International Accountant 118 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT JULY/AUGUST 2021 ISSUE 118

How to simplify capital gains tax The increasing complexity of the tax landscape Women at work: shouldering the burdens of Covid-19 Tackling insolvency: the Small Company Administrative Rescue Process

CONTENTS

In this issue Contributors 2 Meet the team

News and views

Increasing the jobs tax would stop our recovery before it started, say small firms

AIA news

survey of women at work finding that 51% of women are less optimistic about their career prospects than before the Covid-19 pandemic.

Rangamani) explores the impact that Brexit may have on the Asian economies and their dealings with the UK and Europe.

AIA’s view on the audit and corporate governance reforms

Tax simplification

Students 8 Topical tax matters We highlight some of the topical tax matters covered in the new Taxation (UK) exam. It focuses particularly on the learning outcome relating to the practical aspects of tax, looking at tax as a cost and a cash outflow. This is especially pertinent as businesses and individuals may currently be experiencing a drop, or irregularity, in income, and difficulties with cashflow.

Women at work

Shouldering the burden Heightened workloads and household responsibilities during the Covid-19 pandemic are driving deep dissatisfaction among many women in the workforce. Emma Codd and Michele Parmelee (Deloitte Global) consider a

Tax transparency

Asian economics

An ASEAN redesign In recent years, the world has seen several major events which have caused huge global shifts in trade power. Ganesh Ramaswamy (Kreston

Editor Rachel Rutherford E: editor@aiaworldwide.com T: +44 (0)191 493 0281

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Insolvency 20 The Irish rescue plan There is no doubting the immediate impact that the Covid-19 pandemic has had on economies across the globe. David Russell (Charlemont Capital Solutions) considers the Small Company Administrative Rescue Process, introducing radical changes to insolvency law in the Republic of Ireland.

Global complexities The tax landscape has seen dynamic development in recent years, and multinational corporations are facing more and more tax-related changes. The Tax Complexity survey by the German Collaborative Research Centre shows how quickly the complexities of tax are increasing worldwide.

Editorial Information International Accountant, the bimonthly publication of the Association of International Accountants (AIA).

+44 (0)191 493 0277 www.aiaworldwide.com

Making things simpler In July 2020, the chancellor actively encouraged the Office of Tax Simplification to review the capital gains tax system. Christy Wilson (Katten Muchin Rosenman UK) considers its two reports on how the tax could be simplified.

Capital gains tax

Dates for your diary

The shadow of Uncle Sam Continued talk of a capital gains tax reform in the UK has been widespread and resounding for some time. Eddie Bines and Greg Pollock (Kroll) consider whether the UK will follow America in its treatment of capital gains tax, and what that will mean for UK entrepreneurs. Upcoming events

Technical 28 Global updates

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Editor’s welcome

Contributors to this issue

Editor’s welcome

EDDIE BINES

Eddie Bines is a managing director in the Restructuring Advisory practice at Kroll and has more than 23 years’ corporate restructuring and advisory experience working across a wide range of businesses. GREG POLLOCK

Greg Pollock is a director in the Restructuring Advisory practice at Kroll. He has over 20 years’ experience in mid-market corporate insolvency, formal insolvency processes and contingency planning. DAVID RUSSELL

hanges within the accountancy profession and the AIA have continued at a rapid pace. The AIA new professional qualification has been launched, offering a new streamlined route to qualification with an increased emphasis on core skills and ethics to support accountants in their careers. Alongside the qualification, AIA Achieve Academy has also been introduced, allowing students to study AIA qualifications online, using outstanding study materials together with a full range of tools to support a range of preferred teaching and revision methods. Whilst the Covid-19 pandemic undoubtedly accelerated the AIA’s planned investment in digital learning, it has also produced an increased openness and willingness from students to utilise technology in pursuit of a professional qualification. Feedback has been overwhelmingly positive. Audit reform has also been in the headlines as the public consultation on audit and corporate governance reforms closed with the expectation that the government will publish its response by mid-October. In the AIA response, we support many of the consultation’s aims and the underlying desire to increase confidence

Rachel Rutherford Editor, IA

in the UK by improving standards for corporate governance, reporting and audit. We also consider that a proportionate and pragmatic response will give the greatest possible chance of supporting the government’s objectives in this regard. We continue to believe strongly in the benefits of independent and transparent regulation; however, inconsistencies in the proposals risk the creation of a profession that is graded on an opaque alternative to the easily comparable merits of recognised professional qualifications and standards, which is arguably in direct contradiction to the desired outcome of the government’s audit reform agenda. In this issue of International Accountant we look at the global outlook for women at work. The Covid-19 pandemic continues to have devastating and disproportionate impacts on women’s lives and careers, and we consider how employers can support women and create more high-trust, inclusive cultures. Elsewhere, we explore the impact that Brexit may have on the Asian economies and their dealings with the UK and Europe; consider the Small Company Administrative Rescue Process, introducing radical changes to insolvency law in the Republic of Ireland; and look at tax simplification and consider whether the UK will follow America in its treatment of capital gains tax.

David Russell is a director at Charlemont Capital Solutions Limited, providing professional corporate restructuring, recovery and insolvency solutions and advising financially distressed companies. GANESH RAMASWAMY

Ganesh Ramaswamy is an associate at Kreston Rangamani, part of an international network of advisory and accounting firms, Kreston International. EMMA CODD

Emma Codd is Global Inclusion Leader for Deloitte. She leads on the development and delivery of the global inclusion strategy, focusing on gender and LGBT+ diversity and mental health. MICHELE PARMELEE

Michele Parmelee is the Deloitte Global Deputy CEO and Chief People & Purpose Officer, leading a broad portfolio to enhances the company’s global brand and talent experience. ISSUE 118 | AIAWORLDWIDE.COM

News NATIONAL INSURANCE

TRUSTS

Increasing the jobs tax would stop our recovery before it is started, say small firms Amid speculation that the government is planning to increase employer National Insurance Contributions (NICs), the Federation of Small Businesses (FSB) has responded to the speculation around an increase in employer NICs. FSB National Chair Mike Cherry said: “After the huge amount of damage wrought to businesses over the last 16 months, the government cannot be serious about a strong economic recovery if it thinks hiking the jobs tax is a good idea. It is astonishing that just 24 hours after many businesses were able to re-open, ministers think now that it is a good time to land small firms with this bombshell. “Employers are weighing up decisions as we speak about who they can afford to keep on in the long term as the job retention scheme winds down. The last thing the government should be doing is increasing the risk of an unemployment spike. “Jobs don’t create themselves. The more that the government chooses to put up the costs of employment, the fewer jobs there will be for young workers who have been hit so hard by the pandemic. This government promised to be a champion of the small business community and ruled out NICs increases in its manifesto. To go back on that promise would shatter trust among the small firms and sole traders on which our recovery will depend.

Registering a non‑taxable trust with HMRC New rules which came into force in October 2020 require all UK express trusts to register with HMRC. This includes non-taxable trusts, unless the trust is specifically excluded. These changes are as a result of the UK’s implementation of the Fifth Money Laundering Directive (5MLD) and amendments to the Money Laundering and Terrorist Financing Regulations.

Registrations

Mike Cherry

“NICs essentially serve as a jobs tax, making it harder for firms to create opportunities. To hike them as the furlough scheme and wider support measures end would stop our economic recovery in its tracks before it’s even started. “A lot of business owners have had the worst 16 months of their professional lives – many are now struggling with staff being pinged, emergency loans and late payments. Against that backdrop, the government should be doing all it can to clear the way for them to hire, invest and grow. Instead, we hear it’s considering doing the opposite. It should urgently clarify matters and recommit to its manifesto pledges.”

Non-taxable trusts will need to register through the Trust Registration Service on GOV.UK. The service is not yet able to accept registrations of non-taxable trusts, but HMRC expects the service to be available for all non-taxable trust registrations in Summer 2021. Nontaxable trusts will have approximately 12 months to register from the date the Trust Registration Service is made available to all non-taxable trusts.

Supporting the development of the Trust Registration Service

To help HMRC to develop the Trust Registration Service for non-taxable trusts, it would like to speak to trustees who are interested in working with it to: ● register their non-taxable trusts; and ● provide feedback to help it develop the service. If you have any queries about nontaxable trust registrations that are not covered on GOV.UK, please email trsnontaxabletrustsqueries@hmrc. gov.uk.

