Latin America Is Setting the Bar for Shared Services Companies across the globe are looking for ways to make shared services more efficient and reduce staffing resources; however for global businesses operating in Latin America, they are often looking in the wrong places. Whereas shared services in other parts of the world - specifically Europe and the United States - focuses on scanning to create digital resource libraries and creating efficient supplier networks, these functions aren’t critical to shared services in Latin America. In fact, scanning is completely irrelevant with the level of automation found in Latin America. Here, we’ll take a closer look at why the shared services function in Latin America is fundamentally different from the rest of the world and how it is a critical component of seamless business operations. Government Intervention Makes Latin American Shared Services Structures Distinct Before we examine why shared services is so distinct in Latin America, it’s important to review what makes the business environment so different in this region of the world. Unlike the United States and most European countries, which rely heavily on income taxes, Latin American governments generate the majority of their incomes from value added taxes (VAT). With VAT collections representing nearly 60 percent of tax revenue in these countries, fraud and evasion can cost trillions of dollars. Latin American governments are proactively combating this issue through mandated e-invoicing and financial reporting, gaining visibility into all corporations’ VAT obligations and ensuring that they are receiving accurate tax payments. Since Brazil first implemented e-invoicing in 2008, the practice has spread rapidly across the region. In the last two years alone, mandates have spread from three to 10 countries, and this tidal wave of regulation is expected to continue as more and more governments see increased tax revenues from enforcement. Taxes a Critical Consideration for Accounts Payable in Latin America The ad hoc tax-consulting model prevalent in both Europe and the United States fails in Latin America. Tax liability here is a transaction-by- transaction issue that must be managed in real-time. Tax calculations made after the fact don’t work in countries that mandate e-invoicing; in fact, they’ll result in the inability to claim tax deductions, as well as potential fines and penalties. Another key difference is that while many companies worldwide are focused on identifying and allocating indirect spend, that categorization doesn’t matter in Latin America. Shared services is all about paying taxes. Latin American tax authorities don’t distinguish between the type of transactions, as all transactions have tax value and deduction implications. They all carry the same weight and are processed in the same XML format. The implications of this tax and compliance structure on accounts payable are pivotal. All transactions – every single XML record – must be directly linked to tax reports. Tax authorities throughout Latin America use these records to ensure that taxes are being reported and paid accurately, and any discrepancy will result in penalties. CategoryTaxable in Latin America Direct procurement (e.g., raw materials) Indirect procurement (e.g., office supplies) Travel and expenses The Role of Shared Services in Latin America As mentioned, the priorities for accounts payable and procurement in Latin America are different from anywhere else in the world. Here, it’s critical to collect and validate e-invoices efficiently, as some countries provide a strict window in which cancellations must be received. Each country also has its own specific archiving requirements during which these e-invoices must be accessible. 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. Here’s a closer look at requirements by country: Shared Services Requirements in Latin America Collect/ Validate XML Official Accept/ Reject Notice Archive XML Accompany Deliveries Argentina Brazil Chile Colombia Costa Rica Ecuador Mexico Peru Uruguay About Sovos Sovos, a leading processor of e-invoices for business transactions in Latin America, Europe and Asia, safeguards companies from compliance risk while creating efficiency with support for the high-volume data needed to meet real-time tax e-invoicing requirements. Contact us +1 866 890 3970 www.sovos.com/contact Boston, Minneapolis, Atlanta, Boulder, London, Amsterdam, Santiago and São Paulo Essentially, shared services in Latin America should view accounts payable in two phases: • Okay to Deduct (what the government requires): This includes proper collection, validation and archiving of invoices, as well as matching these invoices to your accounting reports. • Okay to Pay : This includes cross-checking the invoice against the purchase order and goods received, and following proper government protocol for errors, discrepancies or cancellations. Sometimes this can mean literally turning the truck around at your gates to refuse shipments if the XML is incorrect. Latin America Leading the Way in Shared Services Automation Though shared services processes look quite different in Latin America than in other parts of the world, the good news is that these processes are streamlining AP automation, ultimately resulting in the efficiencies that shared services departments across the globe desire. Because XML invoices accompany shipments – and can even arrive before the truck – companies can easily verify that the invoice matches the order and merchandise. This requirement can turn hours of manual labor into a single scan and click process. The automated inbound receiving process speeds up accounts payable significantly. Since invoices can be marked okay to pay upon arrival, AP teams eliminate the need for manual data entry and verifications. Minimize Tax Risks While Increasing Efficiencies Errors in mandated e-invoicing processes carry a hefty price tag, triggering audits that result in fines, penalties and missed tax deductions. In Brazil, for example, fines amount to ~500 Reais ($125 USD) per incorrect XML and 75% to 150% of the tax value of the invoices in question. When you consider that just one expense report can have dozens of attached XMLs – hotels, flights, transit and meals – these fines can quickly add up. However, with the inbound receiving and AP automation benefits that these mandates present, AP can focus on managing exceptions and inaccuracies in order to ensure compliance. In Latin America, the mission of shared services should be risk reduction – eliminating the exposure to potential penalties through seamless accounts payable and procurement processes. This mission results directly in the automation and resource reductions sought by shared service departments worldwide. In fact, collection, validation and processing of invoices should all be automated, and journal entries and required reporting should all be linked from the ERP. This is the only way to ensure a three-way match and eliminate the chance of inconsistencies.Next >