The pace of change in the technology sector presents unique and escalating challenges for indirect tax compliance. Many tax departments are constrained by legacy systems ill-equipped to handle the complexity of digital goods, subscription models, and constantly shifting global regulations. Many tax teams operate with tools that haven't kept pace, creating bottlenecks and increased risk. To overcome these big problems, we need to change our digital systems. We need to move away from old systems across many systems and departments. A strategic investment in modern indirect tax technology is no longer optional, but essential for enhancing the core capabilities and responsiveness needed to manage risk and support growth effectively.

Know your challenges

Get out of tech debt

Tech debt comes in the form of process dysfunction, slowdowns, reporting errors, data anomalies, and more. It isn’t inherently bad, but like accruing interest over time, the longer you wait to remedy the problem, the more complicated it is to fix.

Major contributors

• Increased mergers and acquisitions. Between 2003 and 2023, the technology, media, and telecom (TMT) industry placed second among eight major industries with the highest number of mergers and acquisitions.
• New technology spending. With departments spending less than 25% of their budget on new technology, there's a significant amount of tech debt to manage in indirect tax functions.
• Tech’s legacy problem. Up to 88% of tech companies, (ranging from <$50M -$6B revenue) have automated less than 50% of their tax processes.

Catch-22s

Attrition rates in tax departments

• In Forbes, Mike Whitmire writes, “a staggering 83% of financial leaders reported experiencing a talent shortage” in 2024. That was an increase from 70% just two years prior. 
• As many as 70-80% of accountants have already left the profession, and the drop in accounting graduates continues to trend downward with a 7.8% decline in B.A. degrees and a 6.4% drop in M.A. degrees, as reported in a CFO Pulse Survey 2025.

Major consequences

Current tax departments

• TMT has the highest percentage of tax teams performing reactive work
• A reported 72% of under-resourced departments incur audits, and 50% are penalized
• Up to 69% of penalties cost $10-50K per penalty

Macro-level tech debt problems affecting indirect tax

1. System limitations and process inefficiencies

• Legacy systems that can't be upgraded properly
• Systems acquired through mergers and acquisitions
• Archaic processes that have never been updated or automated
• Manual processes
• Heavy reliance on information technology (IT) support to fix tax data

2. Regulatory and compliance challenges

• Complex and evolving tax laws such as value-added tax (VAT), goods and services tax (GST), use tax, and sales tax
• Increased non-compliance issues in returns
• Miscalculations of tax due on sales or purchases
• Errors in input tax credits, or failure to adjust them properly
• Underpayment of taxes due

3. Operational inefficiencies and costs

• Lowered efficiency and scalability of tax systems and tax teams
• Slower responses to business demands
• Process inefficiencies make departments more reactive and chaotic
• Prevents strategic tax management
• Increased costs related to human capital, audits, penalties, fines, and opportunity costs
• Spending more time on manual tasks than strategic efforts

4. Data management issues

• Discrepancies in data collection
• Human error, or siloed data that goes unverified

Department-level challenges in indirect tax

1. Human capital

Tax and accounting departments are experiencing unprecedented attrition rates. Historically, retirement was the main reason professionals left the business. Today’s accountants are leaving the field for other professions. The 2024 State of the Corporate Tax Department Report says that human capital problems are three times more important than mandates and organizational problems. The challenges include attrition, a lack of accountant graduates, and low technology competency of existing employees.

2. Constantly changing tax mandates

Each new or modified mandate adds layers of rules that differ by jurisdiction. Staying compliant across multiple regions becomes exponentially more complex, increasing the risk of errors, audits, penalties, and business disruptions, like rejected invoices. These changes are a strain on systems and processes and require constant monitoring. The new mandates often require capturing, validating, and reporting data points, putting pressure on data quality and primary data management.

3. Organization and leadership challenges

Indirect tax is no stranger to alignment issues between leadership and tax teams. Strategically optimizing tax goals with organizational goals is multifaceted and often unique to each organization. Mergers and acquisitions, and transformational projects often create strategic hierarchies with budget constraints setting priorities. Among the many challenges are strategic vision, independently operating subsidiaries, corporate culture, investment priorities, departmental and information silos, lack of control, and limited IT resources.