HONG KONG

Hong Kong Inland Revenue waives surcharges for payment of tax by instalments for taxpayers in need The Inland Revenue Department (IRD) has started issuing the tax demand notes for the tax year 2020/21. Businesses and individuals who encounter financial difficulties in settling their tax bills on time may apply for payment of tax by AIAWORLDWIDE.COM | ISSUE 118

instalments before the due dates of the demand notes. For taxpayers who have obtained the IRD’s approval for instalment settlement of the demand notes for salaries tax, profits tax and personal assessment for 2020/21 issued

between May 2021 and May 2022, no surcharge will be imposed for a maximum period of one year counted from the respective due dates of the demand notes, provided that the instalment plans are duly adhered to. Further, the IRD has extended the applicability of the previous support measures to waive the surcharge for instalment settlement of demand notes for 2018/19 (from December 2019 to May 2022) and 2019/20 (from August 2020 to May 2022)

News IRELAND

Ireland publishes Summer Economic Statement The Minister for Finance, Paschal Donohoe T.D., and the Minister for Public Expenditure and Reform, Michael McGrath T.D., have published the Irish government’s Summer Economic Statement (SES), which sets out the government’s mediumterm budgetary strategy and outlines the fiscal parameters within which discussions will take place ahead of Budget 2022. The SES outlines a core budget package for Budget 2022 consisting of €4.7 billion, of which €1.5 billion will be available for new measures. This package is consistent with substantial investment in public services, reflecting the continued uncertainty around the public health situation and its economic consequences. A further €2.8 billion has been set aside to provide for income, business and other supports should they be needed. The SES sets out a medium-term budgetary strategy to return the public

finances to a sustainable trajectory. The objective is to stabilise and even slightly reduce the debt-income ratio over the coming years. To achieve this, the government will more closely align revenue and expenditure, while allowing for the deficit to reduce in line with the economic cycle. In order to do this, the government is setting an expenditure rule whereby core (non-Covid) expenditure growth is fixed at the estimated trend growth rate of the economy (once allowance is made for inflation). The expenditure rule is consistent with reaching a headline deficit in the region of -1.5% of GDP by 2025, broadly in line with the fiscal position of comparable European countries. The incremental way in which the deficit will be reduced reflects, in particular, the government’s commitment to investing in capital expenditure to meet the goals of the National Development Plan and

SECURITY

SEC awards nearly $3 million to whistleblower The US Securities and Exchange Commission has announced an award of nearly $3 million to a whistleblower whose information and assistance led to a successful SEC enforcement action. “The whistleblower alerted the SEC to previously unknown conduct and then provided substantial additional assistance, which conserved a considerable amount of SEC resources,” said Emily Pasquinelli, Acting Chief of the SEC’s Office of the Whistleblower. “We have recently given awards to a significant number of whistleblowers, like the one awarded, who played an important role in our enforcement programme’s success.” The SEC has awarded approximately $942 million to 186 individuals since issuing its first award

in 2012. All payments are made out of an investor protection fund established by Congress that is financed entirely through monetary sanctions paid to the SEC by securities law violators. No money has been taken or withheld from harmed investors to pay whistleblower awards. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10% to 30% of the money collected when the monetary sanctions exceed $1 million. As set forth in the Dodd-Frank Act, the SEC protects the confidentiality of whistleblowers and does not disclose any information that could reveal a whistleblower’s identity.

to deliver on the economic, social and climate priorities set out in the Programme for Government. The SES also provides a high-level “top-down” update to a number of the macroeconomic and fiscal projections published in the Stability Programme Update. Reflecting a robust performance in exports, predominately from large multinational firms, GDP has been revised upward this year to 8.75%, while continuing resilience in taxation receipts has led to an upward revision of €1.6 billion for tax revenue this year after allowing for additional tax warehousing in response to the ongoing impact of Covid-19. The government has also acted decisively to support households and businesses on an unprecedented scale, making over €38 billion available over two years in direct support measures alone. The recent Economic Recovery Plan made available up to an additional €5 billion in further supports as Ireland begins to recover from the worst of the pandemic. This level of support, although clearly appropriate, has come at a significant cost, with Ireland’s budgetary deficit as measured by GNI (a more accurate measure of the domestic economy than GDP) likely to be among the highest in Europe both this year and next. A progressive restoration of the public finances will place Ireland’s public debt ratio back on a gradual downward trajectory, reversing the temporary increase incurred by the extraordinary funding required to address the effects of the pandemic. ISSUE 118 | AIAWORLDWIDE.COM

News TAX REFORMS

AML

UK announces simplified tax reporting for self-employed and small businesses © Getty images/iStockphoto

Reforms to the tax system that will make it easier for small businesses to fill out their returns were announced by the government on 20 July 2021. The changes, which will come into force by 2023 and have been drawn up alongside representatives of small businesses, will mean that businesses will be taxed on profits arising in a tax year, rather than profits of accounts ending in the tax year. It should help them spend less time filing their taxes – aligning the way self-employed profits are taxed with other forms of income, such as property and investment income. Under the current system, tax returns filed by the self-employed, sole traders and partnerships are based on a business’s set of accounts ending in the tax year (5 April). More complex rules apply when a business starts and draws up its accounts to a date different to the end of the tax year. In those cases, taxpayers pay tax for their first tax year on the period to the end of the tax year, and then in subsequent years on the basis of their full accounting year, meaning profits are taxed twice and complex rules apply to relieve the double taxation when the business finishes. These rules can be confusing to understand, particularly for new businesses, leading to thousands of errors and mistakes in tax returns. More than half of those affected do not claim the relief they are entitled to and could pay tax twice.

EU sets out new approach to AML

The new system is easier for businesses to understand and will prevent thousands of errors every year. The government has also announced a series of measures clamping down on promoters of tax avoidance schemes. The package of measures will be legislated for in Finance Bill 2021/22 and will: ● tackle offshore promoters through hitting any associated UK entity with harsh penalties; ● support taxpayers to steer clear of tax avoidance schemes, or get out of tax avoidance quickly, by giving taxpayers more information on the false reality of what is being sold to them; ● clamp down on those promoters who dissipate or hide their assets, by ensuring that HMRC can protect its position and secure a promoter’s assets to pay any relevant penalties; and ● give HMRC tougher powers to shut down promoters that continue to promote schemes and sidestep the rules designed to restrict their activities and stop them from setting up similar businesses.

The European Commission has presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules. The package also includes the proposal for the creation of a new EU authority to fight money laundering. This package is part of the Commission’s commitment to protect EU citizens and the EU’s financial system from money laundering and terrorist financing. The aim of this package is to improve the detection of suspicious transactions and activities, and to close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system. As recalled in the EU’s Security Union Strategy for 2020 to 2025, enhancing the EU’s framework for anti-money laundering and countering terrorist financing will also help to protect Europeans from terrorism and organised crime. The measures enhance the existing EU framework by taking into account new and emerging challenges linked to technological innovation. These include virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organisations. These proposals will help to create a much more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active cross-border..

