Local compliance in global business

As companies set up centralised shared service centres and move finance jobs out of the local countries, they still need a way of staying compliant with local country regulations. BDO has conducted a study with senior finance executives from major global companies, to find out what issues they face in this area and how they are tackling them.

Centralisation is the way forward

The study found that global businesses are on a journey to streamline their finance operation. Typically this means migrating transactional functions to regional hubs or shared service centres, either through in-house or outsourced operations. This is driven by the need to cut costs, maintain central control, build scalability for future growth, or even to allow the finance function to add more value to the business.

However, there is still a need to comply with local regulations; for example tax returns, local accounts filing, company secretarial/payroll.  Challenges of scale and the need for local knowledge in these areas are often the most significant barrier to delivering a truly centralised finance function. Or as one respondent commented – “It’s hard to find Peruvian GAAP knowledge in Bangalore”.

Compliance

The study identified that compliance was never a driver for change and was rarely a primary consideration. However, if compliance is not addressed, it can present significant risks and prevent the maximisation of transformational gains.

They study identified four models that companies are using for local compliance:

• In-house, in country – the traditional model, still used by many companies in the larger countries
• Local outsourcing – FD or controller identifies a local firm in each country – lots of relationships to manage
• Centralised outsourcing, central delivery – automate, or use a processing factory in a central location
• Central outsourcing, local delivery – a single global firm using local specialists with central coordination and a single point of contact

Of these, centrally coordinated outsourcing with local service delivery was seen to be the most attractive model but not the model most in use.

The Local Compliance in Global Business study report can be downloaded here (.PDF < 634 KB).

The consequences of non-compliance in Global Business

Global businesses are increasingly centralising their financing functions, looking to increase efficiency by running their finance and reporting functions from shared service centres instead of replicating the entire structure of the function in every country. The cost efficiency and greater degree of control given by centralised business models makes them unquestionably attractive. But they are not without risks.

Operating in a multiplicity of countries inevitably also means having to comply with many local regulations- for tax returns, statutory filing, payroll, and many more. Compliance regimes can be simple or complex, but more than anything they are varied. Furthermore, many territories change their filing regulations frequently, and without a contact in the country, it can be difficult to keep abreast of these changes. Therefore, the highest barriers to a truly centralised finance function are the problem of scalability, and the continued need to rely on local expertise. Without that key local knowledge, businesses can run foul of laws entirely unintentionally - but the consequences could still be strict.

BDO has conducted a study to examine the penalties and regimes that are in place the world over, asking partners from throughout our global accounting network to give us a snapshot of the state of play in their country, and the penalties for failing to comply with the regulations. The responses of 67 of those countries are summarised in this report.

The consequences of non-compliance in Global Business report can be downloaded here (.PDF < 754 KB)

To obtain a printed copy either report, or to discuss the implications for your own business, please contact David Lewis or Richard Cantor, Partner, Business Services and Outsourcing.