Chinese companies “going-out” or “going global” should well prepare themselves with proven governance and reporting structure and compliance practices in order to avoid any repercussions arising from increasing regulation and the growing complexity of global financial reporting and tax reporting, says Ernst & Young. 

“Around 30% of the participants at a recent Ernst & Young tax conference, who were mostly tax executives working in Mainland China, indicated that they had experienced business interruption due to lack of compliance in one form or another," says Loretta Shuen, Asia Pacific Leader of Business Tax Compliance Services of Ernst & Young.

Shuen underscores the need to better prepare for the more stringent reporting and compliance requirements also applies to regional headquarters (RHQs) of MNCs in Hong Kong.

“Repercussions of non-compliance not only incur short-term financial loss including in the form of penalties but also long-term reputational discredit,” warns Shuen.

Shuen emphasizes that with an accelerating pace of Chinese enterprises investing overseas, the building of requisite governance and reporting structure and compliance practices worldwide is an area that should be considered as a priority.

Chinese government statistics indicate that China’s outward foreign direct investment net flows increased from US$21.16 billion to US$68.81 billion between 2006 and 2010.

With a growing number of footprints in other countries, Chinese enterprises are facing substantial regulation and compliance risks.

“To manage the regulation and compliance risks, companies should establish a comprehensive Global Compliance and Reporting (GCR) model appropriate to their own business," suggests Shuen.

GCR should comprise key elements of a company’s finance and tax processes to prepare various filings as required in applicable jurisdictions around the world. These works include statutory accounting and reporting, tax accounting and provisions, direct tax and indirect tax compliance and reporting and governance and control of these works.