Adding Value to Shared Services - Managing Statutory and Tax Compliance

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As Shared Services models evolve, new functions and functional extensions have been integrated into service offerings. One area however, that remains relatively under-served is Statutory and Tax …

As Shared Services models evolve, new functions and functional extensions have been integrated into service offerings. One area however, that remains relatively under-served is Statutory and Tax Compliance Management.

First and foremost, the integration of Statutory and Tax Compliance into shared services is normally considered only when an organization’s existing shared services is stable and credible. ‘Proof of concept’ is an important element in convincing the organization that shared services is ready for the next step. In addition, it normally requires that certain functional capability is in place such as trial balance maintenance, month-end close, balance sheet reconciliations, etc. (it’s pretty hard to maintain the statutory accounts if you don’t have control over these and likewise the preparation of a corporate tax return will be next to impossible). As highlighted in the following diagram, the adoption of Statutory and Tax Compliance is a step taken after a number of other steps have been taken and are in place, working effectively.

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  • 1. s Shared Services models evolve, new functions and functional extensions have been integrated into service offerings. One area however, that remains relatively under-served is Statutory and Tax Compliance Management. For companies who have done this successfully, the benefits are undisputed: • Compliance transparency and risk is managed more efficiently and effectively • Front-end Business finance support liberated from the essential, but distracting nature of compliance • Corporate Tax departments get more time to spend on strategic tax initiatives and spend less time being worried about compliance issues ….and it often costs less – and sometimes considerably less! Whilst acknowledging it needs specialized and local knowledge skills, shared services can be highly effective in managing the ‘processes’ of Compliance. Compliance – by its very nature – is incredibly rule bound and predictable. is is bread and butter to any shared service organization. However, the reality is that this area is embroiled in myth, lack of understanding and fear of the unknown because of the perceived consequences of getting it wrong. At Chazey Partners, we bring together people who, for the past 20 years, have been at the forefront of developing, testing and running successful Statutory and Tax Compliance programmes on behalf of many organizations. We have learned the hard way that it is a difficult challenge but also that ultimately, it is a better solution. De-mystifying the challenge Companies have been attempting to manage Statutory and Tax Compliance in multi-country environments through a shared services model since the mid-1990s and it’s really only over the past 10 years that robust and workable solutions have evolved. Prior to this there were a few attempts to do this but marked by a high number of failures. Adding Value to Shared Services - Managing Statutory and Tax Compliance ere are a number of reasons for such failures but the most common one involved trying to ‘centralize’ specialist and ‘local’ knowledge (and effectively establishing a ‘centre of expertise’). For example, try employing an accountant in Krakow with the aim of maintaining French statutory and tax compliance…..not only is that resource hard to get in Krakow (because they typically live in France!), it also expensive (they want a French overseas remuneration package). And should your French compliance accountant decide to leave for greener pastures or simply go back home – you are snookered! So the question arises about how to leverage the capability of shared services (as centres of excellence capable of process mastery), while at the same time balancing the need to establish the capability required to provide expert knowledge and, keeping abreast of legislation. Evolution – making the step change First and foremost, the integration of Statutory and Tax Compliance into shared services is normally considered only when an organization’s existing shared services is stable and credible. ‘Proof of concept’ is an important element in convincing the organization that shared services is ready for the next step. In addition, it normally requires that certain functional capability is in place such as trial balance maintenance, month-end close, balance sheet reconciliations, etc. (it’s pretty hard to maintain the statutory accounts if you don’t have control over these and likewise the preparation of a corporate tax return will be next to impossible). As highlighted in the following diagram, the adoption of Statutory and Tax Compliance is a step taken after a number of other steps have been taken and are in place, working effectively. A
  • 2. Making the move to shared Services Typically, the scope of shared services can include some or all of the following: • Preparation and filing of the annual statutory accounts • Corporate tax returns • Co-ordination of the annual audit • Preparation and submission of VAT, Sales Taxes and customs duties • Preparation and submission of the other statistical type returns (e.g. EU Intrastat) In addition, the local Finance Organization retains responsibility for the final review and, formal signing of the accounts and returns prior to submission to the authorities. A key issue which needs to be addressed when this work is moved to a Shared Services Organization (SSO), is the loss of local regulatory knowledge from the execution of the work. In most cases this issue is addressed by engaging with an Outsourced professional firm who has a local presence in each of the jurisdictions. e engagement of a professional firm, for example one of the main professional accountancy firms, as part of the solution provides an additional level of comfort to the local in-country signatories. ere are a number of variations in how this can be structured between the SSO, Local Finance and the Outsourced professional firm. ese can be summarised broadly into four options: 1. Outsource the preparation of the tax compliance returns and preparation of the statutory accounts to a third party professional firm. is relationship is managed by the SSO who provide all information required in agreed format to the professional firm. 2. Migrate all tax compliance and statutory reporting to the SSO. e SSO use a professional firm to provide local regulatory input to the process design and to review the statutory accounts and tax returns prior to their signature by local company officers. 3. A variation of option 1 or 2 where the statutory accounts and tax returns are signed by senior management in the SSO who have been appointed as officers of the local companies. 