CASE STUDY Working to Ensure Tax Compliance has Never Been Easier

Founded in Budapest in the spring of 2018, by a Serb, British and Irish triumvirate, Taxually says it ensures “tax compliance has never been easier.” With some 1,500 clients after just 20 months of active operations, including names such as Amazon, the BBC and Alibaba, this Hungarybased start-up appears to be fulfilling its promise.

Members of the Taxually team at their Budapest base.

By Kester Eddy

First thing each day in the office, Kata Dalkó peruses a dozen or more websites specializing in VAT rules from the world’s most important tax jurisdictions. Though drinking a latte and seemingly relaxed, she checks the news with concentrated precision. “VAT is an interesting, dynamically changing field. It is essential for businesses to get their VAT reporting and payments right. As, normally, we are talking about large tax amounts, even small mistakes can lead to serious financial consequences,” she says. Dalkó, a senior manager with Taxually, knows that companies find

MACHINE LEARNING IRONS OUT TAX COMPLIANCE ISSUES IN ADVANCE

Stefan Mladenovic is not one to hide what he considers Taxually’s winning characteristics under a bushel.

“One of the biggest differences between us and the other service providers in the market is that we put a lot of effort into the on-boarding process. This approach makes the later, repeated processes, very easy,” he argues.

To do this, a company connecting with the Taxually system is asked to provide a full year’s worth of data, rather than a single month.

“With full annual data, we can immediately identify a lot of the anomalies in their reporting, and in their compliance. When you use one-twelfth of that, you can’t really achieve this,” he says.

Furthermore, the in-house technology can also predict likely managing their VAT returns in-house across different tax jurisdictions fiendishly complicated and timeconsuming. Hence the growth in recent years of this outsourced niche service. In turn, she is keenly aware that her review of regulations is a key task to keep her company at the forefront of tax-compliance service providers.

RELIABLE SOURCES

“Since we provide services in relation to many different jurisdictions, my aim is to find reliable and up-to-date sources [on changes to VAT rules]. Following the appropriate people on LinkedIn can also help, so anomalies, using the (anonymized) experiences from other companies’ data which has already been processed, enabling Taxually to alert clients to potential pitfalls in their filings.

As an example, Mladenovic points to the case of how much VAT a company can deduct on car rentals.

“Say you get an invoice from Car Hire X in, say, Poland. Now the local regulations may stipulate you can deduct only 70% of the total. If you are local, you may well know this, but if you’ve already centralized your reporting, the person who’s dealing with it in, say, Bucharest, probably doesn’t have that country-specific knowledge,” he says.

However, the system detects that the supplier of the service is Car Hire X, and sends an alert: “Hey, we’ve recognized a Car Hire X invoice, and in I start my days by reading the latest updates,” she says. But this is just a start. Whenever she finds news of changes, Dalkó turns to the original tax authority or governmental source to verify and clarify the details, frequently turning to her multi-lingual colleagues if the information is not available in English. It is this kind of dedication and thoroughness which supports Taxually’s strong growth, but the key to its success lies in the machine processes developed inhouse which enable vast amounts of complicated calculations over multiple tax jurisdictions to be computed within minutes. Poland it’s only 70% deductibility: you might want to check that invoice.”

“We’ve taken that from another company’s data, their experience, and we’ve built that into our data validation part,” Mladenovic explains. “Once it comes up for any other customers, we can recommend them an additional validation, one that they will not have had before.”

Which is where Kata Dalkó and her associated informers come in to consolidate all the local VAT tax rules, and any changes that they undergo, into the system.

“[This is why] we have dedicated roles for this knowledgemanagement aspect of it,” says Mladenovic. “They collect all this information, update it and make sure that we apply the different

rules [accordingly].” “We are taking a staid, old set of processes, and we’ve redesigned them for the future,” says Mike Glover, one of the three founding partners, who has spent a lifetime working with tax compliance. “This wouldn’t have been possible 10 years ago; technology has moved on to such an extent that it is now possible to be much more efficient and effective in terms of building the process, and then putting the technology behind that process. This is where younger people, with awareness of the latest technology, tend to come in,” he continues, gesturing towards the second partner, Stefan Mladenovic, originally from Novi Sad, Serbia.

3-STAGE PROCESS

Traditional providers of VAT compliance services, using a human-based offering, typically run a three-stage process before the work is delivered to the client, Mladenovic explains.

Although they might go by various names from firm to firm, essentially there is first a “preparer” or groundwork stage, where the raw data from the client is made ready for the number crunching. Second, “reviewers” ensure that the calculations and documents prepared comply with the different country rules. Finally, the “managers” check that the results all make sense in the context of the client’s business model. “VAT is an interesting, dynamically changing field. It is essential for businesses to get their VAT reporting and payments right. As, normally, we are talking about large tax amounts, even small mistakes can lead to serious financial consequences.”

“The three stages are of paramount importance in a process which relies heavily on human attention, skill and focus,” says Mladenovic. “However, the task for the software engineer is to go beyond the complexity that lies in taxes, and see what is common across different tax regimes and try to standardize, and simplify them to the largest possible extent.”

The Taxually team realized that by developing their own, custom-

Co-founders: (Left-to-right) Fergal Garvey, Stefan Mladenovic and Michael Glover.

designed software using the most modern information technology, and utilizing higher quality input provided by the second stage people, the first stage could be completed by machine. “The difference is that at Taxually, we need just one country specialist per country, whereas traditional providers need to increase country experts as the business scales up. In fact, Kata alone is, in effect, the expert for a batch of countries,” says Mladenovic. Because the first stage comprises almost 50% of the staff required, the results of this approach are, relative to this niche market, revolutionary.

