Financial compliance risk has more than financial and reputational consequences. It can also affect resources, leading to increased costs for your business.

Before, during and after a transaction

Regarding timing, compliance requirements can apply before, during or after a transaction is finalized, so it is important to master them at every stage.

If all necessary tax registrations and business licenses are not in place, a business cannot conduct day-to-day operations. In Brazil, for example, you must obtain a RADAR license for import/export activities. In the absence of this license, no import or export is possible.

Real-time reporting and withholding tax payments are probably the most telling examples of compliance requirements that occur almost at the same time an event is triggered. In Hungary, every sales invoice must be sent electronically to a government platform on the same day. In Serbia – as in many other European countries – payment of withholding tax is due on the same day as the eligible payment, for example dividend payments or payment for certain cross-border services. Penalties for non-payment of withholding tax include a fine of up to 50% of the unpaid tax and late payment interest per day late.

Most returns and filings – from classic corporate tax returns to newer requirements, such as SAF-T (Standard Audit File for Taxes) – apply after the end of the period. The implications of non-compliance vary, from modest monetary fines to significant operational blockages, such as frozen bank accounts.

Monetary, reputational and operational considerations

There are several ways in which the risk of non-compliance with local regulations will affect your business. It can range from low financial risk to high operational challenges.

If you do not comply with the requirements of the countries in which you operate, your business could be subject to fines and penalties, particularly if an audit is undertaken by the local tax authority or if you have not declared or paid your taxes on time. . Severity levels vary from country to country, and in some cases companies face fixed and relatively low penalties. However, in some jurisdictions, penalties can be as high as a percentage of company revenue and may come with other consequences, such as suspension of business licenses. In the Netherlands, a fine of up to 820,000? may be imposed in case of non-declaration of a CbCR report (Country-by-Country Reporting).

Other consequences are more difficult to measure because they are not financial, but rather reputational. In some countries, companies are “named and shamed” on lists published by the local financial authority. Sometimes being on these lists can prevent a company from participating in a request for proposals (RFP), especially in cases where an RFP has been made by government authorities. The Chilean tax authority recently published a list of more than 100 foreign digital service providers operating in Chile without having registered for VAT (i.e. non-compliant).

Operationally, certain types of penalties – such as banning certain transactions or opening bank accounts – are extremely harsh and will likely prevent companies from being able to continue doing business.

There is another, more subtle cost of non-compliance: the cost of assigning a dedicated resource to correct your reports. This person or team will usually need to spend time with the local tax authority to explain why your books are as they are – and why you didn’t comply in the first place. Thus, the risk of non-compliance also strains your resources, which ultimately increases your operating costs.

What leads to financial non-compliance?

Compliance issues can easily be overlooked when a company is very focused on its core business – what it needs to do to generate profits and grow its business.

But probably the most common reason for scrutiny is the fact that, especially in complex jurisdictions such as those highlighted in our Global Business Complexity Index, regulatory changes occur quite frequently. They are often announced very close to their effective date. This can mean companies simply don’t have time to familiarize themselves with the new changes or make the necessary adjustments to avoid non-compliance. This is why we advocate the use of local accounting and tax experts who have the necessary knowledge and tools to make the necessary business changes in sufficient time, especially in very complex jurisdictions such as China, Brazil and Turkey.

Does technology facilitate compliance?

Our GBCI 2021 report identifies “technology simplifying business operations” as one of the three most impactful global trends. While online systems are intended to simplify processes, it is common for them to lead to an initial short-term increase in complexity, particularly if authorities lack alignment.

For example, Indonesia – ranked among the top five most complex jurisdictions in the world for case complexity in our GBCI – brought together all interactions with authorities under a single submission portal (OSS). However, the portal concept required licensing bodies, which resulted in an initial hybrid of electronic and paper-based submissions. Also, for transaction-level report types, such as SAF-T (Standard Audit File for Auditing), the focus is on additional system customizations. An optimal scenario for companies is to have their systems modified by the manufacturer. If not, be prepared for workarounds – from in-house developments to manual manipulation and processing of relevant data.

Financial compliance requires local knowledge

The level of resources that should be devoted to financial compliance within a company depends a lot on:

• company size




• the jurisdictions in which it operates




• the local complexities it faces.

For many global companies, given the move towards centralized finance, the presence of local finance teams is likely to be limited. Thus, to fully understand the specific local requirements, finance and tax managers must put in place a solid procurement strategy.

Look forward

As detailed on our hub page, the Covid pandemic has triggered a number of tax measures and government relief programs – from changes to VAT rates to payment deferrals. Businesses can expect frequent new changes in a number of areas as governments seek to make the most of fiscal instruments while on the path to economic recovery.

Technological developments will continue to drive changes globally, particularly in the way tax offices interact with taxpayers. An important step in this regard is this working paper from the OECD – Tax Administration 3.0. Developments in electronic invoicing, such as in Serbia (2022) and Slovakia (2023) or the implementation of SAF-T in Romania (2022) are a good illustration of this.

Corporate tax rates will be reviewed for certain countries following the agreement reached by the international community, which will introduce a minimum tax rate of 15% from 2023. This agreement, now approved by the leaders of the G20, could also trigger new developments, or the reversal of earlier changes, in the tax area of ​​digital services.

And of course we will see more harmonisation, with transnational bodies such as the Organization for Economic Co-operation and Development (OECD) and the European Union (EU) coordinating international legislation. The increase in regulations driven by the OECD around country-by-country reporting is another illustration of this harmonization. Global companies are urged to be more transparent about their activities and to make their financial results more visible to tax authorities.

Talk to us

Globalized tax scrutiny can turn a local compliance error into an international embarrassment, so scrupulous tax compliance is at the heart of everything we do.

Our localized accounting technologies and expert teams in each country help you eliminate the cost, complexity and risk of cross-border compliance.

If you need help with any aspect of financial compliance, submit an enquiry.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.