Business

HOW MULTINATIONALS CAN WEATHER THE STORM OF COUNTRY MANDATES AND POINT SOLUTIONS

Published

2 years ago

July 12, 2021

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Christiaan van der Valk, VP Strategy & Regulatory, Sovos

For far too long, global businesses would assume that indirect taxes including VAT ought to reside in the domain of local subsidiaries. Now, as tax administrations accelerate their digital transformation strategies, this mindset is not just untenable: it’s a profound danger to the very lifeblood of businesses’ digital transformation efforts.

Across the world, the effects of the sweeping trend of continuous transaction controls (CTCs) implemented by governments – in order to tighten up VAT enforcement – are still being felt by countless organisations and citizens.

Aiming to reduce fraud, manipulation, and errors that can be concealed in summary VAT returns and accounts, tax administrations are increasingly introducing government portals and programming interfaces that allow much more detailed and frequent data sharing with their cloud platforms. In doing so, governments can inch closer to the raw transaction data itself, from which they can analyse business-to-business supply chains and consumer transactions in real-time – without compromising on detail.

Still, it’s no surprise that what began as relatively simple mandates soon can become overcomplicated, with many types of financial and physical supply chain documents introduced over time. An initially limited scope focused on suppliers and their invoices tends to evolve swiftly. Soon enough, more buy-side processes and data are required – and more frequently.

For multinational corporations, keeping pace with real-time or near-real-time reporting of e-invoicing transaction flows is a time-intensive mission. After all, the growing complexity of the exchange of data between tax administrations, businesses, and citizens – topped off with major differences and frequent changes in country mandates – is no mean feat.

What’s more, with such extensive tax administration requirements influencing the direction of digital transformation, dataflows are being drawn into a grand design of data exchanges driven by tax logic, rather than economic logic.

Beyond local: the barriers to business optimisation

Undoubtedly, this is a tremendous issue for multinational firms. It’s clear that the patchwork of tax administration-driven digital transformation is complicating matters for multinational businesses – and there’s no stopping the growing trend of CTC mandates being implemented by governments globally. Each country will approach this differently, with varying levels of complexity.

Previously, the truth universally acknowledged was that VAT is a local issue, to be managed by local teams – but this is no longer the case. VAT has evolved far beyond being merely a local issue. Nonetheless, across all geographies, too many companies still favour local technology vendors to manage the flow of core financial and supply chain transaction data. These approaches contradict the need for system consolidation, global processes and data intelligence. Multinationals cannot depend on patchworks of local point solutions to manage regional VAT reporting anymore, so this is no longer a tenable solution.

To avoid missing the mark for different countries’ individual VAT reporting mandates, it’s crucial that businesses understand the increasingly complex interdependencies between digital tax and digital business, the demands on suppliers and buyers alike, and how they vary from one country to the next.

In order to achieve this, a single compliance approach is vital to keep up with changing VAT digitisation mandates, which should be centred around commonality and expert advice on the impact of these changes and how best to face them.

Riding the tide of change: commonality, harmony, and unity

Already, too many companies are tied up in a complex web of local contracts, SLAs, and data models. The result is that growing, expanding mandates are becoming non-functional islands within a company’s overall data strategy – which must be avoided.

The digitisation of VAT enforcement through CTCs and further data-driven methods are flooding the world relentlessly. In an effort to close the VAT gap and enhance economic transparency, governments are introducing and expanding their mandates, requesting evermore detailed transaction data in real-time. Rather than sink, businesses must ride this wave.

To achieve this sea change, organisations must transform their mindsets concerning the purchasing of technology to inject compliance into core business processes – taking control of their own destiny in the process. Activities such as invoicing may be regulated substantially under tax legislation in various markets, but that shouldn’t add up to a carte blanche to acquire invoicing technology purely for the purpose of tax compliance.

Instead, businesses must safeguard their power to select new technologies and applications based on economic credentials, insisting that such varying applications contribute multi-local compliance through a single expert vendor. This guarantees the exchange of business data with tax administrations exactly where it’s required. Loosely coupling enterprise and compliance functionality as twin domains that address wholly different objectives – business optimisation and tax compliance – enables businesses to reap the most rewards, preserving the flexibility needed to remain competitive in our contemporary global economy.

Ultimately, businesses that adopt this approach – taking the time to understand the specific issues that stand in the way of optimisation – will be the ones that fight the rising tide instead of finding themselves swept out to sea.

Business

HOW SMALL BUSINESSES CAN FIGHT BACK AGAINST POOR PAYMENT PRACTICES

Published

1 hour ago

June 6, 2023

editorial

SMEs across the UK are facing a challenging economic environment and late payments pose a severe challenge to maintaining cash flow. Here, Andrea Dunlop, managing director at Access PaySuite, explores the challenges facing small and medium sized businesses, the risks that late payments carry, and what can be done to secure timely payments, in full.

