How to shoulder the burden of compliance

The increasing burden of compliance is forcing many businesses to outsource this key area to external partners. “If you are not familiar with the rules, it can be a complex and high-risk area to self-manage,” says Cormac Kelleher, international tax partner with Mazars. And it is critically important that companies get it right.

“Not only is a strong compliance record important when seeking to borrow funds from your financial institution or raise additional equity, but it is currently the key to unlocking access to the various Government Covid reliefs,” Kelleher explains. “Businesses with outstanding tax compliance and lacking tax clearance were effectively locked out of claiming valuable life-support reliefs.”

And it’s getting even more complex. “The future of compliance is to shift from the traditional monthly reporting to real-time reporting,” he continues. “We have already seen this with PAYE modernisation.”

The pandemic has exacerbated the situation. Irish businesses that have accommodated employees’ requests to work from home in overseas locations may have walked themselves into a raft of new compliance requirements. They are likely to have an obligation to operate a payroll for the employees in the jurisdiction in which they are actually living.

This may give rise to additional social insurance costs. There is also the question of whether the company has created a corporate tax obligation in that territory.

A poor compliance record can affect the value of a business. “It is common practice in a sale of business for the purchaser to factor in the severity of compliance breaches to the purchase price and the warranties being sought,” Kelleher notes.

Competitive advantage

“Organisations can gain a competitive advantage by partnering with a service provider whose primary focus is on managing the compliance function,” he adds. “Not only will this free up internal resources, but the frequency and management reporting detail can be enhanced to aid decision-making. Insights can range from advice on how to configure reporting systems, flagging potential tax-compliance issues before they fester or act as a sounding board if your organisation is looking to enter a new geographic market.”

Technology can also play a useful role, according to Mairéad Divilly, lead outsourcing partner with Mazars. "When correctly leveraged, technology has the ability to yield competitive advantage and support swifter management decision-making capabilities," she points out.

“Mazars have developed unique global proprietary technology to manage multi-country assignments. It is a global tracking tool as well as a communication and co-ordination tool with information transmitted in real time. The business can access this and identify the status of compliance obligations and filing requirements across all jurisdictions.

“This will avoid last-minute sprints to avoid late filings and penalties. The use of technology and tools provides transparency and openness on compliance requirements as well as providing business insights and analysis for the business.”

In-house deficit

Outsourcing is a growing trend. “With the advent of PAYE modernisation in 2019 and ever-evolving tax legislation, payroll compliance has become more complicated, and we are seeing a significant number of organisations looking to outsource this function,” says Divilly. “We are seeing owner-managed businesses outsource as they feel they do not have the in-house capabilities and they are also looking for the value-added advisory support for their business.

“Many multinational organisations outsource all their international accounting and payroll compliance functions as they may not have the necessary expertise or knowledge to navigate the legislative and tax laws in the various jurisdictions.”

Kelleher has some advice for firms considering the outsourcing option.

“It goes without saying that any potential service provider needs to be able to demonstrate track record and sectoral knowledge,” he says. “In order for the relationship with your service provider to be effective and unlock competitive advantage, they need to be an engaged, proactive, yet challenging, extension of your existing team.

“Your service provider needs to understand your business and how it operates. It is only by developing a deep understanding of your business and nurturing relationships with your staff that the service provider will be able to highlight potential risks, identify how they can be resolved and identify opportunities.

“An effective service provider needs to support your company on the organisational development and grow with it. If your business expands overseas, the partner needs to be able to support you in that jurisdiction and guide you on best practice, as well as day-to-day requirements.”