International operations: what does finance leadership need to address?

When a company expands into a new country, finance leadership quickly faces a combination of local obligations and group requirements that need to work together.

The situation can arise in different ways. A Finnish company may establish operations or acquire a company abroad. An international group may likewise establish operations in Finland or acquire a Finnish company. Existing international finance structures and operating models may also need to be developed.

From a finance leadership perspective, the question is not only how to bring the numbers into group reporting. Local accounting, taxation, financial statements, reporting, systems and other obligations need to work within the chosen structure – and at the same time as part of the group’s finance model.

The finance structure follows the business structure

Entering a new country does not automatically mean establishing a local company. Depending on the situation, operations may be organised through, for example, a subsidiary or a branch, and the activities may also create a permanent establishment for tax purposes.

An acquisition starts from a different position. The acquired company may continue as a separate legal entity, but this is not necessarily the final structure. The company may be retained or the structure may later be changed as part of the wider group structure.

Legal and tax structures are determined with the relevant specialists. Finance leadership needs to understand what the chosen structure means in practice for finance and ensure that the decisions are reflected in accounting, reporting, systems, processes and responsibilities.

The legal structure, the financial separation of local operations and group reporting are connected, but they are not the same thing and do not necessarily change on the same timetable.

Building and integrating finance is a project

Building the finance model for international operations, or integrating finance after an acquisition, is not a single accounting or systems task. It is a wider programme that needs an owner, a plan, a timetable and clear responsibilities.

When establishing new operations, the company needs to identify what is required locally and what can be handled by the group. After an acquisition, the starting point is to understand the acquired company’s existing finance environment before changing it.

The current state should be reviewed systematically: accounting and closing, reporting, taxation, financial statements and audit, systems, processes, responsibilities and local service providers.

Once this is clear, the company can decide what needs to be addressed immediately, what can be developed in phases and what the target model should be.

Accounting, closing and group reporting

Local accounting and group reporting serve different purposes.

Local finance needs to meet the accounting, financial statement and other statutory requirements of the country concerned. At the same time, the group needs the numbers in its own chart of accounts, accounting policies, reporting structure and timetable.

Practical matters to resolve include the chart of accounts and mapping, the reporting package, the closing timetable, responsibilities, reconciliations, group entries and any GAAP differences.

After an acquisition, the first objective may be to bring the acquired company’s numbers reliably into the group’s monthly reporting. When new operations are established, the same framework needs to be built so that the first closing and group reporting work from the outset.

If a local company later ceases to exist as a result of a legal reorganisation, the need to separate the local operation financially does not necessarily disappear. For example, the activities of a branch or permanent establishment may still need to be identified separately for local taxation and other obligations.

Taxation and local obligations

In international operations, taxation and local obligations are not separate from finance. They affect how accounting, systems and processes need to be set up.

Areas to address may include corporate taxation, VAT, transfer pricing, permanent establishment questions, employer obligations and other local requirements.

Finance leadership does not need to resolve every tax or legal question itself. The specialist expertise required is identified according to the situation, and the agreed solutions are reflected in accounting, reporting and practical processes.

Financial statements, audit and compliance

Local statutory requirements need to be identified early.

The requirements depend on the structure through which the business operates. A local company may have its own financial statements, audit, tax returns and other statutory obligations. The obligations of a branch or another structure may be different.

After an acquisition, the company also needs to establish which obligations and practices already exist in the acquired business, which will continue and which will change.

The compliance calendar, responsibilities and required service providers should form part of the normal annual finance cycle.

Reporting and management

Working group reporting does not in itself mean that local financial management works well.

Management needs visibility into business performance, cash, forecasts and material variances. Reporting therefore needs to address both group requirements and the information needed to manage the local business.

The objective is not to maximise the volume of reporting, but to create consistent and reliable information that supports decision-making.

Local finance organisation and external partners

International operations do not always require a dedicated local finance team.

Accounting, payroll, taxation and other local work can be handled by in-house staff, group shared functions or external service providers.

Following an acquisition, the existing organisation and service providers need to be assessed as part of the integration. When new operations are established, the appropriate operating model is built from the outset.

Responsibilities need to be clear: who produces the numbers, who reviews them, who reports to the group and who is responsible for meeting local obligations.

Systems

Systems are often the most visible part of an integration, but they should not determine the operating model.

After an acquisition, the local system can remain in use at least during a transition period, with group reporting built around it. Systems integration can take place later, once the processes and target model are clear.

When new operations are established, the starting point is different: the systems solution needs to support both local requirements and group reporting from the outset.

Systems need to provide reliable information for both local finance and the group.

The objective: finance that works in practice

Building, developing or integrating international finance is not complete when the first reporting package has been submitted or a new system has gone live.

It is complete when the normal processes work without the organisation remaining in project mode.

Accounting and closing run to timetable. Local obligations are met. Group reporting produces the right numbers. The information required for taxation is available. Responsibilities are clear. Systems support the processes and management receives the information it needs.

Above all, the operating model is not dependent on the knowledge of individual people.

Apaja’s perspective

I have worked in international finance leadership both when a Finnish company has been part of an international group and when foreign operations have been part of a Finnish group.

In practice, the work has included aligning local accounting and group reporting, managing different accounting principles, building closing and reporting processes, coordinating taxation and statutory requirements, implementing systems changes, and working with local specialists and different group functions.

I have also been involved in building the finance operating model for a foreign branch in practice. In these situations, the key has been to make local requirements and the group operating model work together – not only as a plan, but as part of normal day-to-day finance.

Apaja can take responsibility for building, developing or integrating international finance operations for an agreed period. Tax, legal and other specialists are brought in as required, and the agreed solutions are implemented as part of the finance operations.

The objective is a functioning model that the company’s own organisation can continue to run.