What CFOs Need To Know Now About Country-By-Country Reporting Legislation

Christoph Himmel

At the beginning of the year, the World Economic Forum Annual Meeting prompted the headline, “Davos Leaders Agree: Share More Wealth, or Face the Consequences.” Wealth redistribution is the common keyword. But they seemed split over the model – voluntary or through taxation.

When the G20 endorsed the Base Erosion and Profit Sharing (BEPS) Action Plan in 2013, it became a common model to fight against the unfairness of taxation. The BEPS Project aims to provide governments with clear international solutions for fighting corporate tax-planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favorable tax treatment.

Meanwhile, about 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.

Since the endorsement of the BEPS Package by G20 leaders in November 2016, the focus has shifted to ensuring consistent implementation, including the new transfer-pricing reporting standards developed under Action 13 of the BEPS Action Plan.

The recent country implementation summary published by KMPG shows a wide range of countries already in the final legislation state. So for multinationals with (at least) headquarters in those countries, it’s time to think about how to implement the new reporting requirements.

As always, there are decision boundaries for the right solution. Options range from short-term actions to provide basic data, maybe collected half manually, to integrated solutions that consistently sit on top of operating IT architecture. All tax advisory companies bring in their knowledge of legislation and procedures, and some also provide IT solutions to manage the data within a separate instance. Tax departments might have a favorite for such solutions since they manage “their” own data, and such solutions might be deployable on short notice to meet deadlines.

However, the new tax reporting have implications in at least five areas:

  • Additional reports – Significant additional disclosure and reporting requirements, in particular around reporting of business activities by jurisdiction, country, transfer pricing, and inter-company transactions
  • Increased communication to tax authorities – Increased potential for audit by tax authorities, in particular around transfer pricing, likely to require greater transparency and systemization of transfer-pricing policies and activity
  • Compliance check – Required compliance with stated transfer-pricing policies
  • Reorganization – Required restructuring and/or relocation of resources where legal and tax structures have been created that do not reflect underlying economic reality
  • Transparency – Potential for large and very public tax reassessments, where legal and tax structures and transfer-pricing policies are not adjusted to reflect economic reality, or insufficient data exists to defend against reassessments

So it is all about enhancing business and reporting processes and ensuring compliance. The country-by-country (CbC), master file, and local file reports correspond to your transfer-pricing strategy, which sits at the end of the transactional data of an enterprise resource planning (ERP) system – and hence is an integral part of the overall group reporting.

What’s needed are consistent platform solutions, as well as a solution for BEPS within the preferred legal consolidation platform, to allow harmonization of group consolidation and reporting requirements. Look for the following capabilities to support BEPS challenges:

  • A single source of truth for CbC reporting data with workflow, security, and a highly collaborative interface
  • Flexible maintenance of the CbC reporting requirements on top of the existing systems
  • A central tool that can easily interface with any source system
  • Preconfigured rules, controls, calculations, and templates for data input to perform, validate, and publish required financial data
  • A flexible platform to meet constantly changing requirements

To learn more about offerings to help you address BEPS, please download SAP’s brief and info sheet. Click here to learn more about SAP Digital Business Services.

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About Christoph Himmel

Christoph Himmel is the service portfolio manager for finance in the Global Service and Support team at SAP. He has more than 17 years of experience in implementing SAP Finance solutions, developing new customer scenarios (particularly in B2C), and designing services towards finance customer audiences. He has a PhD in Science and an MBA.

Transformation Ahead, Part 3: 10 Trends Shaping The Future Of Finance

Randy Garrison

Part 3 of the of the 4-part “Transformation Ahead” series

As I wrote in my previous blogs in this series, 10 key trends are significantly changing the future of finance. To ensure that their finance organizations keep pace with the change demanded by the business and catalyzed by disruptive technologies, CFOs must be prepared to address these trends.

Trend 5. Finance will become the analytics hub of the organization.

Successful finance organizations are focusing on enterprise-level analytics and key performance indicators, not just information related to the finance function. To support this shift, the finance organization will need to develop a deep understanding of the business and the ability to translate this knowledge into financial and operational metrics.

