Originally published in CFO.com
By Lou Longo
Rather than just a box-checking exercise, tax reporting should be treated as an annual chance to ask high impact questions of your global business and to help you come to smarter strategic decisions.
Your team is going to be gathering the information anyway, so why not use it in a more systematic way and make it an annual ritual that drills deeper into all aspects of your business?
One benefit of this approach is to help curtail international risks. We’ve all heard horror stories about how things can go dramatically wrong in foreign jurisdictions, from natural disasters to costly legal misunderstandings and disputes. The tax reporting process should be a means to ensure that you and your foreign operations are prepared for the unexpected.
Using tax time for a comprehensive business review also helps you make better long-term planning decisions. It can boost your engagement with foreign operations and help you make informed choices over key aspects of the business such as supply chain, property leases, and data management.
Here are four ways a tax season international operations review can be used to improve productivity and risk mitigation.
1. Use a compliance calendar. This calendar should be accessible to the home base and list every tax filing deadline facing your company at the local and national level. It should also show who is responsible for filing the returns in each country. This is a critically important way to make sure that foreign units are being held accountable for their tax reporting and aren’t missing any key deadlines. An unplanned personnel turnover, for example, won’t then leave you scrambling to find out what you need to file just to keep the doors open. Ideally, the calendar should use a cloud-based system to increase the security of your tax data and reduce dependence on outside accountants. Your data collection should also include a list of all licensing agreements and any other legal documents noting any dates of termination. You will be surprised how many companies can’t quickly access this information in calm times let alone moments of urgent need.
2. Re-examine your sales and supply chain. This is a tax-time ritual that will improve any company. CEOs and COOs should ask their financial team to come up with detailed breakdowns of sales, employees, and purchases by location.
With this information in hand, you can create an annualized dashboard to visualize exactly what your supply chain looks like and how it could be improved. This approach can help you understand whether you are managing your supply chain and sales aggressively and knowledgeably. Too often, for example, companies set up operations in a particular country just to be close to a key client. That’s not necessarily the best strategy. A thorough analysis of the sales and supply chain data sometimes shows that a company would be better served by setting up in another country in order to tap a wider customer base.
3. Strengthen compliance and curtail risk. International compliance can be a big headache, especially for companies with operations in a dozen or more countries. Information gleaned through the tax process can help you know whether you are doing things correctly or not. Even if that information is locked away for years, it could suddenly become imperative if you are subject to an audit. Proper record keeping and planning can also reduce your reliance on one location in when the unexpected happens.
4. Deepen ties with foreign units. Too often, CEOs get complacent about their foreign subsidiaries and are happy so long as relations are cordial and results are decent. That laid-back approach can sometimes backfire. A CEO can use the information brought up in the tax process to talk up some hitherto hidden achievement by the subsidiary that made him proud, delivering a boost to local morale.
Start approaching tax time as an opportunity rather than a chore. The data helps make better strategic decisions, cut down on risk, and boost transparency and accountability across operations.
Lou Longo, CPA, is the International Consulting Practice Leader at Plante Moran.