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AIA News

AIA

NEWS REGULATIONS

SURVEY

AIA Member Survey winner announced

Congratulations to AIA Fellow member Pun Ki Wai David from Hong Kong who was randomly selected to win a year’s membership after completing AIA’s Member Survey. Many thanks to all members who submitted their response, which help us to understand what’s important to you, what you value about your AIA membership and how we can improve the services we offer. DISCIPLINARY COMMITTEE

Disciplinary Committee outcomes Mr Rhodri-Jones Morris (UK) was fined for breach of Bye-Laws 8.1(c) and 8.1(k) and is required to undergo a Quality Assurance Onsite visit within 12 months. Mr Nicholas Metallinos (UK) was excluded from membership for breach of Bye-Laws 5.2 and 8.1(c)

SOCIAL MEDIA

Let’s connect! We use social media to connect with our members, students and other stakeholders. Join us on your favourite social media channels to find the latest news, events, insights and offers from AIA. Facebook: @AIAworldwide LinkedIn: @Association_of_ International_Accountants Twitter: @AIA1928

AIA’s view on the audit and corporate governance reforms AIA has responded to the government white paper on restoring trust in audit and corporate governance. We welcome the government’s determination to strengthen the UK’s audit and corporate governance framework. Ensuring that the UK remains a trusted and competitive destination for investment is key to the UK’s success. We also continue to recognise our own responsibilities in offering a recognised professional qualification for audit and are committed to working with stakeholders to develop and improve our profession, as is evident from the recent review and implementation of the AIA’s new recognised professional qualification. Whilst we support many of the consultation’s aims and the underlying desire to increase confidence in the UK by improving standards for corporate governance, reporting and audit, we also consider that a proportionate and pragmatic response will give the greatest possible chance of supporting the government’s objectives in this regard. The government’s proposals present a real opportunity to build upon the experience, technical expertise and reputation of the professional qualifications of recognised qualifying bodies. This would be lost with the introduction of a new corporate auditing professional body qualifying auditors by confusing the market and restricting the education of auditors. We believe strongly in the benefits of independent and transparent regulation. However, inconsistencies in the proposals risk creating a profession that is graded on an opaque alternative to the easily comparable merits of recognised professional qualifications and standards. Arguably, this directly contradicts the desired outcome of the audit reform agenda. We have expressed concerns

where we believe the proposed reforms would weaken future audit regulation and undermine the role of recognised bodies in protecting the public interest. We support the need to achieve focused improvements to regulation. However, a fundamental lack of detail in some of the proposals and inadequate assessment of the risks arising from the proposed reforms result in significant concerns.

In summary

AIA supports the establishment of ARGA as a more robust regulator with the potential to take a leading role in raising audit quality. It must also ensure that it does not widen its agenda to the point where it is not operating in a balanced, proportional and targeted way. The consultation is unclear where the boundaries of ARGA’s remit will be drawn and whether it could potentially overlap with other relevant regulators. It could be questioned whether the objective set for the regulator is ultimately targeted enough. There is a risk that the central objectives of improving audit quality and standards of corporate reporting and governance could be overshadowed by secondary reforms, which fundamentally change the existing system of audit training and education without substantially explaining the value proposition. We welcome the depth of the reforms, but question whether the creation of a new professional qualification for corporate auditors would truly help to achieve the central aims of the reforms and instead result in reducing the appeal for prospective auditors entering the profession. We strongly urge the government to resist implementing a system with the ultimate effect of ranking professional bodies based upon criteria unrelated to standards. AIA welcomes the government’s recognition of the importance of improving fraud education and the key role that recognised qualifying bodies play in ensuring that audit qualifications are fit for the future and to changing requirements. ISSUE 118 | AIAWORLDWIDE.COM

AIA News CONSULTATION

AIA responds to consultation on raising standards in the tax advice market AIA welcomes this opportunity to respond to the consultation on “Raising standards in the tax advice market: professional indemnity insurance and defining tax advice” published by HMRC on 23 March 2021. The AIA’s response provides further clarity and guidance on how AIA works to uphold standards of tax advice issued by its members in practice. Although AIA welcomes measures to raise standards in the tax advice market, broadly supporting the benefits of requiring tax agents to hold professional indemnity insurance (PII), a greater understanding is still required of the role that professional bodies play in regulating membership beyond requiring members to hold PII. There is little evidence to see how simply imposing a PII requirement would allow for significant protection for consumers, as the competence and quality assurance of tax agents who are not members of a professional body remain untested. Simply imposing a PII requirement does little structurally to raise standards

and mitigate serious risks posed by unregulated agents.

Legal protection for the term “accountant”

There should also be further consideration given to introducing legal protection for professional titles, such as “tax agent” and “accountant”, within any strategy for encouraging good tax agents. Good agents help to improve tax compliance by providing quality advice on tax law and ensuring that clients can only claim their appropriate reliefs and consequently pay the correct tax. Good tax agents help to protect the public interest by reducing resourcing costs for HMRC, allowing for an efficient and targeted taxation system.

Protecting the public interest

There is a wider public interest argument in place for expansion of the role of professional bodies within the remit of improving “good agents” and how they can add value. The government should work to promote the effectiveness of good

agents by recognising that additional safeguards and public interest concerns are met by consumers undertaking the services of a regulated individual to conduct their tax affairs, with proper recourse to advice if things go wrong and an independent complaints system. AIA Director of Operations, David Potts said: “It is clear that the simplest and most robust way of protecting the public interest is to ensure that any individual providing tax advice as a service is a member of a recognised professional body. All options set out within the consultation require careful consideration against the public interest – ensuring a continuation of the availability of tax advice to members of the public, whilst recognising the benefits of greater scrutiny over the competence of tax agents to bear down on bad behaviour and agents. “It must be recognised that any option that increases the burden and cost of regulation may result in tax agents leaving the regulated sector and acting with a lower level of scrutiny which would not result in a net benefit position.”

CODE OF ETHICS

Update to AIA’s Code of Ethics AIA adopts the International Ethics Standards Board for Accountants (IESBA) International Code of Ethics for Professional Accountants (“the Code”) and publishes this in the AIA Constitution. All AIA members are subject to this ethical framework. A new version of the Code has been released, which has been approved by AIA’s Council on 17 June 2021 under the provisions of Article 17 of the AIA Constitution. Existing disciplinary cases will be heard under the 2018 Code. The Code sets out fundamental principles of ethics for professional accountants, reflecting the profession’s recognition of its public interest responsibility. These principles establish the standard of behaviour expected of a professional accountant. The fundamental principles are: integrity; objectivity; professional AIAWORLDWIDE.COM | ISSUE 118

competence and due care; confidentiality; and professional behaviour. The Code provides a conceptual framework that professional accountants are to apply to identify, evaluate and address threats to compliance with the fundamental principles. The Code sets out requirements and application material on various topics to help accountants apply the conceptual framework to those topics. In the case of audits, reviews and other assurance engagements, the Code sets out International Independence Standards, established by the application of the conceptual framework to threats to independence in relation to these engagements.

What’s new?

Revisions to Part 4B of the Code to reflect terms and concepts are used in International Standard on Assurance

Engagements (ISAE) 3000 (Revised). Conforming changes have been made to the Glossary of the Code. The changes were published on the IESBA website in January 2020. Revisions promote the role and mindset expected of professional accountants. Among other matters, the revisions reinforce aspects of the principles of integrity, objectivity and professional behaviour; raise behavioural expectations of all professional accountants through requiring them to have an inquiring mind as they undertake their professional activities; emphasise the need for accountants to be aware of the potential influence of bias in their judgements and decisions; and highlight the supportive role that organisational culture can play in promoting ethical conduct and business. The changes were published on the IESBA website in October 2020.

STUDENTS

Topical tax matters We highlight some of the topical tax matters covered in the new Taxation (UK) exam.

his article highlights some current tax matters relevant to candidates of the new Taxation (UK) exam. It focuses particularly on the learning outcome relating to the practical aspects of tax, looking at tax as a cost and a cash outflow. This is especially pertinent as businesses and individuals may currently be experiencing a drop, or irregularity, in income, and difficulties with cashflow. Additionally, the article covers a reminder of the basics of inheritance tax and concludes with an example of an ever-topical ethical matter for tax accountants. Note that any specific rules mentioned here are those applying for the 2020/21 tax year and Financial Year 2020, upon which the November 2021 sitting is based. The rules for subsequent sittings may vary subject to future finance acts.

Cashflow impact of taxes

Tax is a cost, both to individuals and to businesses. As well as knowing how much to pay, clients need to know when they need to pay it – this could be a significant cash outflow. This is always important but is even more acute given financial pressures due to the coronavirus pandemic. Note that the ever-changing situation means the UK government may announce, at short notice, exceptional relaxations to the tax administration rules. However, for the purposes of the exam, candidates should assume the normal rules apply. A business needs to consider several tax cash outflows. If the business takes the form of a company, then corporation tax is due. The usual due date is after the end of the accounting period. However, depending on the level of taxable profits, instalments may be due, starting (and for “very large” companies, made completely) during the accounting period itself, based on expected profits.

