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Intercompany

Intercompany and E-Invoicing: Keep Intercompany from Falling Through the Cracks- On-Demand Webinar Now Available

Learn best practices to manage and automate intercompany transactions to ensure compliance and reduce risk ensuring your company’s intercompany processes won’t fall between the cracks.

FourQ Staff
FourQ Staff

Dec 16, 2021

In the next three years, at least 30 countries will have implemented e-invoicing mandates. Well-understood financial processes such as AP and AR are well-poised to meet this challenge; however, for more complex ones, such as intercompany, these mandates are expected to lead to new challenges.

Involving AP and AR, intercompany also touches tax, treasury, and record to report, which means your organization acts as both trading parties across multiple tax jurisdictions, countries, and ERPs. This leads to difficulties in managing a complex, cross-business process resulting in a lack of visibility, delays in closing the books, managing settlements efficiently, and tax leakage.

In a recent webinar, Steven Standring, Chief Revenue Officer of FourQ, and Trent Targa, Senior Regulatory Associate of Pagero, shared best practices to ensure your company’s intercompany processes won’t fall between the cracks. The webinar sought to cover:

  • How e-invoice mandates are expected to impact treatment of intercompany processes and potential pitfalls to avoid.
  • Best practices to automate intercompany to simplify the complex process, providing unprecedented speed and improved accuracy.
  • New technologies and innovative approaches to better manage intercompany and reduce risk in your organization.

 Common intercompany challenges include:

  • Inconsistent transfer pricing, which results in margin erosion.
  • Very complex ERP landscapes with hundreds of different ERPs, which means getting visibility of the process is really tricky, requiring a lot of manual work.
  • Increasing costs, which is evidence of tax leakage and financial erosion.
  • VAT Leakage, which increases the tax burden.
  • Poor quality of invoices, which cannot clear regulatory hurdles for settlement.
  • Minimal transparency into charges, which results in additional effort to mine for data.

A case study of one of the world's largest multinationals which had very complex intercompany processes was shared. Manual processes made it harder to enforce process controls. Internal communication was lacking and follow-up just to close out open items was painful. There were also significant tax complexities too, with limited data transparency and complex billing routes. Regulatory complications around settlement due to currency restrictions added to the complexity.

 To solve these kinds of problems, you need to focus on six key areas:

  • Automate the process and make it as touchless as possible.
  • Implement a transfer pricing policy that’s compliant and defendable.
  • Ensure you are globally tax compliant - across multiple ERPs or ERP instances.
  • Have full visibility and transparency over what you’ve done so that you can always defend your position as far as the intercompany process is concerned.
  • Centralize visibility of all transactions which are going to provide insights into the overall business, but also make sure you are compliant around e-invoicing mandates and the tax issues.
  • Automate service types (categories of invoice, based on their common rules and paths), as opposed to looking at them from an ERP perspective.

Pagero, together with FourQ, helps alleviate the challenges of intercompany scenarios where you have very little visibility or control. Pagero specifically specializes in compliance mandates. They’re closely monitoring the introduction of B2B and B2G mandates across the globe and making sure they have a service offering for every jurisdiction that requires it.

70 countries have some form of regulation in place for electronic documents. Three main drivers driving regulators to introduce electronic document policies or similar regulations are:

  1. Regulators wish to recoup some of those lost tax revenues or reduce their tax gap.
  2. Countries want to increase efficiencies within their jurisdiction.
  3. Regulators want better, more accurate data to improve their decision-making capabilities.

This means that more tax teams and other departments within your organization have to be involved when looking at acquiring solution providers or developing a solution in order to tackle the challenges being raised by regulators.

Intercompany is an expensive and complex process to manage. It involves risk. It can also be a source of tax leakage, and it frequently lacks visibility and control. Being audited around intercompany becomes a really big event because just finding the information you need to justify your position is really tricky.

The politics of intercompany is something else that needs to be considered. You need to determine who owns the process, and how you engage the multiple stakeholders and divisions that are interested in the process and its outcomes. You also need to reconcile the fact that different groups have different needs.

Rather than having each entity trading with each other, creating hundreds, if not thousands of connections, the process should be simplified so that each division is just operating within one subledger. It is a massive simplification of the process, which makes changes easy to deal with as they arise. Seeing a high volume of transactions helps tax maximize their tax deductibility.

That said, the traditional controller’s requirement is the opposite: seeking a minimum necessary number of transactions in order to require the least effort in reconciliation, profit elimination and consolidation. To support these disparate requirements centralization and automation become critical. Billing volumes need to be removed in order to deal with these disparate needs.

Pagero and FourQ can fully automate this process by connecting with your systems through APIs so that data is ingested, enriched with tax transfer pricing and treasury details, before both sides of the journal entry are processed. This allows for the management of the billing and reconciliation so there’s control over the whole life of the transaction. This also removes the vast majority of disputes. It also reduces unreconciled accounts and the settlement effort.

Finally, Pagero integrates ticketing into the process to manage disputes and can coordinate resolution. Pagero leverages the detailed data residing in FourQ OneBiller and forwards any data to support resolutions that are necessary.

To watch the webinar in its entirety and learn how to keep intercompany from falling through the cracks in your organization, please click here.

FourQ Staff

Built by finance, accounting, and tax experts, FourQ is Intercompany Financial Management software that streamlines the global operations of the world’s largest companies. Providing automated intercompany processing seamlessly integrated with global vendor invoice management, FourQ helps multinational companies increase efficiency and improve global business operations. This increases operational productivity while saving millions of dollars annually through improved intercompany billing and payment and tax optimization. Discover why FourQ processes over $34 billion annually across 110 countries and how it can transform global operations at your organization.

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