4. Digital transactions and cross-border e-commerce

The tech industry is very involved in online transactions and e-commerce. This can make it hard to pay taxes because it isn't tangible and has no borders. The lack of physical anchors, the ease of cross-border distribution, and the inconsistent and evolving ways different tax authorities define and regulate digital transactions make establishing the correct place of supply, rate, and treatment of complex, high-risk tasks for indirect tax departments.

5. Cloud services and SaaS

Cloud services and software as a service (SaaS) models introduce additional complexity. Determining the taxability of these services and the customer's location for tax purposes can be difficult, especially when services are delivered across multiple jurisdictions.

6. Frequent business model changes

Tech companies often undergo rapid business model changes, such as new product launches, mergers and acquisitions, and market expansions. These changes can create new tax obligations and require frequent updates to tax processes and systems.

7. Data management and integration

Managing and integrating data from various sources. For example, sales systems, accounting systems, and third-party platforms can be complex. Inaccurate or incomplete data can lead to errors in tax calculations and reporting.

8. Real-time taxation requirements

Many jurisdictions are moving towards real-time taxation, requiring companies to utilize e-invoicing to report and pay taxes more frequently. This can be particularly challenging for tech companies with high transaction volumes and complex business models.

9. Audit and compliance risks

The complexity of indirect tax in the tech industry increases the risk of audits and penalties. Ensuring that all tax obligations are met and that records are accurate and complete are essential to avoiding these risks.

10. Customer and supplier compliance

Tech companies often have many customers and suppliers, each with their own tax requirements. Ensuring all parties are compliant with indirect tax regulations can be a significant challenge.

11. Regulatory scrutiny

Tech companies are often subject to increased regulatory scrutiny, particularly in areas like data privacy and digital taxation. This can lead to more frequent audits and higher compliance standards.

Consider your options

Scenario one. An indirect tax accountant in today’s world with no updated tax tech, dealing with myriad tech debt.

As an indirect tax accountant, a typical day feels like a constant battle against outdated systems. Weeks are spent manually extracting, cleansing, and patching together data to get compliance filings out the door for multiple countries. It's a minefield of potential errors, and we don’t always know if reporting is accurate. We often only discover these issues during audits or when penalties are imposed. Pillar two compliance and keeping up with regulatory changes in all the different jurisdictions are a constant concern.

We wrestle with spreadsheets, manually validating transactions line-by-line, and reacting to the inevitable data discrepancies or system glitches. We're under-resourced, leaving little margin to think proactively or contribute to value-added planning.

Scenario two. An indirect tax accountant in today’s world with an end-to-end tax solution and virtually no tech debt.

As a tax accountant in a tech company with a complete tax solution, efficiency and strategic focus have changed how we work. With almost no technology debt stopping processes, powerful automation handles most of the data collection, checking, and reporting. Our small but mighty team collects complex datasets for multiple jurisdictions in mere hours, a task that previously took days or weeks. This automation changed our role a lot. Instead of doing manual work, we mostly watch automated workflows and handle exceptions that the system flags. Tax logic is maintained hands-free, auto-updating and auto-healing as updates occur. We are freed from the tactical grind with a drastically reduced number of audits, and elimination of compliance penalties. We actively participate in strategic discussions on tax planning, supply chain optimization, mergers and acquisitions, product releases, and adapting to new regulations. We can respond to departmental requests while keeping our workweek balanced. We want to add more GenAI tools to improve our optimization efforts.

With the right tax technology, people can contribute to indirect tax challenges in more meaningful ways. It’s crucial for organizations to grasp the overall impact of tech debt, understand its consequences for departments, and recognize the significance of automation and compliance in indirect tax operations.

Digital transformation: an event horizon for indirect tax

Despite being leaders in innovation, technology companies struggle with their ability to stay agile and competitive. The answer isn’t incremental change but a fundamental shift towards digital transformation, with efficiency and automation at its core.

Proper tax management impacts an organization in many ways, including:

• Centralized data repository
• Fast and reliable data capture
• Increased efficiency saves time
• Strategic value for mergers and acquisitions, product rollouts
• Financial benefits
• Reduced costs of IT resources, third parties
• Compliance on a global scale
• Brand reputation

For digital transformation to succeed, indirect tax must be integral to the strategy, ensuring new systems tackle the entire tax lifecycle.

