10 Sep
Blogposts

Opportunities and possibilities of a universal tax engine for the financial industry.

Can the calculation, with-holding and certification of taxes by the financial service sector represent a future-oriented scenario for a central software solution?

The tax issue will in the near future remain an essential factor in the efforts of the financial industry towards achieving better regulatory compliance. Fragmented system environments, legacy systems which are difficult to maintain and a business segment-oriented silo architecture often pose an obstacle for an overall view of the customer as well as a reliable, correct tax treatment of his assets and transactions. Can the calculation, with-holding and certification of taxes by the financial service sector represent a future-oriented scenario for a central software solution?

The financial service sector has increasingly been involved in guaranteeing the tax conformity of its customers in Europe and worldwide during the last few years. This includes the calculation, retention, payment and reporting of taxes. In this light, the tax issue will remain a key factor in the financial industry’s efforts to improve regulatory compliance in the foreseeable future.

High complexity and diverse requirements

This is a challenging situation for the affected financial service sector in a number of ways. Frequent changes of the relevant legislation, confidential customer data, in particular duty to due care and attention, cost aspects and audit requirements represent a range of demands for IT, operations and management, which are difficult to balance. For internationally active groups, the complexity additionally increases due to the often significant differences in the country-specific tax laws.

Competence centres instead of silos

Fragmented system environments, legacy systems which are difficult to maintain and a business segment-oriented silo architecture often pose an obstacle for an overall view of the customer as well as a reliable, correct tax treatment of his assets and transactions.
Established application environments reach their limits with a classic silo architecture. They should be supplemented by applications which can handle taxes centrally and beyond multiple asset classes. This does not only facilitate the check of tax conformity, but also provides the technical basis for the creation of cross-country “competence centres”. It is important that such central applications represent cross-country as well as country-specific taxes in an appropriate, accordingly encapsulated form. Due to the mostly short implementation times for tax changes, the applications should also be able to represent a lot of functional logic through configuration instead of program logic.

A universal tax engine for the financial industry

Can the calculation, withholding and certification of taxes by the financial service sector represent a future-oriented scenario for a central software solution?

A centralised solution, which is based on the experiences of past years and considers the special challenges in this environment, maps the following design specifications:

  • Taxes are country-specific
  • Data demand and calculation logic can-not be determined with certainty at the time of solution design
  • Cost and risks for operation and implementation are to be minimised
  • Results must be explainable and transparent
  • Handling of large transaction volumes must be possible
  • Service-oriented architecture is to be supported

As a result: A general framework for tax calculation and the supply of tax-relevant data with high flexibility and reliability.

Conclusion

Especially in an environment of internationally largely uniform tax regimes such as, for example, double taxation agreements (DTAs), in particular US withholding tax, such a central special product for the international financial industry would make it possible to implement attractive and service-oriented solutions up to APIs for a future “banking as a platform” world.
For large institutions in particular, the cutting-edge architecture offers the chance to implement the sensitive issue of taxes in a more easily maintainable and manageable system environment.

Get in touch
Wolfgang Göb
Head of Business Development