Since the financial crisis, the world’s political economy has returned to instability, nationalism, protectionism, and trade wars. The global economy seems to be at a difficult time, making it difficult to predict the situation in each country and bilateral relations, creating new challenges for organizations that want to do business internationally.
Companies investing and operating around the world still have great rewards, especially in many ways, that technology can help make it easier. However, with regard to rules and regulations ranging from labor law to tax, accounting, and standard obligations, there is an increase in the fragmentation and complexity of the rules and the penalties for not dealing with the complexity.
Unfortunately, for the companies which are trying to grow and develop, they face quite a bit complexity. Also, the best investment locations are quite difficult to carry out business safely and compliantly. That is not a reason to avoid those opportunities. However, this means that you must bear the costs and penalties for violating local rules and be careful not to underestimate the operational challenges there.
The factors that drive complexity are:
- Information requirements: These are tightened to increase transparency and investor confidence while dealing with money laundering, tax evasion, and other crimes. More than 80% of the jurisdictions operated by the TMF Group are committed to exchanging information in accordance with Common Reporting Standards developed by the Organization for Economic Co-operation and Development.
- Law amendment: These are becoming more and more frequent. Your intentions are often positive. For example, to boost the economy or make the country more attractive to investors. Regardless of your intent or the policies behind it, they all require corporate work to meet the standards.
- Labour law: Legislators often respond to local political pressures and pose difficulties for companies seeking to do business globally. If we do business, certain reporting requirements and employment obstacles before the business is incorporated as a legal entity are major obstacles to the business.
- Penalties for violations: The penalties imposed by the authorities are considered disproportionately high in many jurisdictions. Serious breaches threaten the reputation and even survival, as illustrated by the multi-million-dollar fines that apply to banks arrested in money laundering and market abuse cases.
- Accounting and tax requirements: Today, local governments often specify their own reporting formats. For example, some Greek islands operate as separate states for compliance and tax purposes. VAT refunds are subject to different treatment depending on the tax office. The difficulty of interpreting the rules of a particular country, coupled with frequent changes, can mean those multinational corporations, in particular, face the difficult challenge of operating in a compatible manner. There is no easy solution other than working with field experts who are familiar with what they need locally and are ready to respond when rules change. When managing such complexity in multiple locations, it is important to have a single report and control in those locations to manage risk.
Key elements to a constructive approach that senior leaders must take when expanding their business into new jurisdictions or adapting their strategies to difficult-to-operate areas include:
- Monitor continuously: Every country in which a company does business represents compliance risk. Laws and regulations are subject to change without notice, with little or no notice, increasing the penalty for violations. Even predictable regulatory changes, such as the implementation and initiative at the national level, appear in statutory books at different times by jurisdiction. You can implement BEPS in slightly different ways from place to place. The solution is to create a robust monitoring process that can detect important legislative, regulatory, or process changes in the countries in which the company operates, both internally and externally.
- Execute a fluid resource strategy: Companies need to be agile enough to meet new legal, accounting, and compliance requirements. This can be done by having a network of corresponding law firms that can hire independent or full-time staff with urgent notice or providers worldwide with comprehensive accounting, tax, or compliance skills. Avoid all-purpose strategies, but allocate resources according to the requirements of each jurisdiction. This approach can also adapt to requirements such as economic substantive tax rules that enforce in many offshore jurisdictions that require companies to engage in “appropriate” economic activity.
Hope now you have got a clear idea about the factors which affect international business.