It’s estimated that UK businesses are currently owed more than £23.4bn in outstanding invoices. For all businesses, managing the outward flow of products and services with a steady incoming cash flow is a fine balance – with unexpected disruptions and complications capable of causing catastrophic problems.

Late and delayed payments have been identified as a significant challenge for SMEs – an issue that has scaled over recent years. In fact, in its latest report, the Federation for Small Businesses (FSB) stated that the UK is “almost unique in being a place where it is acceptable to pay small businesses late”.

The FSB also states that this “will remain the case without further action” and, as such, has called for government action to put a stop to these damaging trends.

Small businesses form a vital part of the economic ecosystem – in 2022, it was estimated that 99% of UK businesses were SMEs – so poor payment systems not only present a very real threat for individual businesses, but for the UK economy as a whole.

Despite this strong case for urgent action to be taken, changes to legislation can be a slow process and, in the face of ongoing economic pressure, small businesses need more immediate solutions.

Although businesses are at the liberty of their customers and clients, there are a number of actionable steps SMEs can take to increase the rate of prompt and complete payments.

The impact of late payments for SMEs

Published in Q4 2022, research published by the ICAEW demonstrates that around half of invoices issued by small businesses are paid late.

More often than not, small businesses operate within a chain of regular suppliers and customers. These chains can include multiple business links, stretching across sectors and regions. As a heavily interwoven ecosystem, if one ‘link’ in the chain is damaged by late payments and unreliable cash flow, the delays can quickly escalate and create a domino effect of complications across the whole system.

With a lack of consistent income, SMEs are more likely to be prevented from paying their overheads and suppliers on time.

As late payments add up and push multiple businesses into a negative cash flow, the problem can continue to snowball.

Simply put, extended periods of unreliable and heavily reduced payments put whole supply chains of companies in very dangerous financial positions – especially as running costs remain high.

Combined, the complexities arising from late payments and the vast scale of the issue, demonstrates a clear need for systemic change.

Current government action

At the end of January, the government published a review of the reporting of payment practices first introduced in 2017 .

This review stated that the government is committed to “stamp[ing] out the worst kind of poor payment practices within the business community”.

The 2017 Payment Practices and Performance Regulations require all large UK companies to report publicly on their payment policies, practices and performance, to ensure accountability.

Following its review, a new consultation has been launched, seeking the opinion of business owners on current regulations – asking whether this existing policy should extend beyond its current expiry date, 6 April 2024. This consultation is part of a wider examination of payments in the UK.

Delving into issues including the emotional and psychological impact of late payments on small business owners – as well as analysing how banks and technology can help – the government’s review is a welcome development, but SMEs need to take more immediate action to strengthen their payment processes.

What can SMEs do?

With the government consultation finalising at the end of April, the future of the payment landscape in the UK will soon be made clearer – but what actions can SMEs take to immediately strengthen their payment processes?

For many SMEs, payment systems are low down the list of priorities, and the fear of disruption or additional costs can lead many to turning a blind eye to problems with their existing systems. But, with challenges around cash flow increasing, investing in a flexible and comprehensive payment system could be an incredibly worthwhile investment.

Issuing regular invoices takes a lot of time, and when working across different clients with different payment frequencies invoicing can lead to unnecessary complexities.

Instead, systems that enable customers to set up direct debits ensure payments are completed on a set date, reduce additional paperwork and still allow bespoke schedules for each client or customer to be arranged.

In many SMEs, missed payments can easily get lost in piles of paperwork and human-error can result in problems down the line. When using digital payment systems, should a missed payment occur, automated capabilities ensure the issue is flagged, and any outstanding challenges can be resolved in a timely manner.

With payments and invoicing automatically managed in a centralised database, countless hours that would otherwise be spent on repetitive and laborious administrative work are saved.

As well as reducing the amount of staff time spent managing processes and tracking financial activity, a reliable payment system delivers benefits for customers too, and contributes towards greater service and boosting brand loyalty.

In the coming weeks and months, new government guidance should clarify legislative expectations for businesses regarding payments. But, with smart investment in specialist software solutions, our country’s vital SMEs can take the necessary safeguarding steps to boost payment security and thrive through this tough financial time.

Business

Less than a year until EMIR Refit: how can firms prepare?

Published

11 hours ago

June 6, 2023

editorial

Leo Labeis, CEO at REGnosys, discusses everything that financial institutions need to know about EMIR Refit and how they can prepare with Digital Regulatory Reporting (DRR).

