Despite the ongoing uncertainty of COVID-19, business activity remains robust. When Vistra and CFO Research conducted two surveys — the first in January 2020 and the next in April — on international expansion and operations, they found that 87% of senior finance executives were investigating global expansion plans pre-pandemic. Interestingly, when researchers followed up in April, they found that companies’ appetites for expansion hadn’t waned: Only 8% of respondents said they were delaying cross-border takeovers or M&As.
Why? Some see new opportunities in these disruptive times, while others view expansion as the only hope for survival. Either way, they need to be aware of what’s ahead.
Expansion is always complicated — but especially when it means moving into a new country. Finance teams (the architects of growth) need to learn the local markets, master the applicable tax codes, and plan for international exchange volatility. That’s on top of the need to hire an international workforce and mitigate compliance and regulatory risk. Failure on any of these fronts could doom the entire international expansion effort.
Essential tax compliance considerations
Once companies begin accepting international payments, tax compliance becomes critical. Tax codes and regulatory risks vary widely across countries, as do enforcement efforts. Any company processing global payments needs to understand its tax footprint (entirely and exactly) and the risks of failing a tax or anti-money laundering audit.
The same Vistra-CFO Research survey discovered that most respondents believe their tax teams aren’t equipped to handle global payments and the resulting tax liability — and that was their answer in January before the pandemic hit. It’s important to be aware of these deficiencies, but they shouldn’t stall an expansion effort or lead to tax penalties down the line.
As finance teams try to move quickly yet cautiously into international markets, they need to lay the groundwork for sustainable tax compliance around global payments. That starts with a thorough review of the current tax compliance policies. The goal is to map how these policies operate and evaluate whether they’re effective. With that work complete, companies are ready to move forward with the expansion and confidently start handling international payments.
3 tax compliance solutions
There isn’t a one-size-fits-all solution for tax compliance around global payments. Every company must approach it differently. There are, however, universal strategies to improve the odds of avoiding tax penalties and missteps:
1. Build back-office operations around international realities
Even under the best circumstances, international tax compliance is a time- and labor-intensive obligation. Finance teams need to have the staff and skills necessary to keep up with this work, both in terms of scale and complexity. Various tools and techniques can make that process easier, but they can’t compensate for an inadequate team. As companies look to expand into new markets, they must look to expand the finance team accordingly.
2. Seek out compliance support
Moving into just one new market can multiply the number of international payments flowing into the accounts payable department. Instead of assuming they can handle the extra work, invest in compliance support that can gather important tax forms and ID information from suppliers at the outset. Support can come in the form of technology, in-house staff, or third-party service providers. In all cases, it helps to prevent expensive incidents like money laundering and fraud while making tax compliance more efficient overall.
3. Leverage technological solutions
Tax compliance is a detail-oriented process, so it’s ripe for automation. Digital tax compliance solutions give businesses pursuing international expansion the ability to automate payment processes — both cross-border and domestic — so that they’re always compliant. These solutions can also extract and organize data to streamline the auditing process.
The pandemic is causing most companies to speed up their digital transformation efforts, but 79% are still in the early stages, according to McKinsey & Co. Before moving deeper into digital transformation efforts or trying to expand with an analog approach, investigate how tax compliance solutions streamline accounting, IT, and operations as a whole.
Some companies will come out of the pandemic bigger and stronger than ever. Others will just get bigger. Make sure that expansion proves advantageous in the long run by making tax compliance a priority today.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
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