To Insource or to Outsource? That's the Question: Corporate culture determines whether outsourcing adds value.

• Author: Welch, Katrina

Whereas the decision to outsource key components of the tax function may have been cyclical in the past, increasingly outsourcing looks like a trend that's not going away. But what goes into making that decision, and is there room for a hybrid model that combines insourcing and outsourcing? To find out, we convened a mini-roundtable in May that paired Katrina Welch, vice president and tax director at Texas Instruments and, starting in August, TEI's international president, with Jim Kennedy, senior vice president and chief tax officer at Oppenheimer Funds and, starting this August, TEI's senior vice president. Michael Levin-Epstein, Tax Executive senior editor, moderated the discussion.

Michael Levin-Epstein: What are the advantages and disadvantages of insourcing versus outsourcing?

Katrina Welch: For insourcing, the natural thing for our company is that we own this information and we're passionate about it. Historical knowledge, familiarity with the business, working closely with others internally outside of the tax function--I think these are advantages for the insourcing model. If you have a finite number of people on the team, or gaps in expertise, that's where the outsourcing model can have an advantage.

Jim Kennedy: First of all, I agree with what Katrina said. Beyond that, I think you have to ask a threshold question before you get to whether or not the advantages and disadvantages weigh in one particular direction, and that is, "What's the value-added proposition of an in-house function?" It's really dependent upon the corporate culture and the view of tax. Is it a value-added shop, or is it a compliance shop? If the C-suite doesn't perceive corporate tax as an enhancement to operations, but rather just, say, a regulatory requirement, then tax is really not a core competency, and it's at risk of being outsourced. I think the key is the ability to demonstrate, consistent with what Katrina was saying, that the value-add that comes from having the in-house tax professionals working with the business and enhancing the execution of the strategy in operations from an after-tax perspective, that is critical. So, the understanding of how a given company operates--and could operate--coupled with the institutional memory that's resident in the in-house tax professionals, I think makes all the difference in the world.

Welch: I'd like to add on to something that Jim said. I happen to agree with what he shared, as well. To me, having robust...