A sole trader or partner needs to pay income tax and NICs in respect of their profits. Payments on account are usually due, the first during the tax year to which it relates, based on the liability of the previous year. If profits, and so the tax liability, for the current year are expected to be lower, the taxpayer may claim to reduce these payments on account. A business may also be VAT registered and so be required to make VAT payments, usually on a quarterly basis. The default surcharge regime means late payments become increasing costly. If sales have decreased, it may be possible to deregister for VAT. If the business has employees, it suffers employer’s NIC, usually paid at the same intervals as salary. However, the business must also pay across to HMRC the PAYE and the employee’s NIC on the employee’s behalf. The RTI (real time information) system means that salary payments to employees must be reported on or before the date the salary is paid. Late payments of tax may incur penalties and interest. Other failures in compliance, relating to filing and notification, may also carry penalties. These then become further costs to the client.

Use of losses

Both companies and unincorporated businesses may generate trading losses in current periods. It may be possible to use a loss relief claim to reduce imminent tax payments or even to generate a tax repayment. The syllabus includes the use of losses by ongoing businesses. ISSUE 118 | AIAWORLDWIDE.COM

STUDENTS Capital transactions

A company or individual may sell a capital asset to generate cash or as part of changing business plans. This may give rise to a gain, taxable either to corporation tax or capital gains tax. Disposals of residential property by individuals are topical, as the payment and reporting of the resulting capital gains tax are now required soon after sale. Clients may want to know how much cash they have after the sale; that is, the net proceeds less any tax. Another tax due in a short time frame is that payable by the purchaser of a property , such as stamp duty land tax for a property in England. The amount depends on whether a property is commercial or residential, and also where the property is located within the UK, as there are different land transaction taxes for the devolved nations.

Inheritance tax

With pressure on finances, it is important to consider whether costs are tax-deductible as this affects the overall cost of an action. For example, if a company provides a benefit to an employee such as private medical insurance, the cost to the company will include the amount paid to the insurance provider plus the employer’s (Class 1A) NIC on the benefit. However, the overall cost to a profitable company is then reduced by a corporation tax saving arising because both the insurance cost and NICs are deductible in its corporation tax computation. The cost to the employee of the benefit is usually the income tax charged – an employee does not generally suffer NIC on non-cash benefits.

Impact of tax on disposable income

An individual may want to understand tax costs to determine their disposable income, particularly if their income is decreasing. Here, “disposable income” is not a taxable amount, but an amount of actual income (available cash) after costs have been met. Those costs will include taxes, such as income tax and NICs. When approaching such a calculation, it can be helpful to think in terms of cash received, and then cash paid out – what money does the individual have left to spend? It is important to keep workings of taxable income separate from those relating to these “cash” type calculations. AIAWORLDWIDE.COM | ISSUE 118

The new Taxation (UK) exam focuses on the practical aspects of tax as a cost and a cash outflow.

Ethics for the tax accountant

Ethical matters relate to the tax feature in each exam. One possible area concerns tax evasion, where a client deliberately misleads HMRC by providing false information or failing to provide information in order to reduce their tax liability. With falling income or growing costs, it may be tempting to some to evade tax. It is important that the tax accountant knows what actions to take, including whether they can continue to act for the client. The accountant must consider confidentiality but also legal responsibilities under the anti-money laundering regulations.

Conclusion

A competent tax accountant must be able to calculate the relevant taxes and the new Taxation (UK) exam tests this. But as highlighted here, also crucial is an understanding of practical aspects: the appreciation of tax as a cost and cash outflow, and administrative obligations including payment dates. This is particularly relevant in 2021. ●

©Getty images/iStockphoto

Impact of tax on costs

Another relevant tax is inheritance tax. In simple terms, the tax is charged on assets owned at death. However, gifts made by the taxpayer in the seven years prior to their death may also be within the charge to this tax. Gifts to trusts may also give rise to lifetime tax. Therefore, lifetime gifts should be considered first in chronological order, before considering the death estate. Exemptions and reliefs may be available to reduce the amount charged. Inheritance tax on death is charged at 0% on the taxable amount covered by the nil rate band, then at 40%, although taper relief may be available if gifts were made at least three years before death. Various debts, including outstanding income tax and capital gains tax, can reduce the value of the chargeable death estate. In addition to any remaining nil rate band, a residence nil rate band may also be available. Amounts of a spouse’s unused nil rate bands may be transferred to the surviving spouse on the latter’s death.

WOMEN AT WORK

Shouldering the burden Emma Codd and Michele Parmelee consider a survey of women at work finding that 51% of women are less optimistic about their career prospects than before the Covid-19 pandemic. Emma Codd Inclusion Leader, Deloitte Global Michele Parmelee Deputy CEO and Chief People and Purpose Officer, Deloitte Global

eightened workloads and household responsibilities during the Covid-19 pandemic are driving deep dissatisfaction among many women in the workforce, according to a new Deloitte Global report, “Women @ Work: A global outlook”. The report finds that these increased responsibilities are having devastating effects on working women, as 51% of those surveyed are less optimistic about their career prospects today. Additionally, women surveyed reported a 35 point drop in mental health and a 29 point drop in motivation at work compared to before the pandemic. Representing the views of 5,000 women across 10 countries, the research reveals a stark reality for women in the workplace: gender equality has regressed during the pandemic, stifling years of slow but steady progress. Increased responsibilities at work and at home during the pandemic, coupled with non-inclusive workplace cultures, are resulting in diminishing job satisfaction and employer loyalty for women. The last year has been a “perfect storm” for many women facing increased workloads and greater responsibilities at home, a blurring of the boundaries between the two, and continued experiences of non-inclusive behaviours at work. While the adverse impact on women’s wellbeing, motivation and engagement is obvious, our research also shows that some employers are getting it right. The women who work for these organisations are more engaged, productive and

satisfied with their careers. As we start to rebuild workplaces for the future, we have a golden opportunity to get gender equality and inclusion right and avoid setting back years of progress.

Wellbeing is decreasing: shouldering the workload

Since the pandemic began, 77% of women surveyed say that their workloads have increased – the most frequently cited change in their lives brought on by the pandemic. Women are also taking on more responsibilities managing household and caregiving tasks: 59% say they’re spending more time on domestic tasks; 35% are spending more time caring for children; and 24% cite more time caring for dependents other than children. ISSUE 118 | AIAWORLDWIDE.COM

WOMEN AT WORK

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A culture problem: non-inclusive behaviours in the workplace

While many organisations tout their commitment to an inclusive workplace, many women are continuing to experience non‑inclusive working environments. Over half of surveyed women say they have experienced some form of harassment or non-inclusive

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As a result, the survey suggests that women’s wellbeing has fallen significantly since the pandemic: only one third of women consider their mental wellbeing today to be “good” or “extremely good”, compared to 68% prior to the pandemic. With their mental wellbeing on the decline, women around the world are concerned about the impact of their mental health on their career: 29% of women who said their career isn’t progressing as fast as they would like point to poor mental health as a major contributing factor.

According to the survey, women who identify as LGBT+ and/or women of colour were even more likely to report lower levels of mental wellbeing and satisfaction with work/ life balance, compared to all respondents.

WOMEN AT WORK nearly a quarter are also considering leaving the workforce altogether.

The gender equality leaders

Some employers have doubled down on building inclusive cultures and supporting women’s careers. behaviour at work in the past year – ranging from unwanted physical contact and disparaging remarks to having their judgment questioned and being given fewer advancement opportunities on account of their gender. LGBT+ women are almost four times more likely to say they have experienced jokes of a sexual nature and five times more likely to have experienced belittling comments about gender. One in 10 women of colour say they have experienced comments about their race in the workplace. They are also more likely to have experienced comments about their communication style than white women (15% vs. 5%). Most women who experience these behaviours do not report them to their employer, particularly the non-inclusive behaviours they feel are less “serious.” A quarter of women cite fear of career reprisal as the top factor for not reporting these behaviours. In some cases, organisations may not even have the appropriate reporting mechanisms in place: only 31% of the women surveyed believe that their company currently has a process for reporting discrimination and harassment.

Women are considering leaving the workplace: inadequate support

Author bio

Emma Codd is Global Inclusion Leader for Deloitte and leads on the company’s global inclusion strategy.

Author bio

Michele Parmelee is the Deloitte Global Deputy CEO and Chief People and Purpose Officer.

