The more the process can be digitised, the greater the reduction in processing times and case-related processing costs, so that in the best case scenario all investors can get their money more quickly and reinvest it through preventative relief at source or prompt recovery. This can create a win-win situation: the investor gets money back increase their aftertax return in exchange for paying a service fee, and the service provider or financial institution increases customer loyalty, generates service revenue and can reinvest the withholding tax gained with the investor again.
In oder to operate the service economically, appropriate systems should allow for a high number of case volumes through bulk processing. A complete mapping of the above-mentioned aspects frees the service provider from having to maintain specially trained personnel in large quantities and thus generates a positive aspect in terms of process and personnel costs as well as fail-safety with a simultaneous reduction in errors.
When looking for a solution that facilitates navigating the tax relief space, banks need to decide whether they want to handle the processing of tax relief at source, quick refund and tax reclaim themselves or outsource this part of their operational value chain.
Once the strategic decision has been made to perform the processes in-house, banks need to look at options for standardising, automating and digitising the processing. Outsourcing, on the other hand, only shifts the question of efficient processing to the service provider, who must then also ask himself how he can process and offer the service cost-effectively and efficiently.
From the perspective of the financial institution, the following high-level comparison of the two approaches can provide guidance for making a strategic decision for in-house processing or outsourcing:
|Business Process Outsourcing (BPO)||Software (in-house)|
|Data Delivery||There are expenses for the regular preparation and transmission of the data to the service provider in the required form.||Costs are incurred for integration into the infrastructure (implementation and adaptation of the solution , connection of the interfaces to the core systems).|
|Data Security||Customer data is disclosed to external parties; it may be necessary to amend service contract with customers and/or make a Transfer Risk Assessment (“TRA”) under data protection laws, if cross border.||The sovereignty of the data remains with the financial institution, the service can be performed under power of attorney or without power of attorney, depending on the agreement with the customer.|
|Data Exchange||A well-designed process organisation for providing the required information to the service provider is necessary to avoid inefficient loops in case of missing accompanying documents, certificates, etc.||The provision of data and documents is carried out in-house in a direct way, if necessary by the software itself or via interfaces.|
|Infrastructure||Typically, little or no additional IT infrastructure is required.||The setup and operation of a software solution is required, possibly in the cloud (if this is covered by the financial institution’s IT policy).|
|Customer communication||Depending on the type of service, customer communication is handled by the service provider; the processing of customer queries must be clarified organisationally and approved by the financial institution.||Customer communication can be handled inhouse. In addition, comprehensive use of withholding tax data is possible, e.g., for sales purposes (reinvestment of reclaimed tax, proactive sale of withholding tax services, touchpoints with the customer).|
|Compliance/Risk||There is a shift of activities to the business process outsourcing provide, the operational responsability of risk management as well as tax compliance has to be clarified.||Responsability for risk minimisation and tax compliance remain in-house and should be ensured by appropriate software functions.|
|Reporting||Reporting is usually done by report outputs of the BPO provider according to the agreed service level agreements.||Due to the availability of data in-house, ad hoc analyses and insights are possible through corresponding reporting functions in the software or the connection to a data warehouse.|
|Resources||Within the framework of outsourcing, depending on the characteristics, hardly any or no personnel operational resources are required.||Small personnel resources are required (depending on the degree of automation) to ensure that the services are carried out with the software; in some cases, external personnel trained in the software can be called in on a situational basis.|