Global companies are expending significant resources on their shared services departments as they realize the benefits of standardized operations. In fact, a recent Deloitte study found that more than 90 percent of a pool of 300 private-sector organizations saw cost reductions and improved efficiencies from leveraging shared services, and such proven successes are resulting in the continued growth of the shared services function. As companies around the world look for ways to make shared services even more efficient, they should look toward Latin America, where government regulations are necessitating that companies set the bar for innovations.
Two primary factors make shared services distinct in Latin America:
1. Tax Liability
Unlike the United States and most European countries, which rely heavily on income taxes, LatinAmerican governments generate the majority of their incomes from value added taxes (VAT). The tax authorities in these countries have introduced significant e-invoicing and financial reporting regulations to ensure that they receive accurate VAT payments. Because of this legislation, tax liability in Latin America is a transaction-by-transaction issue that must be managed in real-time, meaning that the ad hoc tax-consulting model prevalent in both Europe and the United States fails in Latin America. Additionally, tax authorities in Latin America don’t distinguish between the type of transactions, as all transactions have tax value and deduction implications. So, shared services’ efforts to classify and allocate indirect spends are futile here.
2. Accounts Payable’s Direct Integration with Receiving
These government mandates also affect inbound receiving at the warehouse or manufacturing facility. In many countries, governments require that a copy of the approved invoice accompany the shipment. That means companies can easily verify that the invoice matches the order and merchandise. Since invoices can be marked okay to pay upon arrival, AP teams eliminate the need for manual data entry and verifications, speeding up processes significantly and ultimately resulting in the efficiencies that shared services departments across the globe desire.
Because of the complex tax regulations and government visibility into corporate transactions in Latin America, the mission of shared services here should be risk reduction – eliminating exposure to potential penalties through seamless accounts payable and procurement processes. In achieving this mission, shared service departments in Latin America are setting a new standard in automation, error reduction and efficiencies, making these departments a model for shared services centers worldwide.