Global Business Trends to Watch For in 2016
By John Bostwick, Managing Editor, Radius
Radius’ regular Wednesday posts are the lifeblood of this blog. They’re almost always authored by our advisory team members, a remarkably accomplished bunch with expertise in international tax and employment law, data-protection requirements, and effectively every other area associated with international expansion and operations.
Their expertise and experience helping clients overcome compliance challenges of the moment put our advisors in a great position to predict the global trends multinationals need to be aware of in 2016. So I thought it would be useful to ask three of our top advisors for their informal takes on what to watch for in 2016. Here are their intriguing, and instructive, replies (in alphabetical order).
Stuart Buglass, VP Consulting: A Greater Focus on Data Protection
So far this year I’ve already conducted about a dozen client phone calls on the subject of data protection compliance, with more meetings scheduled. This widespread awareness on the part of multinationals about the need to comply with global data protection laws is a trend that’s sure to continue in 2016 and beyond. The 2015 ruling that invalidated the US-EU Safe Harbor data sharing arrangement, and the European Commission’s Data Protection Reform that seeks to apply the same set of rules across EU member states, have been well publicized, contributing to global awareness.
So, multinationals are mindful of the general tightening of data protection laws across jurisdictions. But many of those same companies are struggling mightily to devise strategic plans to cope with the evolving laws, and then to implement related policies and procedures to protect themselves from risks. Last week, a colleague forwarded me a link to a Wall Street Journal survey roundup that speaks to the situation. The piece contains a section called “Data Regulation Blues.” Here’s an excerpt: “A survey of around 500 corporate IT professionals by data erasure firm Blancco Technology Group found 40% said they are ‘less than fully prepared’ to comply with the new EU General Data Protection Regulation — with 9% saying they are uncertain of how or where to start.”
I have addressed both the Safe Harbor ruling and the ongoing EU Data Protection Reform in this blog, and won’t summarize those posts here. Still, it’s worth reiterating a few critical points for multinationals to keep in mind this year as they mull over their data protection options.
Firstly, there is a widespread, indeed global awareness of tightening data protection laws. This awareness extends beyond companies collecting data to the data subjects themselves, who want assurances that their data is being processed lawfully. How your organisation is perceived can influence the amount of enquiries or complaints made by data subjects. So, it will pay to work on initiatives with clients to promote a positive company profile — what I call “DP PR.”
Secondly, the world’s regulators (such as those in the Netherlands, Canada and Australia) are scrambling to put in place mandatory data breach notification so that if you have a privacy breach then both the regulator and the individuals concerned must be notified. An organisation’s ability to identify and react to a breach within the required timescales demands defined internal processes and ownership.
The subject of ownership leads me nicely to my third point — the rise of the DPO. Data Protection Officers are already a requirement in a number of countries, such as Germany and Singapore. By 2018, appointing a DPO will be required for all EU data controllers with more than 250 employees or 5,000 personal records. Irrespective of any obligation to appoint a DPO, most organisations realise that doing so is the only way to effectively comply with their data protection obligations. However, a word of warning: In many countries a DPO receives special protection against termination of employment. That’s one reason why organisations are appointing independent firms and individuals as their DPOs.
This all goes to highlight the importance of getting your data protection controls in order for 2016, and that will almost certainly involve seeking expert guidance.
Gareth Jarman, Director, HR Advisory: Fostering an Engaged Workforce and Performing M&A Due Diligence
It has been a long and threatening recession for employees everywhere. They face an uncertain working world as advanced economies and global markets continue, falteringly, to regroup. Given this economic climate, along with continued high levels of global unemployment, it’s not surprising that employee loyalty is on the wane. Workers — particularly younger ones — are more prone than ever to changing employers. And unfortunately for those employers, high rates of attrition can be costly and in some cases spell doom for a company.
Against this backdrop, I’m reading an increasing number of articles about “human capital development” and the importance of fostering an engaged workforce. This is particularly important, and challenging, in today’s global economy, where multinationals typically employ workers from different cultures that have varying ideas of what constitutes an “agreeable” work environment. Leadership who are able to balance the demands and delivery of a multinational business, whilst striving to create a positive, rewarding workplace across cultural divides (particularly one that allows for a reasonable work-life balance), will assist with engagement, retention and, as Gallup shows, greater returns.
Also, as almost everyone knows, mergers and acquisitions reached record levels last year, fuelled by low interest rates and other factors. Though some of the deals were mammoth — such as the Pfizer-Allergan merger — many involved small to medium enterprises that were new to the M&A game. I believe this trend will continue in 2016, and new buyers would do well to study some of the mistakes of their predecessors. One key pitfall for newcomers is not fully understanding the employer obligations of the new country when acquiring or merging with a company abroad, particularly around legacy trade union, or collective bargaining agreements, but certainly on consultation statute. HR due diligence must be performed as far as possible in advance of such a deal, not only to properly understand the costs related to those employer obligations, but to avoid penalties and possible reputational damage arising from noncompliance to due process. Finally, a poorly executed transaction — especially one that is poorly communicated or misses the opportunity to engage employees and inform them of their futures — can lead to disgruntled employees. Needless to say, that’s the kind of start that’s best avoided!
Lee Sheehan, Head of Tax: How BEPS Will Change the Global Tax Landscape
In late 2015, the Organization for Economic Cooperation and Development presented the final package of measures under the Base Erosion and Profit Shifting project, or “BEPS.” These recommendations will fundamentally change the global tax landscape as they work to create a single set of international tax rules. In a nutshell, BEPS seeks to protect the tax bases of all countries by creating a model that taxes a multinational’s profits based on where the economic value is created, rather than on the location of corporate headquarters after allowing for inter-group transfer pricing.
The BEPS measures include a number of action items, such as taxing the digital economy, preventing the avoidance of permanent establishment, ensuring that transfer pricing aligns with value-creation, and country-by-country reporting. Taken together, the recommendations essentially create a blueprint for a new raft of international tax rules.
At least a couple of points are worth stressing here. First, though BEPS-related headlines will inevitably focus on the ramifications for high-profile multinationals, the implementation of BEPS recommendations into local tax laws will almost certainly filter down to all corporate taxpayers, regardless of size. This will include scrutiny of cross-border transactions (including related documentation), which will remain a focus of tax authorities globally. And since larger multinationals have been preparing transfer pricing documentation for decades, tax authorities will also target the cross-border operations of small- and medium-sized businesses.
Second, while BEPS measures seek to create a fair and uniform set of international tax laws, the measures should not be confused with actual laws. All countries will continue to maintain their own unique tax regulations, and BEPS measures will be implemented on a country-by-country basis. In other words, multinationals will need to navigate a complex path, staying abreast of variations in interpretation and application of new laws by jurisdiction, including the very real potential for double-taxation during the transition period.
Finally, the devil will be in the detail, as it so often is in tax-related matters. Businesses that aren’t properly advised about tax changes being wrought by BEPS will face significant financial and reputational risks in 2016 and beyond.