VAT Compliance: The Business Case for a Tax Engine

Why VAT compliance demands more than your ERP can offer

VAT represents up to 30% of total revenue for many businesses, yet the end-to-end VAT process is often fragmented across departments and held together by hard-coded ERP condition records that are difficult to maintain and nearly impossible to audit. As governments push toward real-time reporting and continuous transaction controls, that approach is no longer sustainable.

The cost of staying in place

Traditional compliance relies on periodic corrections made before filing a return. Under real-time reporting regimes, every modification is visible to tax authorities. Too many corrections can trigger questions or a formal audit. Getting transactions right the first time is no longer a best practice. It is a requirement.

What a tax engine does differently

A tax engine centralizes VAT logic outside your ERP, applying consistent rules across every platform: SAP, procurement, eCommerce, and expense systems. It flags or blocks non-compliant transactions before they move forward. Legislative rate and rule updates are maintained by your software provider, removing the burden from your IT team. Adding a new jurisdiction or legal entity is a matter of extending a license, not rebuilding configuration from scratch.

Building the business case

Selling a tax engine internally means speaking your stakeholders' language. A CFO consolidating finance into shared service centers needs to know that local VAT knowledge will not disappear with the restructuring. A CIO managing ERP costs needs to see that VAT customizations are a significant hidden drain on IT resources. A Head of Tax with global responsibility needs confidence that rates and rules are accurate and current.

Costs (licensing, implementation, and maintenance) are straightforward to quantify. Benefits take more work, but they are real. Reduced audit corrections, faster invoice processing, fewer customer disputes, lower training requirements, and decreased consultancy spend all contribute. The tax team also gets time back when it stops firefighting daily issues.

Quantitative and qualitative gains

Across procure-to-pay, order-to-cash, and record-to-report processes, a tax engine reduces manual effort and error at every stage. In IT, it removes the need to build VAT logic for each new platform separately. In the tax department, it creates capacity for higher-value work. Qualitatively, it strengthens relationships with vendors and customers, limits reputational exposure from audit findings, and signals to tax authorities that VAT is actively managed, which can lower your formal risk profile in some jurisdictions.

This white paper, written by Vertex VAT Director Peter Boerhof, provides a 15-criteria comparison of native ERP, VAT add-ons, and a tax engine, along with a practical framework for building a business case that works for finance, IT, and tax leadership alike.