The survey shows that employers are failing to provide adequate support. Only 22% of women believe that their employers have helped them to establish clear boundaries between work and personal time. Most feel that they have to be “always on” at work, and 63% feel their employers evaluate them based on the amount of time they spend online versus the quality of their work. The numbers are even more stark for LGBT+ and/or women of colour. Only 35% of LGBT+ women say their employer’s commitment to supporting women has been sufficient since the pandemic began, in comparison to 44% of non‑LGBT+ women. Meanwhile, younger women of colour between the ages of 18 and 37 are more likely than the overall survey sample to feel less optimistic about their career prospects today than before the pandemic (58% vs. 51%), and they are more likely to say their careers are not progressing fast enough (54% vs. 42%). Perhaps in large part due to this lack of support, women surveyed report a 29 point drop in job satisfaction since the pandemic began, and 57% of all women surveyed (and nearly 60% of women of colour) plan to leave their employer in two or fewer years, citing a lack of work/life balance as the number one reason. Not only are many women questioning their current career prospects, but

While the past year has undoubtedly been challenging for women, there are a group of employers who have doubled down on building inclusive cultures and supporting women’s careers. “Gender equality leaders”, representing the employers of roughly 4% of respondents, have created more inclusive and trusting cultures where women feel they are better supported. The benefits of being a gender equality leader are clear: ● 70% of women who work for these leading organisations rate their productivity as “good” or “very good,” compared to just 29% of lagging organisations (defined as businesses with a less inclusive, low trust culture, which make up 31% of the sample). ● 72% of women who work for gender equality leaders rate their job satisfaction as “good” or “extremely good”, compared with just 21% of women who work for lagging organisations. ● 70% of women who work for leading organisations plan to stay with their employers for two years or more, compared to a staggering 8% of women working for lagging organisations. There are several actions which organisations can take now to address this critical issue, including: prioritising work/life balance and flexible working options that extend beyond workplace policies and are entrenched in the company culture; empowering women to succeed in life outside of work to enable success at work; and offering fulfilling development opportunities that build skills and expertise. Our survey respondents are clear about what needs to be done to reverse the pandemic’s disproportionate effects on working women. As organisations look to rebuild their workplaces, those that prioritise diversity, equity and inclusion in their policies and culture and provide tangible support for the women in their workforces will be more resilient against future disruptions. Additionally, they will lay the groundwork needed to propel women and gender equity forward in the workplace.

Methodology

Between November 2020 and March 2021, Deloitte Global conducted a survey of 5,000 women in 10 countries to understand the impact of the Covid-19 pandemic on women’s personal and professional lives. The survey also aimed to understand the state of gender equality in the workplace from an intersectional lens and the types of actions that employers are taking to support, retain and empower women within their organisations. For more information and to view the full results of Deloitte Global’s 2021 Women @ Work Report, visit: www.deloitte.com/womenatwork ISSUE 118 | AIAWORLDWIDE.COM

TAX SIMPLIFICATION

Making things simpler Christy Wilson considers two reports by the Office of Tax Simplification on how to simplify capital gains tax.

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Christy Wilson Tax Associate, Katten Muchin Rosenman UK LLP

this year than initially estimated at the start of the pandemic. Undoubtedly, the chancellor Rishi Sunak will be keen to ensure that the government recoups some of the money that it has spent during the pandemic. In July last year, the chancellor actively encouraged the Office of Tax Simplification (OTS) to review the CGT system and stated: “I would like this review to identify and offer advice about opportunities to simplify the taxation of chargeable gains, to ensure the system is fit for purpose and makes the experience of those who interact with it as

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here is no denying the enormous strain that the Covid-19 pandemic has put on the UK’s finances over the last 16 months. In fact, according to the Institute for Government, the deficit is now expected to be at £394 billion in 2021. This is £339 billion higher than had been anticipated before restrictions were first imposed back in March 2020. Furthermore, tax revenues are also forecast to be lower than originally anticipated, with the likes of capital gains tax expected to provide 29% less, business rates 39% less and stamp duty 34% less revenue

TAX SIMPLIFICATION

The OTS recommended that the rates of capital gains tax should align closely with those of income tax

smooth as possible. In particular, I would be interested in any proposals from the OTS on the regime of allowances, exemptions, reliefs and the treatment of losses within CGT, and the interactions of how gains are taxed compared to other types of income.” Following this request for a review, the OTS has published two reports outlining its recommendations. The first report published in November 2020 focused primarily on the policy design and underlying principles of the tax system, looking at how the operation of some tax reliefs can cause a distortion in behaviour. The second report published in May 2021 considered the practical, technical and administrative issues of capital gains tax.

November 2020 Report

It is clear from the November report that the OTS took on board the chancellor’s suggestion to compare capital gains tax with income tax. The OTS recommended that the rates of capital gains tax should closely align with those of income tax. It argued that this would remove some of the incentive for people to seek to characterise certain receipts as capital gains rather than income, or to favour activities and investments that generate capital gains rather than income. In order to achieve this, the OTS recommended that the government considers reducing the number of capital gains tax rates to two rather than the four currently in place; with the two basic rates likely to be the ones removed. The report also discussed share-based remuneration. It recognised the desirability of certain employee share schemes and specifically drew attention to growth shares, where any profit on the sale of the shares is subject to capital gains tax rather than income tax, whereas profits from other conceptually similar arrangements such as share options are taxed as income. Furthermore, the OTS recommended that business asset disposal relief (BADR) and investors’ relief be abolished. In the case of BADR, the report suggested replacing it with a relief more focused on retirement and suggested: ● increasing the minimum investment to 25%; ● increasing the holding period to 10 years; and ● re-introducing an age limit (perhaps linked to age limits in pension freedoms). As for investors’ relief, the OTS suggested that there is little evidence of people using this relief and therefore recommended its abolishment. However, this relief was only introduced in 2016 and the first year in which qualifying disposals might have taken place is the 2019/2020 tax year; therefore, there has not been much opportunity for use of the relief. Author bio

Christy Wilson is a tax associate in the Transactional Tax Planning practice at Katten Muchin Rosenman UK LLP.

May 2021 Report

The May report focused more on practical and administrative issues, but also looked at topics such as raising awareness about when and how taxpayers pay capital gains tax and increasing the

30 day window for filing a non-resident capital gains tax return to 60 days. Importantly, from a business perspective, there was a key suggestion that capital gains tax should be charged on a ‘receipts’ basis. This would be applicable to situations where the proceeds of a sale are deferred and would mean that tax is paid when the proceeds of a sale are actually received. The OTS argued that the current system, which requires tax to be paid on an estimate, is not intuitive and may result in tax being paid on future proceeds that are never realised. As a result, the OTS expressed concerns that a system which allows for payment of tax on future proceeds may result in distortion and push taxpayers away from arrangements that make the most commercial sense in order to take advantage of tax on deferred proceeds. This suggestion seems somewhat at odds with the main points of November’s report, which clearly focused on ways to receive more tax revenue from the capital gains tax system. However, the second report proposes a method of tax calculation that would bring in less revenue in the short term. Some of the other suggestions from the second report included calculating gains or losses on foreign assets in the relevant foreign currency and then converting into sterling at the exchange rate on the date of disposal. A simplification of the process for applying for the Enterprise Investment Scheme was also proposed.

Conclusion

Over the last year, capital gains tax has received a lot of attention from both the government and the OTS. Many people predicted last year that there would be a rise in capital gains tax but the expected increase did not happen. There is much speculation as to what the outcomes may be from the two reports and the chancellor’s statement from last July. Many believe that this year will be the year for higher capital gains tax rates. However, the changes may not in fact be so one dimensional. Whilst there are strong suggestions, particularly in the first report, that the rates of capital gains tax might be increased, the OTS commentary is multi-faceted and discusses a myriad of other ways in which the tax could be changed. For example, the critique of the deferred proceeds system points to the fact that the OTS is not solely dedicated to finding ways to gather as much revenue as possible, as fast as possible, from capital gains. Maybe we should not view the OTS reports as a call for simply increasing tax proceeds of capital gains, but actually as a request to make the system of capital gains tax a bit, well, simpler. We could consider that the words of the chancellor in July 2020 are a hint that the capital gains tax regime will change to become a system that is very closely comparable with income tax. Even so, caution against tunnel vision as the changes to capital gains tax may be less straightforward than just a rise in tax rates. ● ISSUE 118 | AIAWORLDWIDE.COM

TAX TRANSPARENCY

Global complexities The Tax Complexity survey by the German Collaborative Research Centre shows how quickly the complexities of tax are increasing worldwide.

