Sections

How International Taxation Impacts Financial Reporting

Richard Barrett

With many governments pulling back on public spending that is directly impacting many vulnerable groups in society, it’s not surprising that people and the press are making noises about the amount of tax paid by the super-rich and some of our global companies.

Although they are complying with regulations, the ones that are in the frame in the UK are Google, Amazon  and Starbucks, which last month Reuters  reported as having paid no corporation tax on revenues of over UK£3bn over the last 3 years.  Last week, senior managers from these three companies were hauled up before an all-party panel of members of parliament to explain themselves and frankly they didn’t perform too well with some real gaffs about how they paid a huge amount in Value Added Tax. The fact is that is a sales tax paid by the customer and the company is simply the tax collector – doh, get it right!

Working within the regulations, these companies, ( and many others, including no doubt most of the UK’s own blue chips), are minimizing their exposure to the United Kingdom’s 24% corporate tax rate by repatriating high royalty fees for using their brands, transfer pricing service fees for IT and the like and basing their entities in countries such as Switzerland with its 12% rate of corporate tax where Starbucks operates its worldwide coffee-trading activities, and Ireland with a 12.5% rate, where Google has headquartered its European operations.  Let’s be honest, as long as we stick by the rules, wouldn’t we all do it?

Now it’s not just us whingeing Brits that are complaining; everyone is, including Germany and France, (which is already making changes to French law to tighten up some local loopholes), – and particularly the OECD that sets the rules. Even the Financial Times came out with a clear statement about the issue last week when it wrote,

‘The international tax system in effect provides vast subsidies for multinationals, helping them out-compete local rivals on a factor – tax – that has nothing to do with economic productivity. They free-ride on tax-funded benefits – roads, educated workforces, reliable courts – provided by the countries where they do business, while others pay for those benefits. This distortion is inefficient and unproductive, and corrupts the very fabric of markets.

Well my guess is that new regulation is being formulated, which will broadly centre on two key principles:

  • Unitary taxation where companies are taxed according to the genuine economic trading they do in each country.
  • Some form of minimum tax payable locally which would be determined by looking at the global profit of a company and then applying a formula based on where sales are made and where people are employed to allocate a fair share of the taxable profit to each country.

When this new regulation is unleashed it will mean that every company that trades outside its national borders will need to make an annual submission to the tax authorities of each country where it does business. This submission will combine the consolidated accounts for the whole global group that ignores all internal transfers and shows the group’s physical assets, workforce, sales and the overall profits which are broken down by country according to the weighting set out in the final formula.

Now if you thought getting ready for IFRS was a challenge, (albeit one which as yet has no firm delivery date for the US), step back and reflect on internal implications of this. Overnight the number of published reports has gone through the roof as one needs to be submitted in each country where you trade. Already the global financial crisis has stepped up the pressure from investors and regulators for accounting and reporting processes that are rock solid with no errors, faster reporting and agility in dealing with new disclosure requirements, such as this one which certainly raises the bar on transparency.

Reporting and disclosure is still a major concern for Finance. ‘Fortifying the Financial Close to Disclose Process’, a new research paper from APQC found that nearly 75% of organizations around the globe have the close-to-disclose process ranked among their top-two targets for financial management improvement over the next 18 months. The type of improvements that respondents currently seek cluster around four core themes:

  • Taking less time to gather and process financial data with benefits such as a 30% cost reduction for companies that have an integrated and automated end-to-end process.
  •  Automating the process to improve effectiveness by deploying solutions, such as SAP Financial Consolidation and SAP Disclosure Management, that have compelling functionality around key process areas such as variance analysis, journal entry processing, and close scheduling.
  • Being able to identify the root causes of accounting and reporting errors and reduce the risk of restatements through having more robust processes, particularly around intercompany accounts, something that SAP now packages with both SAP Financial Consolidation and SAP Business Planning and Consolidation, but still offers as a stand-alone solution that can even be integrated into a non SAP process – SAP Intercompany.
  • Strengthening the alignment between the data used for regulatory reporting and the data used for planning and resource allocation internally – again something that won’t get far relying on spread sheets.

