IFRS 16 and Cross-Border Business

If you thought leases were just about signing a contract and moving in, think again. Thanks to IFRS 16, leasing in the world of international business has gotten a serious accounting makeover. And if you’re working across borders—whether you’re leasing a warehouse in Berlin, a jet in Dubai, or office space in Tokyo—you’ll want to pay attention.

Because IFRS 16 didn’t just shake things up for the accounting teams—it had ripple effects that touch tax, compliance, reporting, and even how deals get negotiated. Especially when borders are crossed.

Let’s dive into how IFRS 16 affects cross-border businesses, the transactions they make, and why finance departments everywhere are suddenly paying closer attention to their leased printers and floor space.

Quick Recap: What Is IFRS 16?

In case you need a refresher, IFRS 16 is the International Financial Reporting Standard that governs lease accounting. It came into effect on 1 January 2019 and replaced the older standard, IAS 17.

The big headline? IFRS 16 brought nearly all leases onto the balance sheet.

Before, lessees could classify leases as either:

• Operating leases (off-balance sheet, just record the lease expense)
• Finance leases (on-balance sheet)

Now, under IFRS 16, most leases must be recorded as assets and liabilities, regardless of classification. That means companies must recognize:

• A right-of-use asset (the thing you're leasing)
• A lease liability (what you owe the lessor)

This impacts depreciation, interest expense, and, yes, your company’s entire financial profile.

Why It Gets More Complex with Cross-Border Deals

In a purely domestic context, IFRS 16 already has its quirks. But once your business expands across borders? Buckle up.

Cross-border transactions are inherently more complex. Different currencies, tax jurisdictions, legal systems, and accounting treatments collide—and IFRS 16 sits right in the middle of it all.

For example, let’s say a UK-based company leases equipment from a supplier in Canada. They’ll need to consider:

• Lease terms and local regulations
• Currency exchange rates (at both the inception date and over time)
• Differences in tax treatment between IFRS and local GAAP
• Subleases across jurisdictions
• Embedded leases in cross-border service contracts

And that’s just scratching the surface.

Lease Negotiations Get Smarter—and Longer

Before IFRS 16, lease negotiations were largely about operational needs and cash flow. Now, they’re also about how deals will appear on the balance sheet. Companies are more cautious about lease term lengths, renewal options, and embedded services, especially when negotiating leases in foreign jurisdictions.

For cross-border deals, this has created a shift in strategy. Businesses are scrutinizing clauses more carefully to avoid unnecessary liabilities or accounting headaches. A ten-year lease with automatic renewals might have once been welcomed in New York or Berlin—but now, it could significantly inflate liabilities on financial statements, triggering covenant breaches or investor questions. International legal and accounting teams must work closer than ever before.

The Currency Conundrum: FX Impacts Under IFRS 16

Let’s talk foreign exchange.

When your lease payments are denominated in a currency different from your functional currency (say, paying euros from a GBP base), IFRS 16 requires you to:

• Measure the lease liability at present value using the foreign currency
• Translate that liability into your functional currency on your books
• Recognize FX gains or losses as exchange rates fluctuate

That means each month, your balance sheet can shift purely based on market dynamics—no operational change required.

This volatility introduces not only accounting complexity but also potential distortions in earnings, especially for firms with multiple international leases in volatile currencies.

Cross-Border Tax Treatment Isn’t Always Aligned

Here’s where it gets even more fun (or painful, depending on your role): IFRS 16 is a financial reporting standard—not a tax standard. That means tax authorities in different countries don’t always follow suit.

Some jurisdictions still rely on traditional lease classifications from IAS 17 or local tax laws. So while a lease is on the balance sheet for IFRS purposes, it might be treated differently for tax calculations.

Let’s say you’re a company with leased property in Singapore, reporting under IFRS but filing taxes locally. You might find:

• Lease expenses deductible for tax, even though IFRS shows depreciation and interest
• Deferred tax balances needing constant reconciliation
• Transfer pricing complications for intercompany leases

If you’ve got group entities in different tax regimes, each with its own lease interpretation, consolidation becomes a challenge.

Impact on KPIs and Performance Metrics

Leases used to be “invisible” in many financial ratios—especially operating leases. IFRS 16 changed that. Bringing leases onto the balance sheet has a cascading impact on key performance indicators, especially in cross-border reporting.

Here are just a few that get affected:

• EBITDA increases, since lease expenses shift to depreciation and interest
• Operating profit may rise, but...
• Net income could fall, depending on interest and amortization schedules
• Debt-to-equity ratio increases, due to added liabilities
• Return on assets may drop, as right-of-use assets inflate the denominator

For multinational companies reporting to stakeholders or regulators in multiple countries, it’s critical to reframe how these metrics are communicated. Consistency in definitions and adjustments across entities becomes vital.

