Why would you use a hybrid approach as opposed to a global solution?
The main reasons businesses choose the hybrid model is to manage costs and resources. When implementing an external tax engine as a single global solution, the costs can fluctuate significantly and the more you use it, the more you pay for it. The cost models for these global solutions can be based on parameters such as billing at a transactional or country level, or based on the value of invoices going through the solution. Companies can reduce costs significantly by only using external tax engines in countries such as the US (which have thousands of rates / jurisdictions) and implementing a more suitable solution in over 100 countries that don’t require the use of a global tax engine.
Another consideration is the cost of resources required to implement and maintain a global solution. The external interface that tax engines require can be very costly to install and requires additional IT resources to maintain. There is also significant implementation time needed in relation to cleaning up and replicating master data between the SAP ERP and the external tax engine.
A further consideration is to implement solutions built specifically to handle the complexities of different jurisdictions from a technical and functional perspective. The traditional external tax engines are primarily built to handle the complexities of US sales tax, and many do not easily adapt to the complexity of local European complexities (particularly intra-EU exemptions and simplifications).
There is also the issue of data security. As mentioned above the external tax engines move data from companies ERP systems via external interfaces to external data centres. This can cause major concern for IT departments.