Comment from Kreston Global Tax Lead, Mark Taylor

“We are delighted to again support the fantastic work of the TRR 266 Accounting for Transparency researchers. This year’s survey shows there is no sign of international tax simplification; in fact, quite the opposite is the case. “Change continues to develop apace in the global tax arena, with more changes planned at present than at any time in recent memory. In the future, the taxation of multinational companies is expected to shift away from the economic nexus principle to reallocate profits to wherever companies operate and generate revenues/profits. “In addition, the proposal to introduce a global minimum tax rate continues to gain momentum and recently received the approval of 130 countries representing 90% of global GDP.”

“The tax landscape has seen dynamic development in recent years, and multinational corporations are facing more and more taxrelated changes. These changes can affect a country’s tax complexity and can have wide-ranging consequences for location quality,” explains Professor Caren SurethSloane, Professor of Business Administration specialising in Business Taxation at Paderborn University and spokesperson for the Collaborative Research Centre TRR 266 “Accounting for Transparency”.

Regular survey

Researchers from TRR 266 “Accounting for Transparency” at Paderborn University and LMU Munich, funded by the German Research Foundation (Deutsche Forschungsgemeinschaft – DFG), have been investigating the topic of tax complexity with regard to multinational corporations in the “Global MNC Tax Complexity Survey” since 2016. Every two years, surveys are sent to local tax experts at international tax consulting companies and tax consulting networks in more than 100 countries. This data produces the “Tax Complexity Index.” ISSUE 118 | AIAWORLDWIDE.COM

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esearchers from the German Collaborative Research Centre TRR 266 “Accounting for Transparency” at Paderborn University and LMU Munich recently published the results of their third worldwide survey on tax complexity. The data from the researchers confirms what previous studies (2018 and 2016) showed: the general level of tax complexity has increased worldwide in the last two years.

TAX TRANSPARENCY Latest findings

The main findings of their latest study reveal that in 58 of 110 countries, the general level of tax complexity for multinational corporations has increased over the last two years. “The rise in tax complexity is a trend that follows our previous survey (2018), since at that time the general complexity had also risen compared to 2016. Tax complexity is an important location factor,” explains Professor Deborah Schanz, Chair of the Institute on Business Taxation at LMU Munich. In addition, the 2020 data from the Tax Complexity survey also provides clear information about the most complex area of tax regulation: transfer pricing. This is primarily due to highly complex documentation requirements and ambiguities in the regulations. “Tax-related transfer prices will probably be characterised by enormous complexity in the future as well, even if the latest G7 resolutions on international company taxation are implemented,” explains Sureth-Sloane. “Significant uncertainties regarding the specific content of the new Pillar One rules on international profit distribution could further increase complexity in this area.” Further results from the study show problems in other areas, as well. For instance, quality defects appear to be the largest problem in enacting new tax laws. In addition, there is also a significant problem with objections to tax assessments: the unpredictable length of time between submitting the objection and receiving the corresponding decision. “There is often a very long wait, which creates uncertainty. The same is true for international mutual agreement procedures, which makes them a less attractive tool for resolving disputes,” summarises Schanz.

Interpreting the results

In order to present the results clearly and make them accessible for everyone, the researchers created www.taxcomplexity.org – an interactive website. It shows data from 2016 and 2018 and allows users to track changes in tax complexity by country and over time with the 2020 results due to be added shortly. This year’s survey shows that there is no sign of international tax simplification; in fact, quite the opposite is the case. The survey represents the views of local experts and other international tax consulting companies on the complexity of tax legislation. Change continues to develop apace in the global tax arena, with more changes planned at present than at any time in recent memory, including changes to the international tax landscape being driven by the G20 and G7, as well as the OECD and its Inclusive Framework of 139 countries collaborating on base erosion and profit shifting (BEPS). In the future, the taxation of multinational companies is expected to shift away from the economic nexus principle to reallocate profits to wherever companies operate and generate revenues/profits. In addition, the proposal to AIAWORLDWIDE.COM | ISSUE 118

introduce a global minimum tax rate continues to gain momentum and recently received the approval of 130 countries representing 90% of global GDP. Transfer pricing, BEPS and the digitalisation of tax were identified in a recent survey as being the main areas expected to dominate the tax landscape over the next two years.

Further information

The TRR 266 Accounting for Transparency is a trans-regional Collaborative Research Centre funded by the German Research Foundation (Deutsche Forschungsgemeinschaft – DFG). The team of more than 80 dedicated researchers examines how accounting and taxation affect firm and regulatory transparency and how regulation and transparency impact our economy and society. It intends to help develop effective regulation for firm transparency and a transparent tax system and also ensure transparency of their own research. The 2020 Global MNC Tax Complexity Survey was compiled by Thomas Hoppe, Deborah Schanz, Susann Sturm and Caren Sureth-Sloane. It can be found at bit.ly/2UXgsr9. ●

ASIAN ECONOMICS

An ASEAN redesign Ganesh Ramaswamy explores the impact that Brexit may have on the Asian economies and their dealings with the UK and Europe. Ganesh Ramaswamy Associate, Kreston Rangamani

n recent years, the world has seen several major events which have caused huge global shifts in trade power. One such event is the departure of the UK from the EU, known as Brexit. While this development is likely to slow down trade and disrupt supply chain activities between the UK and the EU, it could also lead to hugely beneficial opportunities for countries and businesses in other regions, especially Asia. Brexit, in particular, has made the UK and the EU look to increase trade with other countries.

Unique opportunities and challenges

There is a substantial amount of trade activity between the UK and the EU, and many Asian economies consider the UK and the EU to be key investors in their respective countries. 18

For Asian economies, Brexit presents many unique opportunities and challenges. There is a substantial amount of trade activity between Asian economies and the UK and the EU, in addition to which many Asian economies consider the UK and the EU to be key investors in their respective countries. Given today’s uncertain times due to the pandemic, there is a growing concern about future investments. Of particular concern in this regard is the ASEAN block countries, which have, over the last decade, made deliberate attempts to attract both UK and EU investors into billions of dollars of potentially lucrative investments in the manufacturing and service sectors. Meanwhile, Japan and China face issues, with some of their leading manufacturers and financial institutions having regional operational bases in the UK that no longer function as gateways for business operations in the EU. Despite these potential issues, the Brexit decision also provides a number of interesting opportunities for Asian countries. In this regard, countries like Singapore, Myanmar, Malaysia and India could look at building on their historic ties with the UK to establish stronger economic relationships. In order to help realise these opportunities, the UK and the Asian countries are negotiating free trade agreements. As the UK is no longer bound by the same kind of rigid requirements that being an EU member demanded, the negotiations could in turn lead to more successful, mutually beneficial outcomes.

The ASEAN block

The ASEAN block comprises Singapore, Malaysia, Indonesia, Brunei, Thailand, Vietnam, Cambodia, Philippines, Laos and Myanmar and is seen as one of the next up-and-coming regional economies, with both the EU and the UK looking to boost trade. ASEAN’s economy is predicted to be the fourth largest globally by 2030. The UK has long been the second biggest investor in ASEAN and is also a major exporter to the region. As of now, more than 25,000 UK companies are exporting to ASEAN, making this region the second largest UK export destination after the US. In the meantime, the EU has started bilateral negotiations with individual members of the ASEAN block. The EU is an important trade partner for ASEAN, accounting for nearly 15% of ASEAN’s exports. Singapore and Vietnam have free trade agreements with the EU. The UK also signed free trade agreements with Singapore and Vietnam in December 2020 and January 2021 respectively. ASEAN countries have also been identified as the next frontier for an e-commerce boom. With the EU and the UK’s trade agreements with some countries in the region, ASEAN seems to be a likely market for major expansion in e-commerce activities. ASEAN countries have seen large increases in internet penetration and this is expected to grow further. Rising internet penetration, coupled with a rising middle class in the region, points to great opportunities for those looking to sell and deliver ecommerce products in these countries. ISSUE 118 | AIAWORLDWIDE.COM

ASIAN ECONOMICS ©Getty images/iStockphoto

UK one of their favourite destinations for direct investment. Currently, there are more than 800 Chinese companies in the UK with an annual revenue of £91 billion, employing about 71,000 employees (Tou Ying Tracker). China is the UK’s thid largest import partner with a 9% share. In the last few years, Chinese companies have completed a large number of acquisitions in the UK, the biggest of which included the purchase of a 33.5% stake by China’s General Nuclear Power Corporation in Britain’s Hinkley Point nuclear power plant. If the British economy were to be impacted on account of Brexit, the value of these Chinese investments would certainly be impaired. Meanwhile, China is aggressively pursuing FTAs with many EU member countries and has entered into a Comprehensive Agreement on Investments with the EU. Post Brexit, the UK has classified import tariffs on goods imported into the UK as liberalised, simplified and reduced. The liberalised “nil” import tariff in the UK for kitchen ware, TVs, digital cameras, turbo jets and agricultural products is expected to benefit China in a big way since Chinese exports of these products to the UK are quite substantial.