Impact on M&A and Due Diligence

When a company is acquiring or merging with another business, leases are often a big part of the story—especially if you're talking about retail chains, logistics providers, or manufacturing groups with global footprints. With IFRS 16, lease commitments are front-and-center in due diligence assessments.

For cross-border transactions, the acquiring company needs to understand not just what’s leased, but how those leases are structured, whether IFRS 16 has been properly applied, and how they’ll impact consolidated financials. Failing to evaluate lease obligations under the new standard can lead to unexpected liabilities, mispriced deals, or post-acquisition surprises that cause headaches for finance teams and shareholders alike.

A Cultural Shift in Corporate Finance

Beyond numbers, IFRS 16 has forced a cultural shift in how companies think about assets, liabilities, and risk—especially across borders. Finance teams now collaborate more closely with operations, procurement, and legal when lease decisions are made. What used to be an afterthought in the accounting cycle is now a strategic consideration at the negotiation table.

Cross-border businesses, in particular, are learning to blend local market agility with global financial oversight. That means rethinking the definition of “ownership,” realigning investment criteria, and, in many cases, trimming excess leases that no longer justify their footprint. It’s not just compliance—it’s smart business.

Intercompany Leasing Just Got Trickier

Got a parent company in the U.S. and a subsidiary in Spain? Leasing assets between them? Welcome to IFRS 16’s version of a Rubik’s Cube.

Under IFRS 16, intercompany leases need to be recognized by both the lessee and the lessor with appropriate accounting entries. But in many cases, one side reports under IFRS and the other under local GAAP (or maybe even U.S. GAAP, where the treatment differs slightly).

This leads to:

• Mismatched recognition of assets and liabilities
• Discrepancies in timing of expense recognition
• Challenges in reconciling group-level financials

Intra-group leasing strategies (which were once a tax-efficiency dream) now require a lot more planning—and a great spreadsheet.

A Quick List: What Cross-Border Businesses Must Consider

When dealing with IFRS 16 and cross-border leasing, smart businesses ask the right questions. Here’s what should be on your radar:

• Currency – What’s the currency of lease payments, and how volatile is it?
• Jurisdiction – Does the local regulator/tax authority follow IFRS 16 or not?
• Transfer Pricing – Are lease terms arm’s length across related parties?
• Consolidation – Can your systems handle different reporting treatments?
• Embedded Leases – Are service contracts hiding lease obligations?
• Tax Impact – Will there be deferred tax, and how is the lease treated locally?
• Systems and Technology – Can your ERP or lease accounting software scale across borders?

Each of these impacts reporting, compliance, and—ultimately—your bottom line.

So, Is IFRS 16 Good or Bad for Cross-Border Deals?

It’s both. On one hand, it increases transparency. Investors and stakeholders get a clearer picture of a company’s lease obligations. It levels the playing field when comparing companies with vastly different lease portfolios.

On the other hand, it introduces complexity, particularly for companies with diverse international footprints. The cost of compliance has gone up. The time spent reconciling entries across entities has grown. And the risk of errors or inconsistency looms large.

But in many ways, that’s the price of visibility.

SMSF Lending, IFRS 16, and the Aussie Angle

In Australia, Self-Managed Super Funds (SMSFs) often play a unique role in property leasing and investment structures—especially when those properties are leased back to a member’s own business. Under IFRS 16, such arrangements are no longer financially invisible. The lessee entity must now recognize a right-of-use asset and lease liability, even if the property is owned by a related SMSF. For cross-border Australian businesses leasing international property—while simultaneously managing domestic SMSF structures (with SMSF lending)—this creates a web of accounting and compliance challenges. Not only must IFRS 16 be applied across differing jurisdictions, but superannuation lending rules and non-arm’s-length income (NALI) provisions also require strict adherence. For CFOs and trustees navigating both global leases and Australian retirement law, it's a delicate balancing act where tax, disclosure, and compliance collide—and where specialized legal and financial advice becomes essential.

Final Thoughts: Navigating the New Normal

Cross-border business is already a beautiful, chaotic puzzle of compliance, currency, and contracts. IFRS 16 just added a few more pieces. But rather than viewing it as a nuisance, smart finance leaders see it as an opportunity: to modernize lease management, improve financial storytelling, and tighten up intercompany controls.

So whether you’re leasing server space in Singapore or a storefront in Stockholm, remember—IFRS 16 isn’t just an accounting change. It’s a strategic shift. One that, with the right tools and perspective, can actually help you run a cleaner, more predictable global operation.

Just don’t forget to track your exchange rates. And maybe keep your lease accountant on speed dial.

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