The risks of Tax Outsourcing

Tax outsourcing involves delegating the preparation of a company’s tax returns to a specialized provider. It is a powerful tool for improving administrative efficiency and strengthening tax risk management. However, if not managed properly, it can also become a significant source of complications.

One of the main mistakes is assuming that a highly skilled tax professional necessarily possesses the skills to provide tax outsourcing services. Outsourced tax management requires not only technical expertise, but also solid procedures, controls, and compliance protocols.

A major risk lies in selecting the wrong provider. Delegating critical functions to a team lacking operational knowledge of the regulatory environment or experience in tax outsourcing can result in omissions, penalties, and even administrative inefficiencies.

Another risk is the provider’s lack of experienced professionals capable of handling non-recurring or high-risk transactions, such as corporate reorganizations, transactions with non-domiciled entities, or uncommon contractual structures. The absence of well-defined criteria from the provider may lead to determining an incorrect tax treatment for these transactions or failure to identify them altogether.

Furthermore, if the scope of the service is not clearly defined, it can result in service gaps or duplicated efforts. It is essential to clearly determine which tasks are the provider’s responsibility and which will remain under internal control.

It is also important to emphasize that tax outsourcing is not a substitute for proper accounting practices. Attempting to calculate taxes without a sound accounting foundation is both unfeasible and risky.

At BDO, we understand these risks and work with an integrated approach: teams specialized in tax outsourcing, control protocols, and clear communication. We ensure that your company can delegate with confidence and achieve tangible results.
 

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