What do the G20’s international accounting standards mean for corporations? Intercorp Group advises

World Finance speaks to Leonardo Braune of Intercorp Group about the implications of the G20 group's international accounting standards

August 11, 2014

Developing international accounting standards has been a task taken on by the G20 group, but how far has it come and what are the other developments that are on the horizon? World Finance speaks to Leonardo Braune, Managing Partner at Intercorp Group – a high level consulting firm specialising in tax, estate planning and fiduciary structures – to discuss.

World Finance: Now what do you Leonardo, make of the G20’s recent moves?

Leonardo Braune: It’s a natural trend worldwide because basically, by harmonising the accounting standards it becomes easier to compare company figures and facilitate the transactions that take place globally.

So it’s a must. The languages between the different accounting balance sheets and the different processes must be harmonised. So that with the global transactions and M&A transactions that are happening so far will be very important to do that.

The languages between the different accounting balance sheets and the different processes must be harmonised

World Finance: So Leonardo, is it hard for a company to move its operations offshore?

Leonardo Braune: Today it’s extremely hard and part of what we do at Intercorp is try to facilitate and clarify the particular issues that need to be addressed, before making that happen.

This is the type of move that you cannot learn as you go, because the costs can be tremendous. And understanding the synergy between the international legislation, the country you are focusing on, and the current one is very important. Looking at the tax aspects, the regulatory aspects and making sure what you have interpreted initially as the plan, actually follows up as it should.

World Finance: Now, what type of businesses are you helping to make international entities?

Leonardo Braune: Well right now, there’s a lot of service companies, in many industries, in the distributing segment that want to expand. The truth is, Brazilian businessmen and businesses in general, are trying to expand their operations to somehow get a piece of the global market.

Initially the plan comes up establishing the company oversees, picking the right market, understanding exactly the opportunities. And then the challenges come along with it; which is how to maintain tax efficiency, making sure that the regulatory aspects are followed. And basically making sure everything that was initially thought-out, is followed through.

World Finance: So as a follow up to that, can you tell me how international tax regulation has helped or hindered a company’s success overseas?

Leonardo Braune: Well the truth is, with the current trend of trying to harmonise the standards, this has become a little easier. Because now you have treaties in place and you have measures that have been taken, by many of the governments, to try to facilitate the process of receiving investment from overseas.

So what we see is currently most of the countries, and you can take the example of the UK, where there is a lot of media focus on shifting the businesses to the UK, because the legislation is good and because the tax system is fine. So this is happening everywhere, and basically that facilitates the process and enables different companies – especially companies from what was called initially emerging markets – to actually expand and establish themselves on a more global presence.

So the main point we have really, is trying to avoid paying double tax

World Finance: So can you tell me about some of the key issues that your international clientele face, in terms of taxation?

Leonardo Braune: Clients don’t like to pay tax; nobody does. So the main point we have really, is trying to avoid paying double tax, because you have tax at your home country where you established, and you obviously have to deal with the taxes in the countries where you are establishing your new business. Making sure that credits are allowed, and that you are not going to be double taxed on a particular transaction, is very important. So that is one of the issues.

Obviously the other issue has to do with the fact of them trying to see if there’s a way they can get their dividends back, in return of their investment, tax free. One of the main mistakes that we see in these types of analyses, is that the investment is up front and the plans look proper, but they forget to take into account the net impact once all those taxes are taken into consideration.

Getting to that level of detail requires local expertise in multiple jurisdictions. What we do, really, is try to consolidate all of that into one simple strategy that fits the current business plan.

World Finance: Starbucks’ European head office was of course in the news recently, for depressing the group’s tax bills around the continent. Now the company had to move its headquarters to London, following federal tax reforms – what do you make of this company move?

Leonardo Braune: That’s something that we have actually seen quite a few companies evaluating. Obviously to make that decision, and to implement it takes a long process. But the main reason why this is happening probably has to do with tax and the tax efficiency that London has implemented.

The truth is that the UK today has one of the lowest corporate tax rates at 21 percent, versus most countries which are in the high 30s. That in itself demonstrates that the company is also seeking efficiency from a tax stand point. But I don’t think that’s the only reason why they did that. The UK has a regulatory system that’s very efficient; the legal system is very fair and developed when compared to other countries.

The UK has a regulatory system that’s very efficient; the legal system is very fair and developed when compared to other countries

So by having its headquarters here, they may also be trying to take advantage of the London courts, in case of any disputes or anything. And it’s the system that sort of tries to filter away discussions and implementation of certain aspects, which aren’t necessarily as fair as they would be in other countries.

So it’s a combination of security, financial stability, tax regulations and also a legal system that you can rely on. And I guess that’s part of the reason you end up choosing to move your headquarters to a particular location, based on these different things.

World Finance: Leonardo, it sounds like you would advise a similar type of move to one of your clients?

Leonardo Braune: Yes I have advised many of my clients to do that. And not only as individuals, because the UK tax system is also very friendly for foreigners who want to establish themselves here. There is a system called UK resident non-domiciled, which has been very helpful for a lot of individuals who have established themselves outside of the UK, and also their companies and their businesses. So yes, we do quite a bit of work involving the UK as a new home for some of the families we assist.

World Finance: Leonardo, so interesting to talk to you today – thank you so much for joining us.

Leonardo Braune: Thank you so much.