Nikhil Parambath
Regional Vice President, Asia
BlackLine
Against the backdrop of global expansion, businesses are now grappling with the evolving regulatory landscape as it becomes increasingly intricate. Global operations have fundamentally reshaped the business approach around managing data, financial transactions, and adhering to reporting regulations. Moreover, the rise of newly enacted tax laws further complicates operations, adding layers of governmental scrutiny.
In the recent 2024 Budget, Singapore announced the introduction of new corporate taxes set to take effect in 2025, aimed at tackling tax avoidance by multinational enterprises (MNEs) under a global initiative. As part of the Base Erosion and Profit Shifting (BEPS) 2.0 initiative, Singapore will implement the Income Inclusion Rule (IIR), which ensures that large MNEs adhere to a global minimum effective tax rate of 15 percent. This move aligns Singapore with other jurisdictions like the European Union, United Kingdom, and Japan, who have already implemented the BEPS 2.0 rules from 2024, while Hong Kong and Malaysia are slated to follow suit in 2025.
As businesses navigate the implications of this legislation, there is an urgent need especially for Chief Financial Officers (CFOs), to take a step back in evaluating how their tax operations affect their global financial activities. The management of intercompany data plays a central role in meeting jurisdictional obligations and allocating profits within MNEs, directly impacting the effective tax rate of enterprises. Coupled with today’s global economic instability, persistent inflation, challenges around talent retention, and supply chain disruption, it is imperative for CFOs to steer their companies toward maintaining compliance and competitiveness, while carefully treading the complexities of BEPS 2.0.
Addressing the impact of BEPS 2.0
BEPS 2.0 promises balance to international tax rules, however, it is not without a new set of standards. It introduces a layer of complexity with additional compliance activities, which include gathering both financial and non-financial data across the business for analysis and reporting to the relevant tax authorities globally. This process requires evaluations to be aligned with existing financial statements, which can potentially impact areas like invoicing and cash flows.
In tandem with compliance standards, businesses will be driven to step up their intercompany procedures to meet increased reporting requirements. This involves adjusting internal processes and systems to accommodate new data and calculations essential for assessing global minimum tax liabilities.
As businesses strive to stay abreast with the evolving tax requirements and latest internal processes, unfortunately, finance and accounting (F&A) professionals may be the ones who end up bearing the brunt. These professionals are likely to experience a potential strain on their workload, on top of managing their demanding day-to-day work.
According to BlackLine’s 2023 global survey on the State of Intercompany, 92% of respondents highlighted that intercompany challenges are impacting the hiring and retention of skilled F&A professionals. Additionally, one in three reported that their teams experienced physical or mental health issues due to the stress of intercompany.
Alleviating the impact with technology and people
With large MNEs subjected to global minimum tax for the first time, businesses need to prioritise maximising operational efficiency while minimising tax leakage to manage its impact. A multi-prong approach of harnessing the right technology alongside stakeholder expertise from across the business can provide the optimal strategy in preparation of the new legislation.
Unfortunately, many companies still rely on manual compliance management, which is simply unsustainable. Businesses cannot afford to operate in manual processes with data siloed throughout multiple enterprise resource planning systems. Therefore, businesses must lean on technology-driven operations to automate, simplify, and streamline intercompany processes. Companies are also empowered to effectively adapt to the dynamic nature of enterprise operations.
Leveraging automation solutions can also aid MNEs in aggregating transaction-level data through an end-to-end intercompany process flow. These can ease transactional complexity, deliver real-time reporting, and help businesses keep pace with the challenges of a growing regulatory landscape.
For instance, DFS Venture Singapore, a member of the DFS global network of luxury retailers located in 13 countries, revamped its global finance services through automation to streamline its financial close process. This not only led to efficiency and productivity gains but more importantly, cultivated a culture where team members are empowered to enhance their skills and drive continuous improvements.
On the people front, establishing collaboration through cross-functional working groups across departments such as finance, accounting, and audit can help foster a shared understanding of processes and requirements necessary for compliance. This simplifies the management of the latest internal systems or newly integrated technologies, thereby enhancing overall operational efficiency.
Staying business ready
The efficient management of intercompany financial processes and tax operations is the first foundational step for businesses, in preventing margin erosion while maintaining regulatory compliance. It is high time for CFOs to ensure that they are ready when the new legislation comes into effect – critically, not losing a dollar more than they need to comply.
This opinion piece is written by Mr Nikhil Parambath, Regional Vice President, Asia, BlackLine.
