Roundtable No. 4: insourcing vs. outsourcing.

• Position: Discussion

Corporate tax practice is becoming more complicated, and the expectations placed on TEI members more demanding. So it's not surprising that more corporate tax practices are considering or already outsourcing more tax functions. How do you make the decision to outsource, and what are the challenges facing those companies that do? The roundtable, moderated by Tax Executive Senior Editor Michael Levin-Epstein, included: Walter B. Doggett III, vice president of tax for E-Trade Financial Corporation and chapter representative for TEIs Baltimore-Washington Chapter; Susan Musch, head of tax for Sasol North America, TEI Executive Committee member and chapter representative for TEIs Houston Chapter; and Tony Valento, vice president of tax for Orbital ATK and chapter representative for TEIs Minnesota Chapter.

Michael Levin-Epstein: Lets begin TEIs fourth roundtable with a basic question: In terms of outsourcing in the last decade, do you think it's on the rise, declining, or about the same?

Walter Doggett: I would say that outsourcing is continuing to increase. I believe that out-sour-Spg is due first and foremost to the fact that the corporate tax management function is increasingly complex. This is particularly true if a company is operating in multiple states and numerous foreign countries. It is also reflective of the many types of taxes we now face: income and frafichise (both federal and state), property, sales and use, and transfer taxes. It is important to have expertise in all these areas, which is often not found completely under one roof.

Tony Valento: I agree with Walter regarding the variety of reasons and his rationale. In addition, we always hear the phrase "do more with less" or "do more with the same" as companies grow, or expand into different geographical areas, with tax teams taking on different types of taxes and tax responsibilities than what they've had in the past, which starts to stretch the team's bandwidth. As a result, we have to look at what discrete projects we might be able to get some outside help with by outsourcing, or possibly if there is a temporary need to bring in some contract help, to meet the demand.

Susan Musch: I agree with Walter and Tony on why outsourcing is continuing to increase. Tax departments face head-count and resource limitations while needing particularized expertise to handle the multitude and complexity of taxes for their industries and geographic locations. I have seen this, for example, in the case of indirect taxes where you need to have localized expertise.

Levin-Epstein: Are you aware of any companies that do everything in-house and don't outsource anything?

Valento: I am not.

Doggett: No, that would be very difficult to achieve.

I am aware of several recent examples where the entire tax compliance function has been outsourced.

Musch: No, I am not. If there are, I expect they're rare.

Levin-Epstein: Whose decision is it at a company to go to outsourcing? Is it decided by a committee, or is it usually one person?

Valento: The recommendation to outsource generally comes from the leader of the tax team, based on his or her team as well as their own analysis of the situation. The actual decision, however, is typically made by whomever the tax function reports to, or perhaps even further up the organization. Because at the end of the day there's a financial implication to the decision, the CFO would certainly have a hand in the decision.

Doggett: I would agree with Tony, the recommendation to outsource a particular tax function would likely originate from the VP of tax, based upon an analysis of the strengths and bandwidth of the tax team. The ultimate decision would need to be approved up the chain of command internally before such a recommendation is actually implemented.

Musch: I also agree with Tony. More recently, I've seen this decision arise, for example, when an employee retired and the decision was made to outsource the indirect tax functions for which he was responsible. The decision started in the tax function but was approved up the chain of command.

Levin-Epstein: If a decision is made to outsource a particular function, either on a permanent basis or on a temporary basis for a specific project, how do you determine whom you're outsourcing to? Is it a bid process, a request for proposal (RFP)? How does the process work?

Doggett: Once the decision is made, I would contact at least two firms with an established reputation in a given practice area and solicit an RFP. When you outsource, what you are looking for is subject-matter expertise. I rely heavily upon my relationships and contacts within TEI to help identify individuals and firms with specific subject-matter expertise. It is important to then follow through with your due diligence by personally meeting with the representatives from the firm and getting completely comfortable that they can assume this function and perform the job adequately.

Valento: I agree with Walter. Fortunately for the tax community, TEI provides us with an opportunity to reach out to our colleagues to find out which firm might be the best in a particular area within tax to provide some help with outsourced services. Occasionally we will have unique ideas...