Solving technology issues improves human capital challenges:

• Task automation eliminates mundane work
• Strategic use of expert staff
• Reduced operational chaos
• Increased efficiency, aiding attrition management

How technology meets these challenges

New tech means efficiency and automation, but knowing your department’s unique needs is critical.

1. Faster processes

Automation of tax processes streamlines tax determination, reporting, and auditing to help departments get out of the reactive and chaotic cycles that bog down resources and hinder strategic projects.

2. Improved accuracy

Automation of mundane tasks means a reduction in human error, and greater consistency in tax data, especially when systems are interconnected with other departments that use or create tax data.

3. Rapid reporting

It's becoming increasingly important to provide real-time, up-to-date tax data to governments, which means increased transparency and reporting accuracy. These are commonly coupled with e-invoicing.

4. Less data reconciliation 

As governments and jurisdictions change their rules, automation of tax processes allows tax departments to watch a dashboard for changes, and anomaly fixes — avoiding manual edits to data tables. This is solved with an end-to-end calculation compliance functionality that auto-heals data in real time.

5. Increased advisement

Greater visibility and analysis of tax data can provide unique insights into a company’s supply chain, customer behavior, and cash flows. Analyzing these factors could affect major decisions, such as acquisitions, investments, new product development, and other key decisions.

6. Reduced special training 

Where it’s more difficult to find trained personnel to perform the tasks, the problem might not be the need for people but the need for technology. Eliminating manual processes might just be the answer to your head-count problem. You don’t need people to fill the spot; you need automation.

7. Greater compliance 

Automation ensures all transactions are in line with current tax regulations and remain compliant with current tax codes.

8. Further strategic work

With catastrophic attrition rates in tax and accounting, automation of tax processes gives way to new job functions in strategic planning and reporting, technology-focused data analysis, and consultation. The inclusion of tax technology should seem like a no-brainer to help retain talent and provide more promising career opportunities.

9. Integration of departments

An improved business strategy allows for greater overall efficiency of operations and cost savings across departments, human capital savings, and audit savings.

10. Enhanced application

Acting as a powerful assistant to improve efficiency and automation, GenAI is gaining traction as a trusted aid. Much promise and effort is being made to continue to increase system awareness about updates and changes such as data anomalies, process efficiencies, compliance changes, dashboard reports, and agentic research. Technology companies were identified as the number one influencers of the future of GenAI by two-thirds or more of respondents from every industry vertical.

Best practices when evaluating and prioritizing tax technology

Identify key areas for modernization needs

Start by identifying specific areas where modernization will have the most significant impact. Common areas include:

• Digital product taxability
• SaaS subscription tax calculations
• Cross-border transaction compliance
• Real-time reporting capabilities
• Data management and integration

Evaluate existing indirect tax systems and processes for upgrades, enhancements, or new solutions

1. Internal audit

Comprehensive review. Conduct a thorough review of all indirect tax systems and processes. This includes examining tax calculations, reporting, compliance, and data management.

Checklists and questionnaires. Use detailed checklists and questionnaires to ensure all aspects of the tax processes are covered.

These can include questions about system integrations, data accuracy, and compliance with local regulations.

Process mapping. Create detailed process maps to visualize the flow of data and tax processes. This can help identify bottlenecks and areas of inefficiency.

2. External audit

Hire external experts. Engage external tax auditors or consultants who specialize in indirect tax to conduct an independent review. They can provide a fair assessment and identify areas of technical debt that might be overlooked internally.

Benchmarking. Compare your processes and systems with industry best practices and benchmarks. This can help identify gaps and areas for improvement.

3. Data analysis

Data quality assessment. Evaluate the quality and accuracy of the data used in tax calculations. Look for inconsistencies, missing data, and errors.

Automated tools. Use data analytics tools to identify patterns and anomalies in tax data. This can help uncover issues that might not be obvious through manual review.

4. Compliance review

Regulatory compliance. Ensure that all systems and processes are compliant with current tax regulations. This includes checking for updates and changes in tax laws and regulations.

Audit trails. Verify that all transactions have proper audit trails and documentation. This is crucial for compliance and can help in the case of an audit.

Prioritizing techniques

1. Risk assessment

High-risk areas. Identify areas with the highest risk of non-compliance or penalties. This can include jurisdictions with strict tax regulations or areas where the company has a significant presence.

Impact analysis. Assess the potential impact of non-compliance in each area. Consider the financial, legal, and reputational risks associated with each issue.

