In recent years, Chinese companies have experienced rapid growth in overseas investments. With the wide-reaching influence of China's "going global" policy and the development blueprint of the "Belt and Road" initiative, more and more Chinese companies are venturing abroad and expanding worldwide.
Through overseas investments, Chinese companies have the opportunity to gain access to advanced technology, learn from international experiences, enhance productivity, address overcapacity issues in certain industries, and foster technological upgrading and independent innovation capabilities. This holds significant long-term significance for the development of Chinese companies. However, simultaneously, overseas investments and multinational operations by Chinese companies carry unpredictable risks, one of which is tax-related risks. Therefore, companies venturing into foreign investments should focus on improving their corporate tax management systems to navigate the ever-changing international tax environment.
To enhance the scientific nature of tax management for Chinese companies "going global," reduce tax-related risks, and assist companies in successfully expanding abroad and enhancing their international competitiveness, the Shanghai Municipal Commission of Commerce commissioned Ernst & Young to draft the "Guidelines for Tax Compliance Management of Outbound Investments" (referred to as the "Report" below). Through the analysis of common tax management systems and the sharing of case studies, these guidelines provide a practical and actionable reference for the tax management of Chinese companies "going global."
I. What is a Global Tax Compliance Management System?
A global tax compliance management system is a collection of elements that multinational enterprises need to manage in their daily tax work. It can be understood from two perspectives: the macrocycle and the microcycle.
(A) The Macrocycle of Global Tax Compliance Management
Tax Planning: Strategically aligning with operations, enhancing enterprise value, risk management, and assessing the impact on cash flow and finance.
Tax Accounting: Integrating global processes, accurate tax item accounting, automated systems and tools, and end-to-end reporting processes.
Tax Filing: Utilizing tax data, ensuring global process consistency, real-time awareness, monitoring reports, and real-time submission of transaction data.
Tax Controversy: Risk management assessment, comprehensive audit materials, alignment with filing criteria, and system constraints and proactive filing.
(B) The Microcycle of Global Tax Compliance Management (i.e., the Mechanism for Global Tax Filing Management)
Planning: Developing annual tax filing plans for each country, including which forms are involved, timing, related tasks, and task assignees. Documenting the above content and uploading it to the automation system.
Collection: Collecting all information required for preparing tax forms, and discussing and reaching an agreement on data collection. The collected data should be timely, complete, accurate, and reliable.
Analysis: Reviewing tax forms (drafts) and preparing agreed-upon tax forms and information, submitting them to local management, monitoring local tax issues, and reporting to headquarters. Conducting a thorough review of all tax returns and calculations based on the company's quality and risk management procedures.
Submission: Storing final tax returns and related work documents through quality control checks, accurately monitoring tax activities, and obtaining information to understand tax planning and inquiries from tax authorities.
Assessment: Monitoring the process to ensure project completion, including conducting annual tax assessment meetings, discussing tax risks, opportunities, and areas for improvement, and making continuous improvements based on the entire tax cycle.
II. Trends in the Development of Global Tax Compliance Management
The emergence of new business operating models and increasingly complex regulatory environments present a critical moment for tax compliance management. Many companies have realized that they must transform their tax compliance management to improve compliance efficiency, enhance management levels, and reduce tax risks in an increasingly global and complex tax regulatory environment.
(A) Challenges to Traditional Filing Models
The new business environment poses challenges to traditional tax compliance and filing models. More and more companies experience unforeseen tax audits, resulting in additional taxes or penalties. Changes in regulatory requirements will significantly challenge tax filing processes, making it necessary to build more reasonable and efficient global tax compliance management systems to reduce these risks and unexpected costs.
(B) Financial Transformation as a Catalyst for Filing Process Reform
In recent years, companies have emphasized standardizing business processes, especially financial processes, which has created a significant opportunity to create more efficient global tax compliance and filing processes. Most companies have established standardized global processes for tax provisions, but many have not standardized global processes for other aspects of tax compliance and filing. Therefore, it is imperative for companies to initiate reforms in these areas as well.
(C) The Critical Role of Local Expert Resources
In general, the trend in financial work is to reduce local financial resources traditionally used to support local tax filing processes or reallocate them to the company's global or regional centers. However, local tax authorities are increasingly emphasizing increased revenue through enhanced enforcement, which has increased the demand for experienced local expert resources within companies. Therefore, obtaining local expert resources has become a fundamental requirement for tax compliance and filing management.
(D) The Importance of Global Tax Compliance Management
Some companies lack global management for statutory financial reporting and, in some cases, for tax filing as well. For "going global" companies, it is necessary to optimize the tax compliance and filing process and establish a global tax compliance management system. For instance, companies can improve efficiency and transparency by defining the geographic scope of tax compliance and filing processes and reducing the departments responsible for these processes. This helps avoid situations where additional time and financial resources are expended at various stages of tax compliance filing across the globe.
III. How to Optimize a Company's Global Tax Management?
Improving tax management can yield different results depending on where the focus is placed. Therefore, enhancing the operational model of tax management is a complex task that requires a systematic approach to ensure all elements are coordinated.
(A) Internal Controls and Processes
Establishing efficient processes in the right locations, including:
Tax Management and Decision Support
Tax Planning Management
Tax Accounting and Accounting Management
Tax Compliance and Tax Filing Management
Designing flexible, scalable, and sustainable processes
Aligning process design with current and future technology capabilities
(B) Organizational Structure
Establishing standardized tax teams in the right locations
Integrating tax teams globally
Defining the roles and responsibilities of tax personnel
Ensuring global tax teams share a unified tax reporting system
Distinguishing different processes to conduct tax management work accordingly
Subsequently, further improvements in a company's global tax management can be pursued in the following areas:
Regulations and Rules: Establishing a regulatory framework for global tax management to support work management models and internal controls for tax risk management.
Performance Management: Designing a performance management framework for global tax management to encourage continuous improvement in tax management and service levels.
Team Members: Selecting appropriate countries to establish core tax teams with the necessary resources and expertise for global tax management.
Data: Achieving standardized global tax data information at the corporate level and using the same data source for data collection.
Technology: Establishing a global tax management information platform as a tool for delivering value-added tax services.
Source: Shanghai Municipal Commission of Commerce
