decisions should not be an afterthought to business leaders when these types of changes are underway.

Use case: Acquisition

Let’s look at an example of a business change that can affect a tax team’s needs. The acquisition of a company often leads to operations in new jurisdictions, and this comes with many considerations.

What is the business doing in the new jurisdictions, and what are the tax policies of these jurisdictions? Is the business now manufacturing goods in a country that has complicated tax regimes, such as Brazil? Are customers now purchasing products or services from U.S. states where nexus is a consideration? These are just a few of the many questions that tax professionals must ask when a business acquires a company.

Once a tax team starts to understand how the business change affects taxes, the analysis shifts to understanding whether systems in the business are set up to meet the potential new requirements. How will the business charge customers and pay vendors the correct tax amounts in that new market? If there are new jurisdictions that are international, are there free trade agreements that should be applied to the tax calculations? Are there exemptions that need to be considered? Is the business ensuring that its tax rates meet the “arm’s length” international standard, which is required between its entities and its acquisition to allow governments to collect their fair share of taxes?

Researching and answering these questions requires a lot of work. The research work is just a starting point; the teams must then make the changes, conduct testing, and deploy the changes across all business systems. Often, the process of making these changes is manual, and additive to what tax and IT teams are already busy managing for the acquisition. Too often, changes related to tax associated with enterprise transformations are an afterthought and become an extra burden. Automating tax determination and compliance can lift this work and give both IT and tax teams the ability to focus on work that helps the business quickly integrate the acquired company.

Key tax and technology challenges

There are various challenges to account for when upgrading a tax management system. Today’s enterprises need:

• Performance and speed to keep up with growing demands for tax calculations
• An intelligent system that can keep up with the increasing complexity of sales and use tax, as well as VAT and GST requirements
• Greater control over tax data and processes
• Technology that can manage tax from a single source across all of a company’s business channels and systems
• The flexibility to meet the business-specific requirements for every tax situation  
• Highly reliable technologies that simplify the process of remaining compliant and meeting filing requirements

Tax technologies need to satisfy the priorities of a broad range of different stakeholders. Tax professionals tend to be focused on accuracy and filing on time. However, IT teams will be concerned about the performance impact of adding a tax engine to other systems in the business and then maintaining it as the business grows. It’s important that tax is an early consideration in transformation projects to capture input from a broad range of people in the business.

How to overcome tax engine challenges

Until recently, the options for implementing and maintaining a tax engine were to keep it on premises or move tax calculations to the cloud. With an on-premises deployment, a business installs software locally on its computers and servers, which requires in-house teams to perform maintenance and updates. The cloud, which has been widely adopted by organizations of every size, gives businesses on-demand access to computing power and data storage that is distributed in shared or dedicated environments maintained and updated by service providers.

These options each have benefits and drawbacks. Historically, on-premises tax calculation solutions have been the most prevalent. Keeping things on premises allows a business to maintain control over hardware and quickly implement any new system within a data center that has already been established. Many organizations have chosen this deployment model to meet contractual obligations around certain standards of data handling. However, it can also lead to higher costs and increased maintenance — from performing cumbersome manual updates, to allocating resources to testing and managing downtime.

Putting tax software in the cloud can help a business preserve technology investments and lower overall costs associated with maintaining technologies as the pace of business transformation increases. The power of the cloud allows businesses to minimize costly hardware upgrades and automate data and software updates. This, when coupled with lower maintenance, makes cloud software an always-ready tax technology solution. With a cloud deployment, not only can a business reduce the amount of resources and staff time necessary to maintain tax hardware and software, but it can also speed the process of scaling technology resources to evolve with the business. The inability to scale quickly is a significant drawback of on-premises systems.

While cloud-based tax engines offer the flexibility to scale quickly and adapt technologies to changing business environments, they can also pose a potential risk to the customer experience if the tax engine’s distance from business applications or low bandwidth resource availability causes latency.

The good news is that edge computing allows a business to combine the benefits of control and flexibility offered by both the on-premises and cloud deployments.

What is edge computing?

In edge computing, data is processed close to its source and the relevant information is sent back through the network where it is stored, decreasing latency. Edge computing works well with cloud computing because it uses auto-synchronization to retrieve system updates, avoiding the need for manual intervention or downtime.