Day-to-day analytics should provide self-service for business users. With artificial intelligence and natural language processing making analytics tools more intuitive for users, the finance organization can step away from being analytics experts and instead focus on becoming strategic partners to the business. Finance experts can help the business interpret analytics and discover trends, opportunities, or the root cause of issues. With the use of predictive algorithms, finance organizations can help shape strategy by performing what-if comparisons across multiple scenarios.

Trend 6. Core finance processes will become dynamic, continuous processes.

Too slow to support real-time digital businesses, traditional processes that focus on month-end close and annual budget cycles must be replaced. Instead, accounting is evolving into a continuous activity, performed primarily through automation and business networks. In this environment, closing the books will be just another task – not a cause for stress or overtime.

Other than external reporting for quarterly or annual results, the close will no longer be needed to support financial performance evaluation for the business. Budgeting will also become a dynamic activity, one that supports rapid adjustments to meet changing business requirements. For more on this topic, read the Continuous Accounting Series in the Digitalist.

Trend 7. Finance will be viewed as a business value creator.

As automation and trends such as AI, machine learning, and networking reduce the manual effort required for transactional functions, CFOs will be able to add more top- and bottom-line value by focusing more effort on complex topics such as transfer pricing optimization, proactive working capital management, tax optimization, and proactive currency and commodity hedge management. Detailed, timely insights will equip the finance organization to create data-driven value for the business.

My next blog will conclude with a look at three more significant trends – and my recommendations for how to get ready and take charge. You can read more about finance solutions at www.sap.com/cfo.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube



Randy Garrison

About Randy Garrison

Randy Garrison is vice president, Global Line of Business Finance and Head of Value Advisory at SAP. The LoB Finance organization is responsible for the full suite of SAP solutions for the Office of the CFO.

Randy has held several roles at SAP, most recently in leadership within SAP’s Services business. In these roles, he has led both large and small teams focused on analytics strategy, data strategy, business transformation, Big Data, and so on, focused on the implementation, adoption, and value realization of SAP’s products.

Randy is a Certified Public Accountant, Certified Management Accountant, Chartered Global Management Accountant, and a member of the AICPA and the Institute of Management Accountants.

He is married with five children ranging in age from 32 to 7 years old. Personal interests include golf, hot air ballooning, anything the kids do.

The Year For Making Business Payments Sooner ... And Later

Chris Rauen

Looking back on the year, have you been satisfied with the earnings on short-term cash?

I certainly haven’t. But businesses have an opportunity to increase their returns on cash with early-payment discounts, especially at year-end.

It’s easy to see why. Many cash-starved suppliers look to improve their cash flow at end-of-quarter and end-of-year fiscal periods. Early-payment discounts can do just that. Top performers are realizing $2 million to $3 million in discount savings for every $1 billion of spending.

That’s one aspect of payment timing, which was a popular topic over the past year on managing cash and working capital. On the flip side, there’s the opportunity to extend payment terms for organizations that may find themselves paying suppliers faster than their peers. One global pharmaceutical company extended payment terms by 15 days with tens of thousands of suppliers in 40 countries. That generated more than $330 million in free cash flow and contributed more than $10 million to the income statement.

What about suppliers that may want to get paid sooner, but their customers don’t want to use their own cash? That’s where supply chain finance from a third-party financial institution is a good fit.

These strategies for managing cash and working capital can help suppliers with their cash flow while also make valuable contributions to your financial results. However, for many organizations, early-payment discounts aren’t a priority. Neither is attention to payment terms.

That’s where our e-book, The Insider’s Guide to Improving Payments and Cash Flow, can be a valuable resource. It offers a comprehensive look at tactics and strategies to better manage payment timing, cash, and working capital. The fact that your competitors may be paying closer attention to this activity would be a good reason to act. As the e-book points out, if it turns out that you’re paying suppliers earlier than others in your industry, you are effectively financing their businesses.

Tell that to your treasurer. With a focus on days payable outstanding (DPO), your treasury group might not consider paying a supplier early in exchange for a discount. But treasury needs to understand that, in today’s digital economy, you can balance dynamic discounting and DPO management to increase earnings on cash from the discounts while simultaneously freeing up cash flow through payment terms extension.

