Letting statutory compliance and tax out of the grip of local finance teams is often hard to do for companies as these functions have traditionally been viewed as more complex than traditional line-of-business financial accounting. A Deloitte study in 2013 found only half of the companies surveyed confirmed tax reporting and analysis were delivered through a shared service organization (SSO). However, a range of high profile enterprises such as Coca Cola, digital electronics manufacturer 3Com, Oracle and Reuters have successfully used SSO or business processing outsourcing (BPO) across multiple countries and jurisdictions. It’s not exclusive to large companies either, as many medium-sized mid-market enterprises, which have multiple legal entities and operating countries, can also benefit.
Chazey Partners chief executive officer Phil Searle, says: “There has traditionally been nervousness and reluctance to give over control of these activities to another, distantly located, ‘provider’, be that through a centralized internal SSO or perhaps a centrally managed third party business BPO.” However, often a local third party provider such as a local accountancy firm managed by the resident, on site team is employed. “The big opportunity with SSO and more centrally controlled BPO is the process activities or services supporting reporting and compliance can be moved away from the local country or site to a more centrally provided, standardized, often simplified and automated solution.” He says for example, an existing regional finance shared services center might take on responsibility for local legal and tax processing and reporting for multiple countries and jurisdictions throughout the region. “In so doing, the shared services center might itself look to engage the services of one centrally managed BPO provider to assist or to provide support in potentially more complex or relatively smaller countries or locations that the business operates in.”
The monetary gains of centralizing tax operations in a shared services center can be substantial especially if the previous locally maintained services were inefficient and high cost. “These savings can range from insignificant to as much as a 50% cost savings on base numbers, depending of course on the existing cost profile before the move takes place. The financial benefits are more significant when moving activities from multiple higher cost locations to a single lower cost location, so this also means the reduction in cost achieved depends on the nature of the footprint of operations prior to this move.” Other advantages include costs savings through better compliance by reducing or eliminating penalties from non-compliance.
The monetary gains of centralizing tax operations in a shared services center can be substantial especially if the previous locally maintained services were inefficient and high cost.
Deloitte Tax LLP partner Brian Claire, adds that outsourcing helps a company concentrate on its priorities. “The benefits of outsourcing tax compliance include providing in-house tax teams with additional technical expertise at a predictable cost and allowing the in-house tax team to focus on high value priorities for the organization, while ensuring that critical compliance and advisory projects are completed. This lowers compliance risk while making the in-house tax team more productive.” Searle agrees and says sometimes local management may not have remained fully up to date or have the necessary expertise to ensure compliance. “Moving to this more centralized model can make this easier to achieve. For example, travel and entertainment (T&E) is an area that is often poorly managed and controlled from a reporting and compliance perspective, even at the local level. Centralizing and doing this though a robust framework can significantly improve things, including meeting local tax and reporting requirements, and make the whole process more efficient, and indeed providing better service to local staff, if done properly.”
Making it work
Experience managing simpler accountancy and compliance functions such as transaction processing, journal entries, accounts payable and reconciliations via shared services or outsourcing is crucial. “It is also vital the central location from where these services will be provided has suitable, experienced and trained ‘expertise’ in the scope being handled. This does not mean there needs to be an army of specialists ‘in the center’ but instead often just one or two key, usually more senior, team members who manage reporting and compliance across all in scope of functions or processes and countries or locations, working both with the broader shared services team and local on site finance and other key staff. This senior team member should also be tasked with managing any chosen third party outsourcers,” advises Searle.
Organizations also need to harness IT effectively to make the relationship work, urges Claire. “Companies can make an outsourced relationship a success by identifying issues early and tracking them until they are resolved. The use of technology to collect information and provide documentation and analysis around the client’s issues also helps achieve success. Technology enables advisors to track and provide specific engagement performance metrics. Also, the designation of an individual from the company’s in-house team to be active around the project management of the engagement is important.” Searle adds there has to be a partnership with local management. “The danger is that if not done robustly and properly, you can quickly alienate local staff and senior management. So this must be done by working closely with the local team, with appropriate change management, while also ensuring that there aren’t too many local “exceptions” allowed.”