There is lots of other interesting stuff in the report, which you can read here, (you may have to register) including benchmarking on various metrics and process steps. But it seems to me that the close-to-disclose process is set to become infinitely more burdensome if and when country level reporting for taxation purposes is mandated a few years down the line.

So although more speed and less cost are compelling targets in the short and medium term, perhaps it’s time to step back and look at the bigger picture and whether the solutions you have today can cope with the demands of tomorrow when a new stakeholder enters into the picture.

Comments

Richard Barrett

About Richard Barrett

Richard Barrett is a writer and commentator on finance, technology and business. A sales and marketing professional by training, Richard’s business life has been mainly spent helping entrepreneurs build their companies and realize their value.

Why 3D Printed Food Just Transformed Your Supply Chain

Hans Thalbauer

Numerous sectors are experimenting with 3D printing, which has the potential to disrupt many markets. One that’s already making progress is the food industry.

The U.S. Army hopes to use 3D printers to customize food for each soldier. NASA is exploring 3D printing of food in space. The technology could eventually even end hunger around the world.

What does that have to do with your supply chain? Quite a bit — because 3D printing does more than just revolutionize the production process. It also requires a complete realignment of the supply chain.

And the way 3D printing transforms the supply chain holds lessons for how organizations must reinvent themselves in the new era of the extended supply chain.

Supply chain spaghetti junction

The extended supply chain replaces the old linear chain with not just a network, but a network of networks. The need for this network of networks is being driven by four key factors: individualized products, the sharing economy, resource scarcity, and customer-centricity.

To understand these forces, imagine you operate a large restaurant chain, and you’re struggling to differentiate yourself against tough competition. You’ve decided you can stand out by delivering customized entrees. In fact, you’re going to leverage 3D printing to offer personalized pasta.

With 3D printing technology, you can make one-off pasta dishes on the fly. You can give customers a choice of ingredients (gluten-free!), flavors (salted caramel!), and shapes (Leaning Towers of Pisa!). You can offer the personalized pasta in your restaurants, in supermarkets, and on your ecommerce website.

You may think this initiative simply requires you to transform production. But that’s just the beginning. You also need to re-architect research and development, demand signals, asset management, logistics, partner management, and more.

First, you need to develop the matrix of ingredients, flavors, and shapes you’ll offer. As part of that effort, you’ll have to consider health and safety regulations.

Then, you need to shift some of your manufacturing directly into your kitchens. That will also affect packaging requirements. Logistics will change as well, because instead of full truckloads, you’ll be delivering more frequently, with more variety, and in smaller quantities.

Next, you need to perfect demand signals to anticipate which pasta variations in which quantities will come through which channels. You need to manage supply signals source more kinds of raw materials in closer to real time.

Last, the source of your signals will change. Some will continue to come from point of sale. But others, such as supplies replenishment and asset maintenance, can come direct from your 3D printers.

Four key ingredients of the extended supply chain

As with our pasta scenario, the drivers of the extended supply chain require transformation across business models and business processes. First, growing demand for individualized products calls for the same shifts in R&D, asset management, logistics, and more that 3D printed pasta requires.

Second, as with the personalized entrees, the sharing economy integrates a network of partners, from suppliers to equipment makers to outsourced manufacturing, all electronically and transparently interconnected, in real time and all the time.

Third, resource scarcity involves pressures not just on raw materials but also on full-time and contingent labor, with the necessary skills and flexibility to support new business models and processes.

And finally, for personalized pasta sellers and for your own business, it all comes down to customer-centricity. To compete in today’s business environment and to meet current and future customer expectations, all your operations must increasingly revolve around rapidly comprehending and responding to customer demand.

Want to learn more? Check out my recent video on digitalizing the extended supply chain.

Comments

Hans Thalbauer

About Hans Thalbauer

Hans Thalbauer is the Senior Vice President, Extended Supply Chain, at SAP. He is responsible for the strategic direction and the Go-To-Market of solutions for Supply Chain, Logistics, Engineering/R&D, Manufacturing, Asset Management and Sustainability at SAP.