  There is now less than a year until the implementation date for the much-anticipated changes to the European Markets Infrastructure Regulation (EMIR). The amendments, which are set to go live on 29 April 2024, represent an important landmark in establishing a more globally harmonised approach to trade reporting.  

  Despite the fast-approaching deadline, concerns are growing around the industry’s preparedness, with a recent survey from Novatus Advisory finding that 40% of UK firms have no plans in place for the changes, for instance. 

  Much of the focus in 2022 was on implementation efforts for the rewrite of the Commodity Futures Trading Commission’s swaps reporting requirements (CFTC Rewrite), which went live on 5 December. Both the CFTC Rewrite and EMIR Refit are part of the same drive to standardise trade reporting globally. While EMIR Refit was originally anticipated to roll out first, implementation suffered from repeated delays to its technical specifications, in particular the new ISO 20022 format. The ISO 20022 mandate was eventually excluded from the first phase of the CFTC Rewrite, hence the earlier go-live date. 

Leo Labeis

  In parallel, the Digital Regulatory Reporting (DRR) programme has emerged as a key driving force in helping firms adapt to continually evolving reporting requirements. Having participated in the DRR build-up for their CFTC Rewrite preparations, how can firms leverage these efforts to comply with EMIR Refit in 2024? 

The drive to standardise post-trade

  To understand the new EMIR requirements, it is important to first look at the two main pillars in the global push to greater reporting harmonisation. 

  The first is the Committee on Payments & Market Infrastructures and International Organization of Securities Commission’s (CPMI-IOSCO) Critical Data Elements (CDE), which were first published in 2018 to work alongside other common standards including the Unique Product Identifier (UPI) and Unique Trade Identifier (UTI). These provide harmonised definitions of data elements for authorities to use when monitoring over the counter (OTC) derivative transactions, allowing for improved transparency on the contents of the transaction and greater scope for the interchange of data across jurisdictions. 

  The second is the mandating of ISO 20022 as the internationally recognised format for reporting transaction data. Historically, trade repositories required firms to submit data in a specific format that they determined, before applying their own data transformation for consumption by the regulators. The adoption of ISO 20022 under the new EMIR requirements changes that process by shifting the responsibility from trade repositories to the reporting firm, with the aim of enhancing data quality and consistency by reducing the need for data processing. 

Preparing for the new requirements with DRR

  DRR is an industry-wide initiative to enable firms to interpret and implement reporting rules consistently and cost-effectively. Under the current process, reporting firms create their own reporting solution, inevitably resulting in inconsistencies and duplication of costs. DRR changes this by allowing market participants to work together to develop a standardised interpretation of the regulation and store it in a digital, openly accessible format.

  Importantly, firms which are using the rewritten CFTC rules which have been encoded in DRR will not have to build EMIR Refit from scratch. ISDA estimates that 70% of the requirements are identical across both regulations, meaning firms can leverage their work in each area and adopt a truly global strategy. DRR has already developed a library of CDE rules for the CFTC Rewrite, which can be directly re-applied to EMIR Refit. Even when those rules are applied differently between regimes, the jurisdiction-specific requirements can be encoded as variations on top of the existing CDE rule rather than in silo. 

  Notably the UPI, having been excluded from the first phase of the CFTC Rewrite roll-out, is mandated for the second phase due in January 2024. DRR will integrate this requirement, as well as others such as ISO 20022, and develop a common solution that can be applied across the CFTC Rewrite and EMIR Refit. 

  As firms begin their own build, the industry should work together in reviewing, testing and implementing the DRR model. Maintaining the commitment of all DRR participants will strengthen the community-driven approach to building this reporting ‘best practice’ and serve as a template for future collaborative efforts. 

Planning for the long-term

Although the recent CFTC Rewrite and next year’s EMIR Refit are centre of focus for many firms, several more G20 regulatory reporting reforms are expected over the next few years. These include rewrites to the Australian Securities and Investments Commission (ASIC), Monetary Authority of Singapore (MAS) and Hong Kong Monetary Authority (HKMA) derivatives reporting regimes, amongst others.  

  Firms should therefore plan for the entire global regulatory reform agenda rather than prepare for each reform separately. Every dollar invested in reporting and data management will go further precisely because it is going to be spread across jurisdictions, easing budget constraints. 

  Looking ahead, financial institutions should establish a broad and long-term plan is to learn from their CFTC Rewrite preparation and how DRR can be positioned in their implementation. For example, firms should ask themselves which approach to testing and implementing DRR works best: via their own internal systems or through a third-party? Firms should review what worked well in their CFTC Rewrite implementation and apply successful methods to EMIR Refit. Doing so will enable firms to have a strong foundation for future updates in the years to come. 