For tax teams, edge computing reduces latency issues in calculating taxes that can hamper a tax engine’s performance — which is especially important for real-time calculation. It allows companies to maintain more control over business systems and how they are deployed within their infrastructure.

The requirements for the deployment of a tax engine vary based on a business’s existing technologies, the channels it serves (for example, direct to customers or B2B), and the number of transactions it processes. It’s not uncommon for a business to maintain multiple sales and purchasing systems that require tax calculation. For example, tax determination may be needed to support an ERP system, a physical store, or an e-commerce system, to name a few. As a business makes technology decisions associated with major business transformations, if tax is not considered as part of the project, it can lead the business to select a tax engine for determination that fits only one system. The business then must select a different technology to meet the tax calculation requirements of other systems.

Edge computing allows tax calculations to be deployed individually across multiple channels and systems, but with a single source of control for maintaining tax policy, configurations, and reporting data.

There are three main drivers for companies to choose edge computing:

• Bandwidth: The volume of data created by some applications — especially Internet of Things (IoT) applications — can be enormous. This makes processing it locally, rather than in a far-off data center, more efficient.
• Latency: Some applications must act extremely quickly — that is, they must have very low latency. The time it takes to send a data packet to its destination and back must be whittled down to almost nothing. In the case of e-commerce, for example, customers expect immediate results when checking out from their virtual shopping cart. That means tax needs to be calculated without delay. With edge computing, the physical distance is almost completely removed from the equation.
• Security and regulatory compliance: Some companies or industries may have specific ways in which they are required to handle data, whether due to contractual agreements with customers or regulatory restrictions put in place by governments or other entities. For example, in Europe, the General Data Protection Regulation (GDPR) lays out strict rules for data handling. Companies in these circumstances must think carefully about where they store data and how they transmit it. In some cases, local data access may be beneficial or even required.

When it comes to maintaining a tax engine, edge systems provide distinct advantages. Tax-related data is created in the transactional system, such as the ERP, and will benefit from being put to use by software as close to that location as possible. Processing the information nearby instead of in the cloud improves the customer experience and operational efficiency by reducing latency. With tax calculations processing at the edge, for example, customers making an online purchase experience no lag time when they “proceed to check out” and place an order for items they place in a shopping cart.

Three choices for deploying a tax engine

1. On premises

On-premises software is deployed on dedicated servers that a business owns and maintains. Dedicated IT personnel and resources manage the hardware and software in a business-specific data center. Internal business teams manually manage new content updates and software enhancements. This can be costly and require specialized expertise to test, maintain, and secure.

Benefits

• Maintain control over hardware
• Continue using an existing IT environment
• Low latency

Who is it best for?

On-premises options are best for companies that already have a robust data center and plan to maintain it over a long horizon into the future. They are also best for businesses needing low latency in operations and for those that have contractual obligations with customers in regard to data security and control.

2. Cloud

Cloud-based software runs in a private, shared, or public cloud and is maintained by the technology provider, who also owns and maintains the necessary hardware. The technology provider is responsible for ensuring that the solution it hosts functions well and that it’s secure, regularly backed up, and has power redundancy. A business sends its data to the server’s location for it to be used in the cloud-based application.

Benefits

• Spend less on hardware and IT management
• Gain efficiency with automatic software and tax content updates  
• Adapt more quickly to expanding business demands with solutions that scale easily

Who is it best for?

Cloud-based solutions are best for companies that aren’t able or willing to maintain their own data centers, including those that want to save costs or that lack access to the expertise to manage hardware and software. The cloud offers more efficiency and out-of-the-box operability.

3. Edge computing

A third option is edge computing, also called edge-to-cloud, which is a way of combining the benefits of on-premises and cloud-based solutions. Edge computing brings in-situ data facilities close to your location; these facilities are owned and managed by a separate provider. This combines the security and latency advantages of on-premises systems with the functionality and convenience of cloud-based solutions.  

Benefits

• Maximize performance and speed with a solution deployed within an existing business infrastructure
• Gain efficiency with automatic software and tax content updates
• Maintain tax policy, configurations, and data for reporting and analytics — while having the confidence that the tax engine can reliably calculate tax even without an internet connection — all from a single source of truth across all business systems

Who is it best for?