Meanwhile, as you strive to maintain a healthy financial supply chain, conflicting objectives can get in the way.  According to the Strategic Treasurer report, Leading Practices in the Financial Supply Chain, conflicting key performance indicators (KPIs) from treasury, AP, procurement, and sales can disrupt business operations and “make treasury’s task of managing working capital difficult.”

How are you dealing with these issues? If they aren’t yet top of mind, there’s still time in 2017 to consider a payment timing strategy that can turn your payables into a strategic asset, and help your suppliers with their cash flow, too.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube


Chris Rauen

About Chris Rauen

In his role at SAP Ariba, Chris Rauen educates procurement, finance, and shared services professionals on the business value of accounts payable automation, procure-to-pay transformation, and collaboration via business networks. Chris has addressed these topics at finance and shared services conferences, in articles for trade and business publications, and in blogs for online communities. Chris has more than 15 years of experience in e-payables, and holds a B.A. in Economics from the University of California, Santa Barbara.

Human Skills for the Digital Future

Dan Wellers and Kai Goerlich

Technology Evolves.
So Must We.

Technology replacing human effort is as old as the first stone axe, and so is the disruption it creates.
Thanks to deep learning and other advances in AI, machine learning is catching up to the human mind faster than expected.
How do we maintain our value in a world in which AI can perform many high-value tasks?

Uniquely Human Abilities

AI is excellent at automating routine knowledge work and generating new insights from existing data — but humans know what they don’t know.

We’re driven to explore, try new and risky things, and make a difference.
We deduce the existence of information we don’t yet know about.
We imagine radical new business models, products, and opportunities.
We have creativity, imagination, humor, ethics, persistence, and critical thinking.

There’s Nothing Soft About “Soft Skills”

To stay ahead of AI in an increasingly automated world, we need to start cultivating our most human abilities on a societal level. There’s nothing soft about these skills, and we can’t afford to leave them to chance.

We must revamp how and what we teach to nurture the critical skills of passion, curiosity, imagination, creativity, critical thinking, and persistence. In the era of AI, no one will be able to thrive without these abilities, and most people will need help acquiring and improving them.

Anything artificial intelligence does has to fit into a human-centered value system that takes our unique abilities into account. While we help AI get more powerful, we need to get better at being human.

Download the executive brief Human Skills for the Digital Future.

Read the full article The Human Factor in an AI Future.


About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation.

Share your thoughts with Kai on Twitter @KaiGoe.heif Futu


The Human Factor In An AI Future

Dan Wellers and Kai Goerlich

As artificial intelligence becomes more sophisticated and its ability to perform human tasks accelerates exponentially, we’re finally seeing some attempts to wrestle with what that means, not just for business, but for humanity as a whole.

From the first stone ax to the printing press to the latest ERP solution, technology that reduces or even eliminates physical and mental effort is as old as the human race itself. However, that doesn’t make each step forward any less uncomfortable for the people whose work is directly affected – and the rise of AI is qualitatively different from past developments.

Until now, we developed technology to handle specific routine tasks. A human needed to break down complex processes into their component tasks, determine how to automate each of those tasks, and finally create and refine the automation process. AI is different. Because AI can evaluate, select, act, and learn from its actions, it can be independent and self-sustaining.

Some people, like investor/inventor Elon Musk and Alibaba founder and chairman Jack Ma, are focusing intently on how AI will impact the labor market. It’s going to do far more than eliminate repetitive manual jobs like warehouse picking. Any job that involves routine problem-solving within existing structures, processes, and knowledge is ripe for handing over to a machine. Indeed, jobs like customer service, travel planning, medical diagnostics, stock trading, real estate, and even clothing design are already increasingly automated.

As for more complex problem-solving, we used to think it would take computers decades or even centuries to catch up to the nimble human mind, but we underestimated the exponential explosion of deep learning. IBM’s Watson trounced past Jeopardy champions in 2011 – and just last year, Google’s DeepMind AI beat the reigning European champion at Go, a game once thought too complex for even the most sophisticated computer.

Where does AI leave human?

This raises an urgent question for the future: How do human beings maintain our economic value in a world in which AI will keep getting better than us at more and more things?

