Tax cosourcing: the flexible alternative to tax outsourcing.

• Author: Chapman, Robert T.

As more companies debate whether to outsource their tax functions, one thing is clear: Tax outsourcing is a growing trend, not unlike information technology (IT) outsourcing was 25 years ago. The question now, as then, is whether to outsource portions or all of the tasks. And now, as then, many outsourcing service providers only offer one "flavor"--total outsourcing, in which the service provider typically assumes the entire tax compliance function.

Another approach exists, however--one that more closely mirrors the IT outsourcing world today. It's a concept that enables companies to have the best of both worlds. "Tax cosourcing" represents a more strategic approach in which a company keeps in-house those areas of the tax function that are most strategic and central to its mission and objective, while outsourcing those tasks that are resource intensive and non-value-added.

Because it is flexible and collaborative, tax co-sourcing focuses on aligning a company's tax functions with the strategic objectives of the organization. It helps a company optimize its tax resources. Leading companies today are leveraging cosourcing as a customized, strategic business option that enables their existing tax department to add the greatest value where it is needed most.

Adding Flexibility to the Equation

Cosourcing encompasses a wide range of options, making it vastly different from traditional outsourcing strategies. With cosourcing, a company can decide what areas to outsource, when, and for how long. This is a particularly appealing option for companies that are in transition because of a major merger or acquisition, financial distress, or outdated tax systems and processes.

To take advantage of this flexibility, some companies prefer to outsource one area--often a compliance function, such as sales and use tax or property tax. Like other compliance functions, these tax functions consume tremendous resources and can burden an entire tax department, especially during periods of change in the broader organization.

By engaging a trusted, qualified third party to take responsibility for this work, a tax department can achieve several critical objectives:

* Testing the outsourcing model at relatively low risk to the organization.

* Shifting resources to more productive, value-added work, such as overall tax planning, planning for critical upcoming business transactions, and attending to broader risk management activities that are common in the Sarbanes-Oxley...