Tax Compliance Sourcing Strategies

Tax Compliance Sourcing Strategies

As your business grows and you enter new markets, the traditional perspective was that all your teams, processes, and needs must grow as you scale, but this traditional paradigm has changed with the digital economy, and teams must continue to deliver with minimal scaling or changes. On top of that, the landscape of digital services is rapidly evolving, and businesses are forced to deal with every country’s specific rules and regulations on indirect tax compliance. So, what options do you have when your compliance responsibility has grown?


Insourcing involves handling most aspects of indirect tax compliance internally within the organisation. This strategy gives companies maximum control over their processes but requires significant investment in talent, technology, and ongoing training.

It is not common for the tax team headcount to grow in order to cover every new responsibility that the scaling of the business brings to the table. Most simply, these new responsibilities are being distributed among the existing team members. As new obligations arise, a good practice is to take the opportunity to review the existing processes and procedures to see if and how they can be improved.

In light of this, teams often look to technology to automate processes, but automation frequently requires a great deal of expertise to manage and is not always affordable to introduce.

Tax Software exists on the market, but much of it is designed to replace Excel and does not address many (or any) of the real underlying issues. The unfortunate reality is that poor communication, data quality concerns and tight compliance deadlines will remain an issue with most automation solutions.

As a result, teams continue to seek and explore alternative options like outsourcing or co-sourcing.


Outsourcing involves partnering with third-party service providers to handle some or most aspects of indirect tax compliance. This strategy allows companies to leverage external expertise while directing scarce internal resources to core business activities.

Outsourcing has traditionally been viewed as the great saviour for tax teams that are facing a mountain of work, but while it may be an excellent short-term solution, it often introduces new hurdles and doesn't address many of the same problems that insourcing has.

The idea of having an external team that handles your compliance work end-to-end without any help is, unfortunately, very much a dream. Yes, they are external, and they often do not know your data, and data problems remain unfixed. Thus, much of your time is either spent helping the external team correct your data, providing context, or, in some cases, still doing 90% of the work.

There are also some practical considerations to an outsourcing arrangement. One of these concerns is cost. Often, the cost per return is substantially higher than the initial quote, which is normally due to billable hours and other charges. Most of the automation is having many people externally do the work, but throwing an army at the problem often leads to varying quality of the underlying submissions. Then there is the big question of who is responsible when things go wrong.


A new emerging trend is co-sourcing. Co-sourcing is a collaborative approach, where the company retains some in-house functions while outsourcing others. This strategy provides a balance between control and external expertise.

Co-sourcing is also where a software solution is used to automate tasks like data ingestion, data enrichment, validation and then the data is used to generate things like returns/reports etc. From there, responsibility for certain tasks is split between internal and external teams. This gives you the benefits of both worlds, allowing your team to focus on the high-value (or high-risk) countries and processes, and allowing an outsourcing partner to do the low-value tasks like last-mile delivery, or handling things like international payments.

By having a single platform, it reduces the burden on the existing team and centralises communications, processes and procedures. Ultimately providing a transparent flow of data internally and externally, making it easy to get the work done.

In the below table, we summarised the most important aspects of the 3 different sourcing approaches.

Insourcing OutsourcingCo-sourcing

How can Fonoa Help

To facilitate the efforts needed to comply with GST and VAT filing obligations globally, Fonoa developed Fonoa Returns. The Fonoa Returns product supports the preparation, review and submission of returns globally. It is the ideal product for multinational businesses with teams looking to take advantage of a co-sourcing solution.

The product allows for collaboration and workflow tracking with in-house and multiple external providers depending on your business needs.

Simply contact our team if you would like to receive more information.

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