How to Build Customer Loyalty Through Digital Emotional Affinity

Volker Hildebrand, Lori Mitchell-Keller, Christopher Koch, and Polly Traylor

SAP_Digitl_Emotion_BRIEF_image2400x1600_1

 

When the Amazon site was launched in 1995, followed by the heady years of dot-com mania, marketers believed they had reached nirvana with the speed, convenience, selection, and plain cool factor of online stores.

Digital technology revolutionized the way companies interacted with customers by making the research and purchasing processes more convenient. Yet research shows that companies have a long way to go in effectively using digital technologies to engage with their customers.
Just 49% of consumers say their experiences using Web sites on desktop and laptop computers are excellent, while a mere 18% of consumers say the same for shopping with mobile Web sites or apps.

The reason behind the failings of all this great technology is that loyalty is driven by positive emotions not just efficiencies. Ninety percent of purchasing decisions are made subconsciously, according to Caroline Winnett and Andrew Pohlmann of The Nielsen Company. Meanwhile, neuroscientist Antonio Damasio has found that for patients with brain damage affecting their abilities to feel emotions, making any decision at all is difficult.

By developing a concerted strategy to foster positive emotions in digital, companies can reduce churn, lower customer acquisition costs, and grow revenues per customer. “It’s getting harder and harder to put your message in front of customers effectively and efficiently,” says Tim Peter, founder of Tim Peter & Associates, an e-commerce, Internet marketing, and business strategy consultancy. “If you can get them once, you will more likely reengage them. My clients see emotional engagement as a differentiator.”

How does a company move from the robotic, unfeeling interface of technology to an experience where the customer can sense the people and brand behind it all? There’s no single method here; improving emotional affinity in digital requires a culture that’s hyper about monitoring and pleasing customers. It also begs for a hybrid approach of merging human experiences with digital, investing in omnichannel integration, and developing more creative approaches to online branding.

This content is locked! Please fill out this form to unlock it.

In addition to communications that will result from this registration, would you also like to receive news and event notifications from SAP that are specific to your interests?:

All fields are must be filled.

Comments

Tags:

The Future Of Supplier Collaboration: 9 Things CPOs Want Their Managers To Know Now

Sundar Kamak

As a sourcing or procurement manager, you may think there’s nothing new about supplier collaboration. Your chief procurement officer (CPO) most likely disagrees.
Forward-thinking CPOs acknowledge the benefit of supplier partnerships. They not only value collaboration, but require a revolution in how their buying organization conducts its business and operations. “Procurement must start looking to suppliers for inspiration and new capability, stop prescribing specifications and start tapping into the expertise of suppliers,” writes David Rae in Procurement Leaders. The CEO expects it of your CPO, and your CPO expects it of you. For sourcing managers, this can be a lot of pressure.

Here are nine things your CPO wants you to know about how supplier collaboration is changing – and why it matters to your company’s future and your own future.

1. The need for supplier collaboration in procurement is greater than ever

Over half (65%) of procurement practitioners say procurement at their company is becoming more collaborative with suppliers, according to The Future of Procurement, Making Collaboration Pay Off, by Oxford Economics. Why? Because the pace of business has increased exponentially, and businesses must be able to respond to new market demands with agility and innovation. In this climate, buyers are relying on suppliers more than ever before. And buyers aren’t collaborating with suppliers merely as providers of materials and goods, but as strategic partners that can help create products that are competitive differentiators.

Supplier collaboration itself isn’t new. What’s new is that it’s taken on a much greater urgency and importance.

2. You’re probably not realizing the full collective power of your supplier relationships

Supplier collaboration has always been a function of maintaining a delicate balance between demand and supply. For the most part, the primary focus of the supplier relationship is ensuring the right materials are available at the right time and location. However, sourcing managers with a narrow focus on delivery are missing out on one of the greatest advantages of forging collaborative supplier partnerships: an opportunity to drive synergies that are otherwise perceived as impossible within the confines of the business. The game-changer is when you drive those synergies with thousands, not hundreds of suppliers. Look at the Apple Store as a prime example of collaboration en masse. Without the apps, the iPhone is just another ordinary phone!