Korea

Korea is considered to be a leader in international trade diplomacy in the Asia region. Korea has already executed an FTA with the EU. Recently, the UK also signed an FTA with Korea on the same lines as the EU Korea FTA. The UK is very important to Korea, being its second largest trading partner after Germany in Europe. Korea is the only manufacturing giant from Asia which has FTAs with both EU and UK. Japan and China (the other major manufacturing countries in Asia) do not have this advantage.

Japan

For Japan, the impact of Brexit may have severe consequences, despite only 2% of its total export share going to the UK. According to credit research agency Teikoku Databank, there are about 1,400 Japanese companies with operations in the UK, with the manufacturing industry accounting for about 40% of these companies. Japanese companies employ about 180,000 people in the UK. The large Japanese companies operating in the UK are Fujitsu, Sumitomo, Mitsubishi, Hitachi, Nisan, Toyota, NSG, Calsonic, Olympus and Mitsui. For these Japanese companies, their European production base is concentrated in the UK, making the issue of cross border trade from the UK to the EU a huge concern, post Brexit. In addition to this, there are about 75 Japanese financial firms with operations in the UK. Following Brexit, the ability for these financial firms to operate in the EU is no longer there. Meanwhile, the EU has an Economic Partnership Agreement (EPA) with Japan. The UK also recently signed an EPA with Japan. The EPA between Japan and the EU provides for bilateral cumulation of tariffs. The EPA between Japan and the UK looks better structured as it provides for both bilateral and diagonal cumulation of tariffs.

China

In the case of China, the effects of Brexit are projected to be felt short to medium term. China has made significant investments in the UK in recent times. Many Chinese companies have made the AIAWORLDWIDE.COM | ISSUE 118

India

India has an historic relationship with UK and many other countries in Europe like Netherlands, France, Portugal and Spain. There are about 850 Indian companies operating in the UK according to the Confederation of Indian Industries UK Tracker report. They employ about 110,000 personnel and have annual revenue of over £50 billion. India has total annual software exports of around $150 billion, out of which $30 billion is to the UK and $ 25 billion to other EU countries. India is at an advanced stage of executing an FTA with both the EU and the UK. If completed, this will ensure free movement of professionals from India to the UK and Europe.

In conclusion

Author bio

Ganesh Ramaswamy is an Associate at Kreston Rangamani and is based in Kerala, India.

From an Asian perspective, Brexit presents the Asian countries with many unique opportunities and challenges. Japan, China and India would be affected because of their investments in the UK. Korea will not be impacted much. ASEAN countries will be a net gainer out of Brexit. The UK is expected to enter into more FTAs with Asian countries and the UK’s negotiation position would be a key item to watch on these FTAs. ●

INSOLVENCY

The Irish rescue plan David Russell considers the Small Company Administrative Rescue Process, introducing radical changes to insolvency law in the Republic of Ireland. David Russell Director, Charlemont Capital Solutions Limited

here is no doubting the immediate and wide ranging impact that the Covid-19 pandemic has had on economies across the globe. According to the World Economic Outlook Report published by the International Monetary Fund in April 2021, the global economy contracted by 3.5% in 2020. This represented the deepest global recession since the end of World War II, eclipsing the Financial Crisis of 2007 and 2008. In contrast the Republic of Ireland’s economy grew by 3.4% in the year; indeed, the Irish economy was the only European economy to post positive growth in 2020. The average contraction across the 27 EU member states was 6.8% and 9.9% in the United Kingdom. However, the Irish economic performance was driven almost entirely by export growth in the pharmaceutical and information communication technology sectors, which witnessed a dramatic increase in demand during the Covid-19 pandemic. As a result, these economic growth figures belie the underlying performance of the Irish domestic economy which contracted sharply by 5.4%.

The Irish reaction

In common with almost all governments across the globe, in an attempt to prevent mass corporate insolvencies and limit any structural economic damage the Irish government reacted quickly, introducing a range of state-backed financial support measures in the first quarter of 2020.

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INSOLVENCY

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INSOLVENCY A rapid consensus emerged amongst economic commentators questioning the ability of governments and central banks to control the crisis, forecasting a resulting wave of business closures and mass corporate insolvencies. Despite this, corporate insolvency rates fell by 10.34% during 2020. The total number of corporate insolvencies recorded in Ireland in 2020 was 575, down from 638 in 2019. This trend continued in the first half of 2021, when corporate insolvencies fell by 35% – the total number of corporate insolvencies recorded between January and June 2021 were 182 compared to 281 during the same period last year. Ireland has been ranked among the strictest countries in the world when it comes to Covid-19 lockdown measures, with many businesses in the tourism and hospitality industry remaining shut until the end of July 2021 and unemployment remaining stubbornly high at 18.3%. As state-backed financial support measures come to an end in the second half of this year and any forbearance arrangements with landlords, banks and other creditors begin to expire, many commentators are predicting a sharp rise in the number of corporate insolvencies in 2022, when a clearer picture of the full impact of the Covid-19 pandemic on the Irish economy will start to emerge. Whilst in theory all insolvent companies would be in a position to avail of the Examinership process to restructure their debts with the approval of the courts, in practice there are relatively few Examinerships on an annual basis (there were just 27 in 2020) due to the prohibitively high costs associated with the process, estimated by the Revenue Commissioners to be at between €80,000 and €130,000 on average.

Pre-emptive action

To its credit, the Irish government has taken bold and decisive pre-emptive action in the shape of the Companies (Small Company Administrative Rescue Process) Act 2021 (the Act), which became law in July 2021. The Act amended the provisions of the Companies Act 2014 to introduce the most radical changes to insolvency law in the Republic of Ireland since 1990, when the Examinership process was introduced to prevent the imminent collapse of the Goodman Group of Companies in the wake of the export ban on Irish beef to Iraq during the first Gulf War. (The impact for the wider economy would have been catastrophic due to the strong agricultural bias at the time.) Under the Act, a stand-alone rescue framework was introduced for small and micro companies, which represent 98% of the companies in Ireland which employ approximately 788,000 workers out of a total workforce of just under 2.4 million. ISSUE 118 | AIAWORLDWIDE.COM

INSOLVENCY The process, similar to Examinership, offers an alternative to a creditors’ voluntary liquidation for companies with a strong underlying business but considered insolvent as a result of being burdened by an unsustainable level of debt. As with Examinership, the aim is to facilitate a structured settlement with the creditors of a company, thus avoiding a liquidation and allowing the company to continue trading.