The concept of the technological singularity – the point at which machines attain superhuman intelligence and permanently outpace the human mind – is based on the idea that human thinking can’t evolve fast enough to keep up with technology. However, the limits of human performance have yet to be found. It’s possible that people are only at risk of lagging behind machines because nothing has forced us to test ourselves at scale.

Other than a handful of notable individual thinkers, scientists, and artists, most of humanity has met survival-level needs through mostly repetitive tasks. Most people don’t have the time or energy for higher-level activities. But as the human race faces the unique challenge of imminent obsolescence, we need to think of those activities not as luxuries, but as necessities. As technology replaces our traditional economic value, the economic system may stop attaching value to us entirely unless we determine the unique value humanity offers – and what we can and must do to cultivate the uniquely human skills that deliver that value.

Honing the human advantage

As a species, humans are driven to push past boundaries, to try new things, to build something worthwhile, and to make a difference. We have strong instincts to explore and enjoy novelty and risk – but according to psychologist Mihaly Csikszentmihalyi, these instincts crumble if we don’t cultivate them.

AI is brilliant at automating routine knowledge work and generating new insights from existing data. What it can’t do is deduce the existence, or even the possibility, of information it isn’t already aware of. It can’t imagine radical new products and business models. Or ask previously unconceptualized questions. Or envision unimagined opportunities and achievements. AI doesn’t even have common sense! As theoretical physicist Michio Kaku says, a robot doesn’t know that water is wet or that strings can pull but not push. Nor can robots engage in what Kaku calls “intellectual capitalism” – activities that involve creativity, imagination, leadership, analysis, humor, and original thought.

At the moment, though, we don’t generally value these so-called “soft skills” enough to prioritize them. We expect people to develop their competency in emotional intelligence, cross-cultural awareness, curiosity, critical thinking, and persistence organically, as if these skills simply emerge on their own given enough time. But there’s nothing soft about these skills, and we can’t afford to leave them to chance.

Lessons in being human

To stay ahead of AI in an increasingly automated world, we need to start cultivating our most human abilities on a societal level – and to do so not just as soon as possible, but as early as possible.

Singularity University chairman Peter Diamandis, for example, advocates revamping the elementary school curriculum to nurture the critical skills of passion, curiosity, imagination, critical thinking, and persistence. He envisions a curriculum that, among other things, teaches kids to communicate, ask questions, solve problems with creativity, empathy, and ethics, and accept failure as an opportunity to try again. These concepts aren’t necessarily new – Waldorf and Montessori schools have been encouraging similar approaches for decades – but increasing automation and digitization make them newly relevant and urgent.

The Mastery Transcript Consortium is approaching the same problem from the opposite side, by starting with outcomes. This organization is pushing to redesign the secondary school transcript to better reflect whether and how high school students are acquiring the necessary combination of creative, critical, and analytical abilities. By measuring student achievement in a more nuanced way than through letter grades and test scores, the consortium’s approach would inherently require schools to reverse-engineer their curricula to emphasize those abilities.

Most critically, this isn’t simply a concern of high-tuition private schools and “good school districts” intended to create tomorrow’s executives and high-level knowledge workers. One critical aspect of the challenge we face is the assumption that the vast majority of people are inevitably destined for lives that don’t require creativity or critical thinking – that either they will somehow be able to thrive anyway or their inability to thrive isn’t a cause for concern. In the era of AI, no one will be able to thrive without these abilities, which means that everyone will need help acquiring them. For humanitarian, political, and economic reasons, we cannot just write off a large percentage of the population as disposable.

In the end, anything an AI does has to fit into a human-centered value system that takes our unique human abilities into account. Why would we want to give up our humanity in favor of letting machines determine whether or not an action or idea is valuable? Instead, while we let artificial intelligence get better at being what it is, we need to get better at being human. That’s how we’ll keep coming up with groundbreaking new ideas like jazz music, graphic novels, self-driving cars, blockchain, machine learning – and AI itself.

Read the executive brief Human Skills for the Digital Future.

Build an intelligent enterprise with AI and machine learning to unite human expertise and computer insights. Run live with SAP Leonardo.


About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network His specialties include Competitive Intelligence, Market Intelligence, Corporate Foresight, Trends, Futuring and ideation.

Share your thoughts with Kai on Twitter @KaiGoe.heif Futu