3. Collaboration comes in more than one flavor

Suppliers don’t just collaborate with you to provide a critical component or service. They also work with your engineers to help ensure costs are optimized from the buyer’s perspective as well as the supplier’s side. They may even take over the provisioning of an entire end-to-end solution. Or co-design with your R&D team through joint research and development. These forms of collaboration aren’t new, but they are becoming more common and more critical. And they are becoming more impactful, because once you start extending any of these collaboration models to more and more suppliers, your capabilities as a business increase by orders of magnitude. If one good supplier can enable your company to build its brand, expand its reach, and establish its position as a market leader – imagine what’s possible when you work collaboratively with hundreds or thousands of suppliers.

4. Keeping product sustainability top of mind pays off

Facing increasing demand for sustainable products and production, companies are relying on suppliers to answer this new market requirement.

As a sourcing manager, you may need to go outside your comfort zone to think about new, innovative ways to collaborate for achieving sustainability. Recently, I heard from an acquaintance who is a CPO of a leading services company. His organization is currently collaborating with one of the largest suppliers in the world to adhere to regulatory mandates and consumer demand for “lean and green” lightbulbs. Although this approach was interesting to me, what really struck me was his observation on how this co-innovation with the supplier is spawning cost and resource optimization and the delivery of competitive products. As reported by Andrew Winston in The Harvard Business Review, Target and Walmart partnered to launch the Personal Care Sustainability Summit last year. So even competitors are collaborating with each other and with their suppliers in the name of sustainability.

5. Co-marketing is a win-win

Look at your list of suppliers. Does anyone have a brand that is bigger than your company’s? Believe it or not, almost all of us do. So why not seize the opportunity to raise your and your supplier’s brand profile in the marketplace?

Take Intel, for example. The laptop you’re working on right now may very well have an “Intel inside” sticker on it. That’s co-marketing at work. Consistently ranked as one of the world’s top 100 most valuable brands by Millward Brown Optimor, this largest supplier of microprocessors is world-renowned for its technology and innovation. For many companies that buy supplies from Intel, the decision to co-market is a strategic approach to convey that the product is reliable and provides real value for their computing needs.

6. Suppliers get to choose their customers, too

Increased competition for high-performing suppliers is changing the way procurement operates, say 58% of procurement executives in the Oxford Economics study. Buyers have a responsibility to the supplier – and to their CEO – to be a customer of choice. When the economy is going well, you might be able to dictate the supplier’s goods and services – and sometimes even the service delivery model. When times get tough (and they can very quickly), suppliers will typically reevaluate your organization’s needs to see whether they can continue service in a fiscally responsible manner. To secure suppliers’ attention in favorable and challenging economic conditions, your organization should establish collaborative and mutually productive partnerships with them.

7. Suppliers can help simplify operations

Cost optimization will always be one of your performance metrics; however, that is only one small part of the entire puzzle. What will help your organization get noticed is leveraging the supplier relationship to innovate new and better ways of managing the product line and operating the business while balancing risk and cost optimization. Ask yourself: Which functions are no longer needed? Can they be outsourced to a supplier that can perform them better? What can be automated?

8. Suppliers have a better grasp of your sourcing categories than you do

Understand your category like never before so that your organization can realize the full potential of its supplier investments while delivering products that are consistent and of high quality. How? By leveraging the wisdom of your suppliers. To be blunt: they know more than you do. Tap into that knowledge to gain a solid understanding of the product, market category, suppliers’ capabilities, and shifting dynamics in the industry, If a buyer does not understand these areas deeply, no amount of collaboration will empower a supplier to help your company innovate as well as optimize costs and resources.

9. Remember that there’s something in it for you as well

All of us want to do strategic, impactful work. Sourcing managers with aspirations of becoming CPOs should move beyond writing contracts and pushing PO requests by building strategic procurement skill sets. For example, a working knowledge in analytics allows you to choose suppliers that can shape the market and help a product succeed – and can catch the eye of the senior leadership team.

Sundar Kamak is global vice president of solutions marketing at Ariba, an SAP company.

For more on supplier collaboration, read Making Collaboration Pay Off, part of a series on the Future of Procurement, by Oxford Economics.