Edge computing solutions are best for businesses that want or need to keep tax calculation as close as possible to where the data is being used, but that want or need the freedom and flexibility of a cloud-based solution. Edge solutions are a match for businesses seeking precision, accuracy, low latency, control, and ease of implementation and management.

Choosing a tax engine deployment

When choosing how to deploy a tax engine — whether on premises, in the cloud, or on the edge — consider the factors that are most important to the context of the business situation, such as tolerance for latency, data throughput, and transaction volume. Inhibitions around latency often prevent companies from choosing a cloud solution, but an on-premises solution may dedicate too many resources to an application that business and IT leaders do not consider a top priority.

Businesses considering the options should ask these questions:

• Do we need a solution that gives us a high level of accuracy while allowing us to maintain control of our data?
• Should our solution automatically stay current with tax policy changes, anywhere we do business globally?
• Do we need to increase our tax determination speed and reduce latency?
• Does our solution need to be deployed within an existing business infrastructure to minimize risks associated with a network outage?
• Do we need a solution that can be deployed across existing business systems, allowing tax to be managed from a single source?
• Do we need investment protection as new technologies are adopted?
• Do we have contractual obligations with customers regarding data security and control?

Businesses that answer “yes” to at least two of these questions should consider an edge computing solution.

A fully fledged tax solution for the edge

Thomson Reuters ONESOURCE Determination offers the most comprehensive global tax content on the market. Its edge deployment, ONESOURCE Determination Anywhere, aligns this engine alongside a business’s ERP or transaction system, putting tax and IT professionals in control and accelerating the performance of tax calculations.  

As the tax platform most widely used by multinational corporations, ONESOURCE Determination automatically delivers global tax rates, rules, and calculations in real time. It provides essential, up-to-date tax information that can be applied to any purchases made in more than 56,000 jurisdictions across 205 countries and territories for even the most specialized industries. Cloud-native and always current, the tax engine is designed to ensure that tax calculations are accurate every time. It frees tax teams from having to spend time researching rates, rules, and policies. By putting tax calculations close to transaction systems, ONESOURCE Determination Anywhere gives businesses a low-latency, high-security option for those times when it’s critical to calculate tax quickly.  

Along with this powerful tax engine, Thomson Reuters provides cross-industry insights, certified advisory implementation support, and technology partnerships designed to meet the needs of businesses of any size. Global tax research teams monitor more than 56,000 global tax jurisdictions, alleviating the challenges of staying up to date on changes in sales and use taxes, VAT, GST, and excise taxes.

With ONESOURCE Determination Anywhere, businesses get a flexible and collaborative web-based platform that is easy to access from anywhere and that maintains tax data close to its source for secure, fast processing. It is a tax engine that both tax professionals and IT teams can agree on.   

Key takeaways

Transformation and technology projects that companies take on to keep up in a fast-changing marketplace have a profound impact on tax functions. Staying ahead of these changes requires a modern, automated tax engine. To determine if edge computing is the right deployment model, consider these five facts:

1. When considering new tax software, tax professionals tend to be focused on accuracy, while IT professionals are concerned with performance and control over their internal systems. Businesses considering their tax software options should gather their teams to prioritize these benefits in the context of the business when making the deployment choice.  
2. Before now, the options for implementing and maintaining a tax engine were to keep it on premises or put it in the cloud. On-premises systems involve higher costs and more maintenance, while cloud-based applications can introduce latency and may not provide the increased bandwidth required when it is needed. Both options have clear value, but are they future-proofing technology investments?
3. Edge computing combines the security and control of on-premises deployments with the flexibility and scalability of cloud deployments by situating the tax engine within a business’s existing infrastructure. This puts it in close proximity to the business systems that are managing business transactions that require a tax calculation.  
4. Edge computing offers relatively low-cost maintenance, automated updates, and low latency, all of which makes it ideal for businesses that require high-speed tax calculations.
5. ONESOURCE Determination Anywhere, an edge deployment of our widely used tax platform, is an ideal option for companies looking to upgrade to a powerful, reliable, always-current tax engine that can satisfy both tax and IT professionals.

To learn more about edge computing and ONESOURCE Determination Anywhere, schedule a consultation.