2. Cost analysis

Cost of non-compliance. Calculate the potential costs of non-compliance, including penalties, interest, and legal fees. This can help justify the investment in addressing tech debt. 

Cost of implementation. Estimate the cost of implementing changes to address tech debt. Consider both the initial costs and the ongoing maintenance costs.

3. Potential ROI

Efficiency gains. Identify areas where addressing tech debt can lead to significant efficiency gains. This can include automating manual processes, improving data accuracy, and reducing the time required for tax reporting.

Revenue protection. Consider the potential for revenue protection and optimization. Addressing tech debt can help ensure that all tax credits and deductions are claimed correctly.

4. Stakeholder input

Internal stakeholders. Gather input from internal stakeholders, including tax professionals, IT teams, and finance departments. Their insights can help identify areas that are causing the most pain or are most critical to the business.

Customer and supplier feedback. Consider feedback from customers and suppliers. Issues that are causing problems for them can be a priority for addressing tech debt.

5. Prioritization framework

Risk-cost-benefit matrix. Use a risk-cost-benefit matrix to prioritize areas for addressing tech debt. This matrix can help visualize the trade-offs between risk, cost, and potential ROI.

Quick wins. Identify quick wins that can be addressed with minimal effort and cost. These can provide immediate benefits and build momentum for larger projects.

Long-term strategic initiatives. Prioritize long-term strategic initiatives that'll have a significant impact on the company's tax compliance and efficiency. These might require more resources but can provide substantial long-term benefits.

Quantify cost savings with real-life examples

All real-life examples are from the Total Economic Impact of Thomson Reuters ONESOURCE Indirect Tax.

1. Direct cost savings

Reduction in manual effort. Calculate the time and resources currently spent on manual tax calculations, data entry, and compliance tasks. Estimate the reduction in these costs with modernized systems.

• Example. If 100 hours per month are spent on manual tax calculations, and a modern system can reduce this to 20 hours, the annual savings would be 960 hours (100 - 20) * 12 months.

Real-life example. Modeling and assumptions for the composite organization Forrester assumes a team of six handles indirect tax determination in a pre-tax tech environment.

• The efficiency gain from ONESOURCE IDT totals the effort of one full-time equivalent (FTE) in year one, two FTEs in year two, and three FTEs in year three.
• The annual burdened salary of a tax resource is $108,000.

Risks. The value of this benefit may vary depending on:

• The total volume and complexity of transactions that require indirect tax determination
• The actual burdened salary of a compliance FTE

Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $468K.

Error reduction. Estimate the cost of errors in tax calculations and reporting. Modern systems can significantly reduce these errors.

• Example. If the average cost of a tax error is $500, and the current error rate is 5% of 1,000 transactions per month, the annual cost of errors is $30,000. A modern system could reduce the error rate to 1%, saving $240,000 annually.

Real-life example. Modeling and assumptions for the composite organization. Forrester assumes:

• An average indirect tax rate of 15.48% across all transactions.
• An error rate of 3% before reconciliation when using the legacy system.
• A team of three tax professionals spends 20% of their time performing invoice error investigations and reconciliations prior to deployment.
• The reconciliation team can catch and correct 90% of all invoice errors.

Risks. The value of this benefit may vary depending on:

• Error rate with legacy solution
• Size and impact of invoice error reconciliation efforts
• Percent of invoices passing through ONESOURCE IDT annually

Results. To account for these risks, Forrester adjusted this benefit downward by 15%, yielding a three-year, risk-adjusted total PV — discounted at 10% — of $2.6 million.

2. Indirect cost savings

Audit and penalty reduction. Estimate the cost savings from reduced audits and penalties.

Modern systems can help ensure compliance, reducing the likelihood of audits and penalties.

• Example. If the average cost of an audit is $10,000 and the company faces two audits per year, the annual cost is $20,000. Reducing the audit frequency to one per year can save $10,000 annually.

Real-life example. Modeling and assumptions for the composite organization Forrester assumes:

• A compliance team of six FTEs.
• The organization achieves a 40% efficiency gain for reporting, a 40% efficiency gain for exemption certificate identification, and a 40% efficiency gain for oversight activities.
• The annual fully-burdened salary of a compliance team FTE is $108,000.