Comments

The CFO Role In 2020

Estelle Lagorce

African American businessman looking out office window --- Image by © Mark Edward Atkinson/Blend Images/CorbisThe role of the CFO is undergoing a serious transformation, and CFOs can expect their role to continue to evolve, according to a recent CFO.com article by Deloitte COO and CFO Frank Friedman.

In the futurist article, Friedman says one of the biggest factors that will contribute to the CFO’s significant change over the next five years is technology.

Digital technology is obviously expected to drive change in high-tech companies, but Friedman says it’s industries outside of the tech sectors that are of particular interest, as they struggle to understand how to grasp and harness the digital capabilities available to them.

Working with high tech in low-tech industries

Five years from now, a finance team may be defined by how well it uses technology and innovative business tools, regardless of what industry it’s in. The article outlines some examples of ways that digital technology will increasingly be used by CFOs in “non-tech” sectors:

  • Predictive analytics: CFOs in manufacturing companies can forecast results and produce revenue predictions based on customer-experience profiles and current demand, instead of comparing to previous years as most companies still do today.
  • Social media and crowdsourcing: You may not think CFOs spend a lot of time on social media or crowdsourcing sites, but these methods can actually expedite finance processes, such as month-end responsibilities of the finance organization.
  • Big Data: CFOs already have a lot of data at their fingertips, but in 2020 they will have even more. CFOs in both tech and non-tech sectors who understand how to use that data to make valuable, informed decisions, can strategically guide their company and industry in a more digitally oriented world.

To do this, Friedman says CFOs can lead the way by addressing some critical areas:

  1. Know the issues: Gather the key questions that leaders expect Big Data analytics to answer.
  1. Make data easily accessible: Collect data that is manageable and easy to access.
  1. Broaden skills: The finance team needs people with the skills to understand and strategically interpret the data available to them.

The tech-savvy CFO

The role of today’s CFO has already expanded to include strategic corporate growth advice as well as managing the bottom line. In 2020, Friedman says expectations placed on the CFO are presumed to be even greater, and CFOs will likely need a much more diverse, multidisciplinary skill set to meet those demands.

The article details several traits and skills that CFOs will need in order to keep up with the pace of digital change in their role.

  1. Digital knowledge: CFOs must be tech-savvy in order to capitalize on technical innovations that will benefit their company and their industry as a whole.
  1. Data-driven execution: CFOs will need the ability to execute company strategy and operations decisions based on data-driven insights.
  1. Regulatory compliance: Regulations continue to be more stringent globally, so CFOs will need to be proficient at working closely with regulators and compliance systems.
  1. Risk management: With the growing global economy comes increased cyber and geopolitical risks worldwide. The CFOs of 2020, especially those in large multinational organizations, will need to have the expertise to monitor and manage risk in areas that may be unforeseen today.

The future CFO’s well-rounded resume

By 2020, the CFO role will require much more than just an accounting background. According to Deloitte’s Frank Friedman, “CFOs may need to bring a much more multidisciplinary skill set to the job as well as broader career experiences, from working overseas to holding positions in sales and marketing, and even running a business unit.”

So if you’re a current or aspiring CFO, you have five years to round out your resume with the necessary skills to be ready for the digitally driven role of the CFO in 2020.

The above information is based on the CFO.com article What Will the CFO Role Look Like In 2020?” by Deloitte COO & CFO, Frank Friedman – Copyright © 2015 CFO.com.

Want to learn more about best practices for transforming your finance organization? View the SAP/Deloitte Webinar, “Reshaping the Finance Function”.

For an in-depth look at digital technology’s role in business transformation, download the SAP eBook, The Digital Economy: Reinventing the Business World.

To learn more about the business and technology factors driving digital disruption, download the SAP eBook, Digital Disruption: How Digital Technology is Transforming Our World.

To read more CFO insights from a tech industry perspective, read the Wall Street Journal article with SAP CFO Luka Mucic: Driving Insight with In-memory Technology.

Discover 7 Questions CFOs Should Ask Themselves About Cyber Security.

Comments

Estelle Lagorce

About Estelle Lagorce

Estelle Lagorce is the Director, Global Partner Marketing, at SAP. She leads the global planning, successful implementation and business impact of integrated marketing programs with top global Strategic Partner across priority regions and countries (demand generation, thought leadership).