How KPMG’s specialist tax operation in Budapest has grown from a one-client unit to a high added-value SSC targeting a staff of 700.
Some people like stamps, some like railway timetables: Ancuta Cotuna likes Value Added Tax.
“It may seem funny, but I like VAT, very much,” the 31-year old Romanian says, laughing at how nerdy it may sound. “The legislation is changing all the time, and you donʼt get bored.”
So, in 2014, when she was working as a general tax adviser in Timisoara, western Romania, and she spotted a vacancy in Budapest in a business specializing in VAT compliance, it seemed an opportunity not to be missed – all the more so since she hankered after “a foreign work experience”.
Cotuna landed the job, and three years later, has progressed to first managerial level with KPMG Global Services Hungary (KGSH), a business founded in 2009 that now employs 430 specialists, primarily focusing on VAT and other tax matters for multinational clients.
“When we began it was already clear there was growing demand from multinational companies which were having difficulties, particularly ensuring their subsidiaries were… meeting their VAT payments correctly,” Michael Glover, who has headed KGSH since the beginning, tells the Budapest Business Journal.
Getting VAT compliance right when operating with a dozen or more subsidiaries, even in countries within the European Union, might appear straightforward on paper, but in practice causes numerous headaches.
“VAT rules are complex and are forever changing. Tax authorities also change their interpretations of the law, mistakes are constantly being made in data input – think rubbish in, rubbish out,” Glover says. “All of which means [at headquarters] groups often have no idea what is going on regarding VAT compliance in their subsidiaries.”
As an example, he cites the numerous times KGSH has asked clients to provide a full list of their VAT registrations; in theory, at least, a fairly fundamental request. “Yet in practice, almost none can do so!” he says. Indeed, the team invariably find errors in “every data set” of accounts payable and accounts receivable processed; sometimes serious errors. All of which means multi-national companies are frequently exposed to risk in their systems, and equally frequently “groups do not know if they are exposed, or where or how”.
Rather than having individual operations in each subsidiary calculating VAT returns, Glover set out to create a unified team which could say: “We’ll take the data off you once, we’ll deal with that data, and run the whole process [to complete] the VAT returns and identify any errors or issues.”
As Andrew Majlath, managing director of Process Solutions, a Hungarian financial services provider, commented on the model: “Who, in their right mind, wouldn’t sign up to that? I take my hat off to Mike and his team for spotting the opportunity and implementing a solution.”
Glover originally created KGSH around a small team of multi-lingual tax specialists, able to understand and interpret the VAT laws in the countries of the European Union. They were complimented with a clutch of software specialists, capable of writing the programs needed to accept and convert client data to a standard, in-house format, and subsequently analyze that data, checking it against a set of diagnostic tools to highlight any inconsistencies or errors for the tax experts to pore over.
The new operation, initially put to work for a Swiss-based multinational client, proved successful. “We started to grow quite quickly, attracting new clients,” says Glover. Not only that, but the team began to identify other processes where a specialist, centralized operation could deliver efficiencies and savings for clients.
Today, although VAT compliance forms the bulk of the work, and countries in the Asia-Pacific region are now serviced too, separate teams deal with tasks varying from preparing personal taxation returns for Swiss-based, ex-patriate executives to helping on-line traders (using the likes of e-bay and Amazon) to be VAT compliant in multiple countries.
KGSH now boasts more than 300 clients, including major multinationals from IT services and brewers to automakers. Revenues in the last financial year hit EUR 19.6 million, with growth running at some 28%.
KGSH is a good example of a specialized, high added-value shared services center (SSC), says Péter Villányi, vice-chairman of the Hungarian Outsourcing and Service Association. With salaries and costs rising over the past two decades in Hungary, “there is a trend away from the basic SSC operations founded in the 1990s to more complex, high added-value operations such as analytics and financial modelling”, he says, citing companies such as Diageo, Avis-Budget and Morgan Stanley, all present in Budapest.
However, such operations are typically “captive” SSCs, i.e. they operate in-house, dealing with their own company’s core data. “I think the KPMG operation is an exception here,” because it is dealing with sensitive, core data for outside clients, Villányi says.
According to Glover, KGSH is unique in terms of size and focus. “We have competitors, but not on the same scale, or same growth patterns,” he says. KGSH is now eyeing opportunities in countries from Arabia to South America, and expects to expand to 700 employees by 2020. Thus far, it has evaded the labor shortages in Hungary, meeting needs from domestic universities and the international grapevine.
Its own recruits also play a part: Cotuna, for example, has lured her brother to the tax compliance cause. Cornel Cotuna, 29 and a former electrician, joined KGSH 18 months ago. He appears happy with the job, although his passion for VAT doesnʼt quite match that of his older sibling. “I like it [VAT],” he says, “but, no, no, no. I don’t love it like she does!” he chuckles.