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. Furthermore, in Latin America, the changes are not announced ahead of time, meaning businesses do not have the time to prepare for them. 

These changes and updates can be announced on the spot, without warning, which means businesses only have a very small window to adapt, and can therefore be quickly and easily pushed into non-compliance without even realizing.  

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? 

There are some countries, particularly in Europe, where non-compliance is considered to be as much of a responsibility of the tax authority as it is of the taxpayer, and there should be 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 one month to do this. 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, the fines are usually fixed amounts that are applied in case you didn’t take advantage of the extension facilities and you are still late.  

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 Columbia, the penalty system is quite complex and is based on percentages of tax liability and some failings regarding tax could be as serious as being considered a criminal offense. For example, if you are caught retaining income tax from the salary of employees, and you are not paying forward the retained income tax to tax authorities, this can be as serious as being classed as a criminal offense.  

In other countries, such as those in the APAC region, the penalties can be applied as a percentage of the tax liability that is due and not paid, or if you have underpaid your tax liability, then the tax authorities can apply an interest rate that could be as high as 12 – 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 can create cross border frameworks and provide compliance guidance and training to ensure businesses are equipped with the knowledge they need to operate legally and compliantly. 

In addition to this, we can create pricing frameworks and work with customers that are looking to expand to provide them with a full set of information for local compliance regulations, and 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 need a more consultative approach whereby one of our HSP experts provide guidance on compliance or you need someone to do these activities on your behalf, HSP is fully equipped with the capacity and knowledge to do anything you need. 


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, should a company face a situation where they have been found for being non-compliant, we can support them in understanding what the requirements are and advise on what corrective actions should be taken to resolve this. 

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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