How Multi-Currency Billing Simplifies Tax Compliance for MSPs and ITSPs

How Multi-Currency Billing Simplifies Tax Compliance for MSPs and ITSPs

Former United States Senator Max Baucus famously said, "Tax complexity itself is a kind of tax."


Managed Service Providers (MSPs) and Internet Telephony Service Providers (ITSPs) could not agree more.


As MSPs and ITSPs grow, so do their tax complexities. They cater to clients across the globe. For many of them, offering managed services and internet protocol-based (IP-based) telephony services is not at all difficult.


But when it comes to dealing with different currencies and complying with different tax regimes, it can be extremely confusing and taxing!


On one hand there are complexities of exchange rates and payment processing. On the other there is the complexity of tax compliance.


In such a scenario, they must do whatever it takes to streamline multi-currency transactions as well as simplify tax compliance.


In this blog post we will explore what are the challenges MSPs and ITSPs face in complying with different tax regimes and how they can simplify tax compliance by leveraging a sophisticated multi-currency billing solution.


If you own (or work in) an MSP or ITSP, this blog post is just for you. So, without further ado let's dive right in! Read on and thank us later.


The Present State of MSPs and ITSPs 


According to MarketsAndMarkets report, the global market is projected to grow at a compound annual growth rate (CAGR) of 6.9 percent from USD 365.33 billion in 2024 to USD 511.03 billion.


As per a report released by Market Research Future, the global IP telephony market size is projected to grow at 12.32 percent CAGR from USD 33.76 billion in 2024 to USD 85.56 billion by 2032.


What's remarkable is the revenue of a sizable number of MSPs! As per Datto’s annual global survey about two out of every five MSPs are reporting an annual revenue of USD 2.5 million.


A survey conducted by Avalara found that 73 percent of MSPs that perform well and have low audit risk use end-to-end communications tax solutions. The poll also revealed that about 70 percent of them automate tax returns and filing. Most use Enterprise Resource Planning (ERP) systems coupled with comprehensive tax solutions.


Why Tax Complexities are Big Challenges for MSPs and ITSPs?


Complying with different tax regimes can be challenging for MSPs and ITSPs due to many reasons. Some of those are:


1. Different Tax Regimes in Different Countries


MSPs and ITSPs serve clients from different countries, which have different tax rates, policies, as well as rules for taxation of different types of services.


For instance, the European Union has a complex Value Added Tax (VAT) that differs from one member country to another.


The US has state-specific as well as city-specific sales tax rates. Latin American and Asian countries have tax regimes radically different from their Western counterparts.


For service providers working with clients in multiple countries, manual tracking of different tax laws and ensuring compliance to each one of those can be cumbersome and result in errors.


2. Bundled Services


Almost all MSPs and ITSPs bundle several services together and offer those as a consolidated package. Bundling of services is a fast-growing trend in the managed services and telecom sector. However, it comes with its share of challenges for service providers. If one service is taxed differently than another, the bundling of different services can complicate the tax structure.


3. Different Revenue Models


MSPs and ITSPs charge their clients using different revenue models, such as SaaS model, subscription model, and recurring model. They also charge a one-time fee for certain services. This leads to complications and challenges. If revenue models are taxed differently, then it can be difficult for the service providers to calculate taxes manually.


4. Need to Remain Updated with Evolving Technology


In today's age, digital technology is evolving at a breakneck speed. There are many tech startups and new-age companies that are automating tax calculation and compliance. CereTax and SureTax are two excellent examples for US-based customers. MSPs and ITSPs need to remain updated with the evolving technology and integrate those in their billing systems.


5. Changing Tax Laws


Let's face it; more often than not, tax laws keep changing in regular intervals. The time lag can vary from as frequently as a couple of years (or less) to as late as a decade. But change is the only constant. However, it may be challenging for MSPs and ITSPs to remain abreast of every change in tax laws, unless there is an automated mechanism. 


How Multi-Currency Billing Helps in Simplifying Tax Complexities?


Multi-currency billing systems enable MSPs and ITSPs to simplify tax complexities in the following ways:


1. Automated Tax Calculation and Currency Conversion


Multi-currency billing systems can automatically calculate the right taxes as per the client's location. In addition to that, they can convert service charges into the client's local currency and comply with the tax regulations accordingly.


2. Compliance with Region-Specific Taxation Laws

   

Multi-currency billing systems can ensure that MSPs and ITSPs remain compliant with local tax laws. To give an example, if an MSP is billing a client in Texas, the billing system will automatically apply the state's tax rates. Likewise, if an ITSP is billing a client in London, the system will apply VAT as per the UK's tax laws.


3. Simplified Tax Reporting


When MSPs and ITSPs deal with multiple currencies and tax regimes, they can be overwhelmed by manual financial reporting. But by leveraging the right multi-currency billing system, they can automatically generate real-time analytics and reports. That not only simplifies the tax compliance process but also ensures high accuracy of data and reports.


4. Reduced Risk of Errors and Penalties


As tax regulations change, MSPs and ITSPs need to remain abreast with the latest updates. Without the absence of a sophisticated billing system, it's extremely difficult. However, by leveraging a reliable and sophisticated multi-currency billing system, MSPs and ITSPs can remain updated on the changing tax rates and laws. By doing so, they minimize the risk of errors and avoid costly penalties for non-compliance.


Taking Everything Into Consideration


For MSPs, delivering high-quality and reliable managed services to clients should be the main focus. Likewise ITSPs should focus their entire attention, effort, and time to provide stable and cost-effective telephony services. 


Taxes are not their forté and they shouldn't worry about the complexities involved in it. That's why it's extremely crucial for MSPs and ITSPs to leverage the right billing payment system to comply with domestic as well as international tax laws. 


Some cutting-edge multi-tenant IP PBX software solutions come equipped with sophisticated multi-lingual and multi-currency billing systems, which can enable MSPs and ITSPs to simplify their tax compliance.


As an owner of (or a senior professional in) an MSP or an ITSP, you need to invest quality time and efforts in handpicking the right multi-tenant IP PBX software solution that has a built-in multi-currency billing system.