Risks. The value of this benefit may vary depending on:

• The actual burdened salary of a compliance FTE.
• The complexity of an organization’s compliance requirements.
• The frequency of audits that an organization may experience.

Results. To account for these risks, Forrester adjusted this benefit downward by 10%, yielding a three-year, risk-adjusted total PV of $494K.

Operational efficiency. Modern systems can improve overall operational efficiency, leading to cost savings in other areas.

• Example. If modernizing the tax system improves overall operational efficiency by 10%, and the annual operational cost is $1,000,000, the savings would be $100,000 annually.

Real-life example. Modeling and assumptions for the composite organization. Forrester assumes:

• There are an average of 10 changes processed monthly, ranging from simple rate updates to more complex rule changes.
• Each update takes an average of 40 hours of internal labor when considering research, interpretation, implementation, testing, and deployment activities.
• The average fully-burdened salary for IT resources is $135,000 per year.

Risks. The value of this benefit may vary depending on:

• The number and complexity of changes processed annually
• The amount of time and effort it takes to accurately process a change
• Average salary differences

Results. To account for these risks, Forrester adjusted this benefit downward by 20%, yielding a three-year, risk-adjusted total PV of $297K.

Quantify risk reduction

Compliance risk

Penalties and fines. Estimate the potential penalties and fines for non-compliance.

Modern systems can significantly reduce the risk of non-compliance.

• Example. If the potential fine for non-compliance in a key jurisdiction is $50,000 per incident, and the company faces two incidents per year, the annual risk is $100,000. Reducing the risk to one incident per year can save $50,000 annually.

Reputational risk. Quantify the potential impact of reputational damage from tax non-compliance. This can be more difficult to quantify but can be estimated based on past incidents or industry benchmarks.

• Example. If a tax non-compliance incident could lead to a 1% drop in stock prices, and the company's market capitalization is $1 billion, the potential loss is $10 million.

Operational risk

System downtime. Estimate the cost of system downtime due to outdated or inefficient tax systems.

• Example. If system downtime costs the company $1,000 per hour and the current system experiences 10 hours of downtime per year, the annual cost is $10,000. Reducing down time to two hours can save $8,000 annually.

Quantify strategic advantages

Competitive advantage

Market. Modern tax systems can facilitate faster and more efficient expansion into new markets.

• Example. If entering a new market can generate $500,000 in annual revenue and modernizing the tax system reduces the time to market by three months, the additional revenue is $125,000.

Customer satisfaction. Improved tax processes can enhance customer satisfaction and loyalty.

• Example. If improving tax processes leads to a 5% increase in customer retention, and the average customer lifetime value is $1,000, the additional revenue from retaining 100 customers is $50,000.

Regulatory compliance

Futureproofing. Modern systems can help the company stay compliant with evolving tax regulations, reducing the risk of future non-compliance.

• Example. If the cost of a major regulatory change is $100,000, and a modern system can reduce this cost by 50%, the savings are $50,000.

Want to use our proprietary ROI calculator? Connect with a Thomson Reuters representative to calculate an in-depth estimate of benefits you can expect from using Thomson Reuters ONESOURCE.

Customer stories

Adobe — Multinational software company in a perfect storm of indirect tax challenges

Challenge

Inefficient processes, draining resources, wasting time.

Adobe needed to control indirect tax processes due to:

• Constantly evolving global tax and e-commerce
• Spreadsheets with millions of line items — one wrong input could result in a domino effect of inaccuracies
• Three disparate tax systems for U.S., international, and e-commerce related taxes
• EU tax jurisdiction changes

Solution

Adobe moved to a single tax platform to understand their global environment, meet compliance needs, and address the complexity of sales and use tax.

Results

Reduced risks associated with indirect tax calculation, reporting, and compliance by gaining complete control over the indirect tax process.

Cisco Systems, Inc. — International IP networking solutions needed real-time global tax determination

Challenge

With a global footprint of tax professionals and distributed systems, tax consolidation and visibility made scaling the company a challenge as they moved into new markets and increased channels of distribution.

Solution

Cisco needed a central audit and compliance database to address global business practices with real-time global tax determinations for each transaction.

Results

• Quicker response time globally
• Simplified and improved tax automation processes
• Real-time global tax visibility
• Increased efficiency
• Reduced costs, risks, and exposures
• Improved strategic tax planning