Managing Cross Border Compliance Risks | Part 2

Following on from part 1, Emine Constantin, one of our experts at HSP, has discussed some of the core aspects of cross border compliance, and how to efficiently and effectively manage these areas to keep you trading without unnecessary complications.  


What are the challenges/risks of cross border compliance? 

Naturally, there are many challenges and risks associated with cross border compliance that businesses should be aware of. 



The most significant challenge is complexity – there are so many rules from country to country, and having to work with different sorts of rules in each country adds to this existing complexity. A business needs to understand the rules everywhere it has a presence and develop a further understanding of how these rules impact the way in which it operates in each country.  

The next challenge is to have a local understanding. Not having this expertise can cause major issues and can impact decisions such as how you are going to organize local compliance, what changes you need to make to your processes and systems, and whether you need to outsource those activities because you do not have experts in-house.  

This can be risky to manage yourself, especially when you don’t have the understanding or know-how of how it works. 


Regulatory changes 

Further challenges can include the sheer number of changes that take place, such as in Latin America and APAC regions where these are more frequent. In Latin America, changes are not announced ahead of time, meaning businesses do not have the time to prepare. 

Businesses may face sudden announcements of changes and updates, giving them only a small window to adapt. Consequently, they can be swiftly and easily pushed into non-compliance without prior notice.  

This is especially true for companies that use their own accounting systems, as they may need to reconfigure the system to accommodate these changes, while working with a provider that uses a local accounting system could be safer from this perspective because the configuration of locally compliant systems would be easier, and there would always be an expert to take care of it. 


The processes 

Another challenge is the processes. Multinational companies usually have global processes and a central approach in terms of maintaining their accounts, and they usually want to enforce global processes at a local level. However, this is not always possible due to specific local requirements. 

Trying to enforce global processes at a local level may be challenging and might not always be successful due to the local rules.  

The main risk facing businesses that wish to expand on a global level is not understanding the local rules and regulations and because of that, there are lots of consequences… 


What are some examples of penalties of non-compliance? 

In some countries, particularly in Europe, non-compliance is considered both a tax payer and tax authority responsibility. This calls for a good corporation mechanism between the taxpayer and the tax authorities whereby support is provided through the likes of helpdesks.  

In Germany, you can apply for extensions if you’re not able to meet the filing deadline, and you can be granted an additional month to file. Similarly, in the Netherlands, you can apply for extensions when filing financial statements. 

The consequences in such countries, such as fines and penalties, are not that heavy. For example, in Germany, fines are usually fixed amounts that are applied in case you didn’t take advantage of the extension facilities.  

On the other end of the spectrum, in some countries, such as ones in Latin America, non-compliance is severely punishable. 

For example, the local tax authority will apply the final penalty from the first day, and the possibility of talking to the tax authority to get clarity is limited.  

In Colombia, the penalty system is intricate, relying on percentages of tax liability. Not complying with tax regulations, like failing to forward income tax withheld from employees’ salaries to tax authorities, can lead to being considered a criminal offense.

In some countries, like those in the APAC region, penalties may be imposed as a percentage of the unpaid tax liability, or if there is underpayment, tax authorities can apply an interest rate ranging from 12% to 20%. 

What can HSP specifically do to help businesses with cross border compliance? 

HSP can support businesses with cross border compliance management in a number of ways. 

For example, we create cross border frameworks and provide compliance guidance and training to ensure businesses can operate legally and compliantly. 

In addition, we create pricing frameworks and work with customers looking to expand to provide information for local compliance regulations. We then work closely with them to ensure they meet these local compliance regulations. 

For instance, we can review to see if they should make changes in house, whether they need to alter their processes or adapt their systems. 

Essentially, we cover anything from helping businesses to understand compliance gaps and make decisions on how best to cover existing gaps themselves, to taking care of all of their local compliance activities, managing the risks ourselves and making sure they file their tax returns, assist on tax audits and, ultimately, ensuring they are compliant.  

Whether you require a consultative approach with guidance on compliance from one of our HSP experts or someone to carry out these activities on your behalf, HSP has the capacity and knowledge to fulfill all your needs.

Can HSP help to resolve issues and navigate a business out of trouble? Or are the services more on a preventative basis?  

HSP can work in both ways, although the ideal way is to be preventative. 

However, if a company finds itself in a situation of non-compliance, we can assist them in understanding the requirements and provide advice on the corrective actions they should take to resolve the issue.

If a business if facing a penalty, it may be due to the fact that their process or systems are not working, or they don’t have local experts in place, and so we can do a root cause analysis and advise on corrective actions, or execute these actions ourselves should the customer wish. 

For help with managing your cross border compliance activities and reducing any risks associated with global expansion, get in touch with HSP today.  

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