Given the inability to have local resources in each country, outsourcing provides certainty that a competent service provider will handle local filings and related audits, therefore providing an increased level of control and governance.
A recent trend among leading technology companies is the outsourcing of their global compliance and reporting (GCR) tax and finance functions as a way to streamline costs and use senior leaders' time more efficiently.
The global compliance and reporting tax and finance function
GCR encompasses the preparation of statutory financial and tax filings (including both direct and indirect filings) and related governance and control. The world's leading technology companies are on the forefront of this trend due to their global presence and often thinner staffing models (particularly in smaller jurisdictions) than is typical in other industries.
However, tax authorities and regulators do not exist to cater to the trends of globalization. They expect statutory filings to be delivered promptly and accurately, requiring companies to have a sufficient level of local expertise to ensure the necessary quality.
Given the inability to have local resources in each country, outsourcing provides certainty that a competent service provider will handle local filings and related audits, therefore providing an increased level of control and governance.
Outsourcing: A cost reduction strategy
Another key reason why technology companies are leading the GCR outsourcing trend is their constant push to reduce costs and focus on their core competencies and business. Technology companies are often more subject to economic downturns and overall unpredictable cyclical activity.
As a result, management looks to all areas of the organization for cost efficiency and increased focus on core competencies. It's no surprise, therefore, that the recent increase in GCR outsourcing appears linked to the global downturn.
Technology companies often viewed as revenue source for governments
Further, large global technology brands are often viewed by local tax authorities as easy targets, and the IP-related and overall cross-border nature of their business creates potential risk for local jurisdiction tax audits. Moreover, relative to other industries the tax law in the technology industry is in its infancy on many issues, which creates another level of uncertainty.
Innovation as a driver
Finally, technology companies are in the forefront of standardized, digitized and global delivery of their business. This creates an easier path than other industries for moving their entire GCR process to an outsourcing format, where technology provides the vehicle for information delivery, monitoring and overall compliance.
In addition, outsourcing the GCR process allows a company to optimize its investment in an enterprise resource planning (ERP) system by simplifying — eliminating the need to customize the system to meet local jurisdiction reporting and compliance issues.
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