4. Transition all tax compliance and statutory reporting to the SSO. Local Finance retains a tax and statutory specialist to provide local regulatory input to the process and to review the statutory accounts and tax returns prior to their signature by local company officers. e way to determining the right approach for any organization involves multiple decision criteria and a thorough understanding of the contextual environment. What works best for one organization may not be suitable for another. e trick is to balance the right level of process expertise with Statutory and Tax expertise and manage that successfully. Special Skills: Change management In Chazey, we have delivered successful solutions over the past 10 years in companies such as 3COM, Reuters, Oracle and Travelport. Indeed, the operating models established in these organizations have been instrumental in setting the benchmark and template of leading practice not only within a shared services environment but also with the professional outsourcers such as E&Y, KPMG, BDO, etc., firms who are actively involved in providing third party services in Statutory and Tax Compliance.
  • 3. In each of the above examples, solution variations evolved based on specific requirements and landscape (managed in-house, managed by an expert BPO, or a combination of both). However, the challenges across these companies were still the same – corporate penalty and audit risks from government and tax authorities can be high; legal obligations on company representatives can have personal liability and criminal consequences. As a result, not only must the solution be robust, it must also convince the Corporate and local management that they will not lose control over the risks that they were managing successfully in the past. is will be the key challenge for the project - regardless of how good the operating model is designed – a lot of time will needed to give the required assurances to impacted stakeholders. Controllership and Governance e move to a shared services model, more often than not, serves to increase overall transparency and control. ere are many examples of companies uncovering balance sheet problems such as reconciliation issues between statutory and management accounts, tax liabilities not recognized in the balance sheet, availability of enough substantiated document and other issues of this nature. A robust governance body keeps a close tab on the progress made by each team and can help in terms of prioritizing and allocating resources both in terms of money and effort at the right times. As they say, the devil is in the detail, the controllership arm of the governance body ensures that adequate control steps and checks are in place for conformance. Examples include baseline pack creations, issue escalation huddles as part of operating rhythm, opinion validation, etc. Key Take-away e move to a shared services model will increase overall transparency and control of Statutory and Tax compliance. When you add the benefits of a more commercially focused local Finance support, a more strategically focused Tax resource, and a lower cost base, then the justification is very compelling – especially for organizations with a broad geographical footprint. It also sets the stage for shared services to play THE key role in Corporate and Business Controllership. Statutory and Tax compliance is still a relatively new area of offering for shared services and represents a real and tangible opportunity to provide a valuable service to the business and corporate agenda. Nonetheless, it takes careful consideration to ensure buy-in and support for the approach. About Chazey Partners Chazey Partners is a professional management consultancy business that is committed to adding significant value to our clients through a partnership approach. We bring together a unique wealth of expertise and real life experience in Business Transformation, Shared Services & Outsourcing and Technology Enablement. We pride ourselves in having built, operated and turned around some of the world's most ground breaking Shared Services Organizations, and for implementing many highly successful multi-sourced (shared services and outsourced) delivery solutions. Our experience covers both Private and Public Sector, providing expertise in a wide spectrum of business functions, including Finance, HR, IT and Procurement. Visit: www.chazeypartners.com Follow is on Twitter, Linkedin & Facebook David O’Sullivan Co-Founder Chazey Partners Tel: +353 86 384 8573 enquiries@chazeypartners.com Anirvan Sen Managing Director Asia, Middle-East & Africa Tel: +65 6701 8230/+31 649133170 enquiries@chazeypartners.com
  • 4. ABOUT THE AUTHOR David O’Sullivan Co-Founder Chazey Partners Tel: +353 86 384 8573 David has over 20 years’ experience at a strategic and operational level in driving business change and transformation with multinationals in a broad range of industries. He has established and optimized business critical operations, implemented global ERP applications, and outsourced and offshored other functions. As well as co-founding and building Chazey Partners, David has held a number of top level roles including COO of a Technology company and Corporate Controller of a global Consumer Goods company. He has also been at the forefront of leading significant global change with companies such as Whirlpool and omson Reuters in a number of capacities including Project Director and global Head of Shared Services. Since the 1990s David has led and driven global business transformation programmes that have realised significant cost, service and control benefits through the introduction of new operating models in Finance, HR, Procurement, IT and Sales. David is a Chartered Accountant and graduated from Trinity College, Dublin with a degree in Economics & Political Science. Anirvan Sen Managing Director Asia, Middle-East & Africa Chazey Partners Tel: +65 6701 8230/+31 649133170 Anirvan has 20+ years of extensive experience in Technology, LEAN six-sigma, Talent Management, Shared Services, IT and Sales. Prior to his current role with Chazey Partners, Anirvan has spent 15 years in GE, running the Quality organization for GE’s EMEA operations of Shared Services, developing global delivery models for BPO vendors, initiating strategy for shared services in the Middle-East and Africa region. His expertise covers implementation experience in Western Europe, Eastern Europe, Russia/CIS, Turkey, GCC, North Africa, Nigeria, Kenya, South Africa, China, India, ASEAN, ANZ, Brazil and US. He is an innovative technology entrepreneur, Business Excellence and Shared Services Modeling adviser. Anirvan holds LEAN six-sigma Master black belt and Bachelor of Engineering in Instrumentation and Control Engineering, and he is an Advisory Board Member for Finance Talent Development Program (ACCA).