Here’s a surprise to any business that thinks governments are slow to adopt new technologies: they aren’t, at least not when it comes to enforcing regulations on corporates. Eric Olson, Head of Marketing for compliance technology company Sovos, says governments are quickly finding out that sophisticated tools like real-time data reporting are making enforcement must more streamlined.
For companies, though, that means now there are more risks and challenges in remaining compliance as they grow internationally.
“Regulation has always been a problem, a barrier to businesses,” Olson recently told PYMNTS. “But we’re at a time when governments have gotten digital, and the impact of that is that these compliance acts that take weeks or months are happening, in some cases, in minutes.”
An acceleration of change in government regulations over businesses, from accounting and reporting to taxes and trade, can be a significant pain point even for the largest corporates of the globe. Not only are governments becoming more aggressive in their enforcement, Olson said, but they’re deploying technologies like cross-border data sharing and real-time data collection, all part of what’s now called “rapid response compliance.”
“It’s a combination of these things that puts businesses at risk in a way that’s never happened before,” he said.
Historically, companies have been able to “throw people at the problem,” Olson explained, adding in-house or third-party experts to meet governments’ demand for data. But the speed with which businesses today must comply with a request means compliance can no longer adequately be reached with this strategy.
Last week, Sovos announced the launch of Intelligent Compliance Cloud, a solution aimed at helping companies meet these new rigorous, high-speed demands. The tool automates value added tax calculation and reporting, facilitates electronic invoicing and e-auditing to enable business-to-government reporting, and aggregates key data for financial services companies that need elevated reporting capabilities.
According to Olson, some of the largest businesses across the globe, which operate in a multitude of jurisdictions, understand how the compliance landscape is changing and have been asking for a solution like Intelligent Compliance Cloud. For other, smaller companies, though, he said there is an element of education.
“You still have businesses doing it the way it was always done,” he said. And that education process isn’t just about helping companies understand the need for what Olson described as “intelligent compliance” – it’s also about understanding where this trend is taking off.
Here’s something else that may come as a surprise to businesses: the governments leading the world in adopting sophisticated technologies for enforcement of regulations like tax and reporting aren’t necessarily what you’d expect. Latin America, for instance, has been a huge driver of adoption of these solutions, said Olson, and is by far the most complex jurisdiction in which companies operate today.
That’s because these geographic markets have the most to gain from improving enforcement. He pointed to Brazil, which, about a decade ago, closed a massive tax loophole – worth $50 billion, Olson said – in order to prevent foreign companies from skirting taxes on foreign investment in the country.
“Brazil was really the first country to go to compliance at the transaction level,” Olson said. “They were highly successful, and it spread like wildfire around Latin andCentral America. And now it’s hitting Europe.”
The success story of Brazil, paired with the availability of sophisticated data collection and management technologies, means governments the world over are jumping into a more rigid way of enforcement. This trend also means there are new, greater threats to companies that struggle to meet government demands for faster, or even real-time reporting, too.
“There’s more than just falling out of compliance,” Olson said, referring to the financial implications for corporates of this trend. There are three key ways a company’s finances may be impacted by all of this, he explained. First, there is the “burden of work,” meaning companies must invest in the IT and other areas to ensure that they have the technologies and capabilities necessary to meet government reporting and tax demands. For many businesses, this will mean having to throw resources at compliance instead of using those resources for growth initiatives.
The second way is through fines and penalties if a business falls out of compliance. The third, and what Olson said is new and perhaps the most disruptive, is business disruption. Falling out of compliance won’t just mean having to pay a fine: it could mean being forced to cease operations in a market altogether.
“Massive business disruption is the ultimate risk,” Olson said.
With the old way of remaining compliant no longer as effective now that governments are using new technologies, businesses need to get educated, and develop a plan to meet stricter, more burdensome demands if they are to not only enter into a new geographic market, but stay there.
“We’re at a tipping point for compliance,” Olson said about the technology that is changing the way governments enforce the rules. “And while not every business feels that today, they certainly will over the next 10 years.”