Kata Dalkó’s advice to high school students is to follow their passion and be open to life’s options.

Every year, as they approach the end of their school careers, a majority of students will most likely agonize over what to study at university, fearful that the choice made at that time will decide their future career path, possibly locking them into a professional life ultimately not to their liking.

Dalkó, now a senior manager at Taxually and key figure in the company’s knowledge-management team, understands those feelings, but says by adopting the right approach and keeping an open mind, a vast choice of careers will open up, almost irrespective of the chosen degree subject.

“I chose communication and media sciences for my bachelor’s degree, finally graduating with an MA in international relations, both at Corvinus “An efficient, traditional service provider could process about 100,000 VAT returns per year with about 350400 employees. If you think about that, that’s up to 250 returns per person per year,” says Glover.

MORE PRODUCTIVE

Taxually now employs 40 people, around half of whom process 80,000 filings (the remainder being software development). “This makes us between 15-20 times more productive than the best traditional provider,” he says. This, in turn, results in a much faster, high quality, yet cheaper service for clients.

A multi-national group may typically have to file 1,000 VAT Kata Dalkó

University [in Budapest],” she says. “My original plan was to become a diplomat or perhaps a

PR expert but, as often happens, life had a different path for me.”

After graduating, Dalkó found an opening at KPMG’s Global Services international VAT team in 2013. returns annually across Europe, says Glover, by way of example. The bill for outsourcing these tasks to an efficient, traditional service provider (which would be, of itself, a considerable cost saving over running an in-house department) “would be in the region of EUR 280,000-320,000. We can reduce that by a good 25-30%, and cut the process time from weeks to a few minutes,” he says.

Little wonder then, that Taxually is growing at an exponential rate. The client base, which totaled 150 at the start of the year, had passed 1,450 at the beginning of October and is growing at 100 per week, while

FROM PUBLIC RELATIONS VIA DIPLOMACY TO INDIRECT TAX PROFESSIONAL

revenues, which last year were a “I’ve always loved research, analytical thinking and foreign languages; I’m fluent in Italian as well as English, and, of course, Hungarian, so this seemed like a good fit,” she says.

Dalkó started off learning “on the job”, but as she increasingly came to be fascinated by the practice and philosophy of VAT, she began studying for the Advanced Diploma in International Taxation: she is sitting her third and final exam this December.

Eight years into her professional life (and one year with Taxually), when invited recently by her former high school to speak to their seniors about education and career choices, Dalkó thought hard how to explain the very tenuous connection between her university studies and her career as an indirect tax professional.

Yet, unlike, say, a law student describing life as an attorney, it

mere EUR 200,000, are likely to be close to EUR 4 million.

In addition to the Budapest center, the company now boasts offices in China (an essential location, to help on-line traders comply with EU taxation regulations), the United Kingdom, Ireland, Germany, France, Poland and Italy. A U.S.-based subsidiary is planned for next year, or 2022 “at the latest”.

Headcount has grown from 15 at the start of this year, and is likely to hit 50 by the end of the year, with approximately 80-85% of the jobs in Hungary, mainly comprising software engineers and customer support staff. made her presentation all the more valuable for her youthful audience. “I realized that this does not really require an explanation. My career path is a perfect example that the decisions you make at the age of 18, or even at 23 do not necessarily determine what you can achieve in your adult life, and even less how you can achieve it,” she argues.

OPEN TO OPTIONS

There is no single, “right” career path to follow. People are able to find satisfaction, self-fulfillment, and happiness in various areas, provided they are open to the different options life offers. Dalkó, who was raised in the small town of Mezőtúr, 150 km southeast of Budapest, moved to the capital aged 14 for schooling. “Thanks to my parents, I had the privilege to learn about this openness already as a child: I took piano lessons for eight years, played handball for seven, and was part of the school choir during my “It’s been very exciting. Taxes are not the sexiest of subjects, it’s all very niche, but the market is huge, and there are not many players in it right now, and most of those are originally American.”

“It’s been very exciting. Taxes are not the sexiest of subjects, it’s all very niche, but the market is huge, and there are not many players in it right now, and most of those are originally American. They bring years at elementary school,” she recalls. She also studied foreign languages and attended dance classes “for quite some time before realizing that I would never become a professional dancer for sure.” “This was my parents’ way of teaching me that one can be good at many things and that it is perfectly fine to be indecisive about your future, just try to define what you love, be persistent and humble, keep your options open,” and Dalkó insists “great opportunities will show themselves on the way.” On this basis, she advises seniors to pursue the subjects they are passionate about and discover at university and afterwards the different possibilities out there. “Just because you go to medical school, you do not have to be a doctor; you can do research, become an academic or work in the pharmaceutical business, just to name a few,” she says. a completely different approach to European taxation, where we have more complex jurisdictions,” says Mladenovic, “whereas we go the other way around in our

conquering journey.” For sure, Dalkó is a living example of this philosophy: she freely admits that, pre-university, she had no idea or intention of becoming a tax expert.

“When people asked me at the age of 18 how I saw myself in 10-15 years, I had no clue I would end up in the field of VAT,” she chuckles. “No regrets, though!”

However, Stefan Mladenovic, her co-boss, stresses other key factors he looks for in new recruits.

“It’s not like we can hire welldressed salespeople to sell Taxually’s services,” he says. Along with sectoral knowledge and a professional attitude, he looks for “quality of character” in new hires.

“At the end of the day, we don’t need the Christian Ronaldos of the tax world, we need people who are able to collaborate and make us the FC Barcelona of taxes. It’s the team above all.”