Too much information: Streamline your structure and slash compliance costs
June 20, 2016
Transparency is climbing up the board agenda, an unsurprising reaction to changing legislation which is designed to improve it. International businesses are being forced to review and restructure their legal entity footprints in order to operate in this new world order.
The additional compliance burden alone, never mind the cost, is resulting in many directors and company secretaries asking themselves whether it’s time to address the number of companies in their group structures. They’re also reviewing the extent of the disclosures required, and the cost of collating and reporting management information to comply with legislative changes which extend far beyond the UK’s borders.
The changing legislation
The Companies Act s.410 is changing. The register of people with significant control (PSC), Base Erosion and Profit Shifting (BEPS) and Country by Country reporting are all matters that are not just causing companies a compliance headache, but are also increasing costs.
Companies Act s.410 and PSC affecting large group structures including Private Equity
You might think this is just another small compliance step, adding a few extra pages in your annual accounts or increasing the number documents filed at Companies House. However, the reality of these changes has led to some companies, particularly those with large statutory group structures, to struggle to identify legal entities and find the correct information. Companies we work with have reported spending a disproportionate amount of time and money reconciling current and historical electronic files to ensure the information is correct.
Specifically, in order to comply with the PSC regime, groups with overseas entities (such as typical Private Equity structures) are finding they are impacted most. If nothing else, the fear of non-compliance, where the failure is a criminal offence, leaves many directors feeling exposed. This exposure will be felt even more when the regime is extended across the EU in June 2017.
BEPS and Country by Country reporting
BEPS and Country by Country reporting directives from the EU are also adding to the transparency headache. These changes will see groups having to review their operational structures against their legal entity footprints. Many will find their structures being redundant following the implementation of BEPS. In addition, some aspects of the BEPS mandate may cause an explosion of entities to map their permanent establishments globally, at significant cost.
The ever popular topic of tax havens is causing concern for many groups as they try to achieve the level of disclosure required by the Country by Country reporting rules. Many are already fearing the push to make such information publically available, while attempting to mitigate the impact that the disclosure could have on their reputations.
Is there a way to reduce the cost and limit the potential reputational damage?
For groups with many surplus entities this may be the final key driver to push the streamlining of their legal structures up the agenda. Given the increasing cash cost of complying with these changes year on year, we estimate the payback period for eliminating surplus or non-value-adding entities to be between 9 and 12 months. This doesn’t take into account the intangible benefits as outlined in my earlier blog.
We're already working with lots of clients who want a corporate structure that's fit for the future. If you're not already refining your structure, now's the time to start!
If you're interested in talking about this, either contact me directly, or reach the team through your usual PwC contacts. We'd be delighted to help.