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Accenture

The primary issues and risks associated with SSC legal and fiscal requirements are plentiful, encompassing multiple jurisdictions. Mastering the requirements for one country is simple enough, but meeting the legal and financial parameters for many countries is appreciably more complicated. The eight-step methodology outlined here can help.

Shared services involves the consolidation and redesign of administration and support business processes into major service centers. The objective of these shared service centers (SSCs) is to deliver the optimum in cost-effective, high-quality services. The shared services model helps achieve economies of scale in back-office processes and eliminates the replication of basic transaction processing capabilities across an organization.

Adopting the shared services model has allowed organizations, including many Fortune 500 companies, to rethink how and where work is accomplished. Shared services can provide a range of organizational solutions that retain responsive customer service without requiring physical proximity to the customer. Global companies are also proving the value of shared services in managing international operations in an integrated fashion.

Legal and Fiscal Issues

When SSCs encompass multiple jurisdictions, there are numerous issues and risks associated with meeting the legal and fiscal requirements of each participating country. While it is simple enough to master the rules and regulations for one country, the task of meeting those for many is appreciably more complicated.

This, however, is a challenge that many other businesses have successfully overcome in creating SSCs to serve multiple countries and territories. Highlighted in this article are some of the key findings from multinational companies that extended the cost savings, performance, and efficiency benefits of the shared services model across geographically diverse organizations.

Legal and fiscal issues are often considered only after the planning phase, as countries actually make the transition to the SSC. Looking at some of these issues, it will become clear that legal and fiscal requirements need consideration at the beginning of the project and during the process design phase. Failure to address legal and fiscal issues adequately and accurately can have a direct impact on the SSC’s business case.

Considerations Essential for Success

SSCs gain economies of scale by centralizing back-office functions. The cost savings arising from this centralization form the main part of any business case supporting the establishment of the center.

But there is a risk that adverse decisions, related to legal and fiscal issues, by local authorities in certain countries may jeopardize the business case. Local rules and regulations may forbid the centralization of certain processes or add burdensome compliance requirements. Such decisions directly affect the efficiency of the SSC and its payback period.

Some questions to consider when planning a migration of a country to an SSC are:

• Can accounting records be prepared in a foreign country?
• Can accounting records be stored in a foreign country?
• Can accounting records be maintained in a foreign language?
• Must a prescribed chart of accounts format be followed?
• Are electronic signatures valid?

Answers to these questions help determine the initial scope of the SSC and an approach to the migration of countries into it.

Must-Know Facts

The following considerations are helpful in building an approach to managing legal and fiscal issues:

Consider General Ledger Design

Some countries require that a nationalized form of the chart of accounts be maintained. To meet this, the accounting system needs to be correctly formatted. Possible options are: set up of a parallel chart of accounts mapping to the standard chart of accounts; and use of ERP functionality and allocations to present results in the correct format.

Establish Relations with Local Regulatory Authorities

Some countries allow accounting records and returns to be prepared in a different country only under very specific circumstances. Careful application to the relevant authorities needs to occur at an early stage, advising them of the intended changes in such a way as to ensure positive results.

Also, remember that in some countries local state law has to be considered in addition to federal law.

Consider How Documentation is Stored and Archived

Some countries require that accounting records and invoices are kept locally and some require that they are kept on paper. They may be required for tax or other regulatory inspections. Normally it is possible to use scanning solutions to circumvent this problem. For instance, documents may be processed and scanned in the SSC with the original, hard copies sent back to the relevant country offices on a periodic basis; alternatively, documents may be scanned in the original country and the images used for processing in the SSC.

Notarizing Accounting Documentation

There are countries that require that accounting records be authorized and signed by a notary. The facility for producing paper documentation, therefore, needs to be maintained locally and arrangements put in place to ensure that the documents are signed in the appropriate timeframe.

Eight-Step Methodology

Working systematically through the following methodology helps ensure the key issues are addressed and are not discovered post-implementation, thereby affecting the viability of the business case:

1. Ensure early involvement of in-house tax managers, the legal department, and external auditors.
2. Ensure that in-house staff remember the business as opposed to purely the tax issues or legal issues.
3. Develop a communication/involvement plan for the tax authorities.
4. Sell the solution by explaining local controls, organization design, information availability, and document archives.
5. If necessary, deemphasize the impact of any work being performed outside the country.
6. Remember that systems and data are fully accessible from the relocating country, and there will be no change in information availability or timeliness.
7. Assess the risk of an adverse decision by the regulatory authorities; drive the communication strategy forward based on this assessment.
8. Remember that multinational SSCs have been established many times. There is, therefore, normally a way to ensure that processes are run as desired.

Extending the SSC Scope

A key aim of the SSC is to have standardized processes across all business units and countries. This is one of the drivers of the benefits case. Inevitably, legal requirements, such as the format and frequency of value added tax (VAT) and tax returns, vary from country to country. An understanding of such issues at the beginning of the project is therefore useful for initial design work. Once the requirements of the different countries are understood, then a process accommodating the most common requirements can be designed.

A successful SSC may take on further countries not included within its initial scope after successfully running for a period of time.

The subsequent legal and fiscal issues that arise can be dealt with in one of three ways:

1. The issue can form part of the initial negotiations with the appropriate local authority; the aim is to gain permission for the standard process used.
2. If this is not possible, then a workaround process for the specific country affected needs to be designed.
3. Alternatively, a new standard process can be introduced for all countries. This would incorporate amendments to accommodate the requirements of the new country. The benefits of amending current processes would, however, have to be considered carefully.