International compliance gives FDs ‘an almighty headache’
Mid-market companies operating across multiple international markets face ever more complex tax, legal and financial reporting obligations, according to a new survey from RSM.
The research found that the strain on company resources added by the reporting responsibilities are putting them at a competitive disadvantage compared to larger, publicly quoted rivals.
Carried out among 100 UK-based international businesses with turnovers of more than £50m, the study revealed that 40% of businesses said they were either ‘not ready’ or ‘not particularly ready’ to meet compliance obligations over the next two to three years.
In total, 90% of respondents said they were significantly concerned about legal and other regulatory compliance obligations, while 86% said they had significant concerns about tax and duty requirements. Europe was cited as the most complex regional market in which to operate from a compliance perspective.
Interviewees reported that regulatory compliance was often as complicated for mid-market organisations as it is for FTSE150 companies, although the resources available to larger publicly quoted companies meant they could overcome the challenges more easily and gain a competitive advantage.
Commenting on the survey Ian Sadler, RSM’s head of UK-based global compliance and reporting service, said: “Regardless of the outcome of the upcoming EU referendum, it’s clear from our survey that middle market companies are becoming increasingly concerned about the growing complexity of international regulation and how they can deploy their limited resources to ensure compliance across multiple jurisdictions.
“Just last week”, continued Sadler, “a survey from RSM International found that the implementation of new international tax rules resulting from the OECD’s base erosion and profit shifting initiative could similarly impact middle market firms almost as hard as large multinationals, with many expecting their tax bills to rise by more than 10%.
“This is just one example of the imminent compliance challenges facing mid-market businesses operating globally which are presenting group controllers, finance directors and heads of tax with an almighty headache.”
In order to address their compliance challenges, the majority of mid-market organisations surveyed said they were looking for greater centralisation of their finance function and accounting platforms, with many now opting for some form of international partnering or outsourcing arrangement to help them meet their obligations.
However, while it was recognised that outsourcing offered access to local domain knowledge and the opportunity for greater international standardisation, interviewees expressed heightened concern about sharing data with third parties and the threat of cyber-attacks.
Other barriers to international expansion mentioned by survey respondents included access to funding and local expertise, in addition to cultural, infrastructure and language barriers.