The process

Under the Small Company Administrative Rescue Process, the following steps must be undertaken: ● The process is commenced by the passing of resolution of directors, rather than by application to the court. ● An insolvency practitioner, the “Process Advisor” (who must be qualified to act as liquidator under the Companies Act 2014) is appointed by the company to begin engagement with creditors and prepare a rescue plan. The rescue plan must satisfy the “best interest of creditors” test and provide each creditor with a better outcome than a liquidation. (No creditor may be unfairly prejudiced by the plan.) ● Creditors will be invited to vote on the rescue plan by day 42 of the insolvency practitioner’s appointment. ● A rescue plans is approved without the requirement for court approval, provided that 60% in number, representing the majority in value of claims of an impaired class of creditors, vote in favour of the proposal and no creditor raises an objection to the plan within the 21 day cooling off period which follows the vote. If confirmed, the rescue plan will become binding on all creditors of the company, regardless of whether or not they consented to it seven days after the filing of the required statutory notices. The Rescue Plan will set out the basis of the proposed compromise with the creditors of the company, the terms of which may provide for: ● a write down in the level of the company’s debt; ● an extension to the term over which the company’s debts are repayable; and ● the termination of any onerous contracts such lease agreements or other contractual agreements (subject to an application to the court to repudiate). There is no requirement to treat all classes of creditors in a similar manner. Liabilities due to the state arising out of taxes, duties, levies, etc. or from an obligation under the Social Welfare Acts are potentially “excludable debts”. However, in practice such a debt shall only be excluded from the Rescue Plan where such a creditor objects on the grounds that: AIAWORLDWIDE.COM | ISSUE 118

● there are outstanding tax returns; ● there is an ongoing tax audit or similar intervention; ● taxes are under appeal; or ● there is a history of non-compliance. A successful rescue process will allow a previously insolvent company to emerge inside 70 days with a sustainable level of debt and a viable business future. Where an objection to the rescue plan is raised, there will be an automatic obligation on the company to seek the court’s approval within 21 days following the vote of the creditors. The court will sanction a Rescue Plan unless it is shown that the plan is unfair and inequitable or unfairly prejudicial to the objecting creditor.

Qualifying conditions

In order to avail new process a company must meet any two the qualifying conditions for a small company under the Companies Act 2014 s 280A, which are: ● the turnover of the company does not exceed €12 million; ● the balance sheet total of the company does not exceed €6 million; ● the average number of employees of the company does not exceed 50.

Many are predicting a sharp rise in the number of corporate insolvencies in 2022, when the full impact of the Covid-19 pandemic will start to emerge.

Additionally, the company must: ● be unable or likely to be unable to pay its debts; ● not have used the process within the proceeding five years; and ● not be in liquidation (the court may standdown a receiver or provisional liquidator. The process also incorporates sufficient safeguards for the protection of creditors: ● As there is no automatic stay on proceedings, creditors are not impaired by virtue of entry to the process, ● Creditors are afforded an opportunity to provide input to the process advisor (insolvency practitioner) upon his or her appointment to disclose any facts they consider material to the process. ● There are various enforcement provisions in relation to failure to comply with filing, notice and information obligations. ● The process will be within scope of existing reckless trading provisions. The Director of Corporate Enforcement has a suite of powers to examine books and investigate, as appropriate, in line with that which is provided for in relation to liquidations, receiverships and examinerships. Whilst there has been a generally positive response to the implementation from industry, as well as legal and financial professionals in the field, only time will tell just how successful the new measures will be in preventing a wave of corporate insolvencies and limiting any lasting structural economic damage in Ireland. ●

Author bio

David Russell is a Director at Charlemont Capital Solutions Limited.

CAPITAL GAINS TAX

The shadow of Uncle Sam Eddie Bines and Greg Pollock consider whether the UK will follow Uncle Sam in its treatment of capital gains tax, and what that will mean for UK entrepreneurs.

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Eddie Bines Managing Director, Restructuring Advisory, Kroll Greg Pollock, Managing Director, Restructuring Advisory, Kroll

arely does a day go past without tax reform rearing its head in a daily financial news bulletin. In particular, continued talk of a capital gains tax reform in the UK has been widespread and resounding for some time. In the wake of the unprecedented, but necessary, public spending throughout the pandemic, the Treasury will certainly need to find ways to reduce the deficit and rebalance the UK’s finances. Some predicted that Chancellor Rishi Sunak might put in place capital gains tax reforms in the Spring budget in March. He didn’t, and neither was there any mention of it on so-called “Tax Day” (23 March). Since then, President Biden has set out plans to nearly double capital gains tax for wealthy Americans, with tax rates set to soar from 20% to 39.6% for those earning more than €1 million a year from investment income. With the UK generally following the US over time on tax policy,

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the question now is “when?” and not “if?” the UK will follow in the footsteps of our American cousins. It could be only a few months away, in autumn this year. It is unlikely to be a controversial reform to the majority of the UK population, given that an increase in capital gains tax is only estimated to impact a small percentage of the population. Of course, there may be a flight risk in imposing significant tax increases on the wealthy, which could itself lead to reduced investment and lower tax revenues. But there is increasing worldwide public awareness and discourse over the unequal distribution of wealth and the ever-widening gap between the rich and less well-off. This increasingly puts pressure on government policy, and in turn, on wealthy individuals. Careful navigation through these difficult decisions in the months and years ahead is the order of the day for the chancellor, and the UK’s owner-manager community will be watching closely.

CAPITAL GAINS TAX

Continued talk of a capital gains tax reform in the UK has been widespread for some time. In the wake of the pandemic, the Treasury will need to find ways to reduce the deficit. Potential changes to capital gains tax

The Office of Tax Simplification’s review of the capital gains system carried out in July 2020 is a good place to start when considering the potential impact of the reform. It found that the capital gains tax system could be made simpler and fairer by: ● aligning capital gains tax rates more closely to income tax rates; ● reducing the capital gains tax-free allowance; ● removing the “capital gains tax uplift” on inherited assets; and ● reassessing existing capital gains tax reliefs.

Author bio

Eddie Bines is a managing director in the Restructuring Advisory practice at Kroll.

Author bio

Greg Pollock is a director in the Restructuring Advisory practice at Kroll.

The realignment of capital gains tax rates to income tax is an obvious place to start. The removal of the distinction between assets and property and an overall increase in rates is likely. There may be a gradual increase in rates to soften the initial blow or a threshold above which higher rates of capital gains tax kick in. There may also be a reduction of the existing capital gains tax annual exemption of £12,300 down to a lower sum, potentially between £2,000 and £4,000. This could be accompanied by further exemptions on personal items for individuals, but that will be of no benefit to business owners. Again, there may be a gradual downward tapering of the exemption to make the pill easier to swallow. The so-called capital gains tax uplift on inherited assets may also potentially be a victim of the chancellor. Currently, an individual that inherits an asset – for example, a shareholding in a family business – who then goes on to sell it for a profit is subject to capital gains tax. This is based on the difference between the value of the asset when they inherited it and subsequently sold it, as opposed to the original price the deceased bought it for. This “capital gains tax uplift” can significantly reduce the amount of tax to be paid. However, the removal of the uplift could make holding on to such an asset less attractive and give rise to alternative tax planning during the shareholder’s lifetime. Business asset disposal relief (the renamed entrepreneurs’ relief) has already seen the lifetime limit reduced from £10 million to £1 million in the 2020 Spring Budget. There could be further tweaks to qualifying criteria – the 10% rate could be increased or, more controversially, the relief could be abolished altogether. Although the measures remain uncertain, the direction of travel ahead for capital gains

tax reforms will undoubtedly erode some of the upsides of entrepreneurship. And, in some scenarios, it may be that business owners that are looking to maximise value will accelerate their exit plans now in anticipation of capital gains tax reform.

Is it time to call it a day?

So, is it now time to call it a day and wind things up? The current capital gains tax rules allow a tax‑efficient exit for a business, although that window of opportunity is narrowing. The exit of the business owner tends to happen through a trade sale, private equity investment, management buyout or the (increasingly popular) employee ownership trust. However, another less complex mechanism for exiting a business and generating a capital receipt involving a distribution of capital is via the members’ voluntary (solvent) liquidation process. Being a distribution of capital, the proceeds will be taxed at current capital gains tax rates and subject to eligibility, qualify for business asset disposal relief. Whilst we will always recommend seeking HMRC clearance to confirm the business owner’s tax position, the basic tax position is that distributions made during a winding up are capital, not income; thus the shareholder is treated as having made a disposal of their shares in return for the amount distributed. When applying for HMRC clearance, a business owner would also be seeking confirmation that the targeted anti-avoidance rules, which aim to combat cases of “Phoenixism”, do not apply to distributions made in the process of winding up of a company. For completeness, “Phoenixism” is a practice where a company is liquidated, and subsequently its business is carried on under the same or broadly the same ownership via a new entity within a prescribed time frame. These rules were introduced in 2016 and, if applicable, will tax any proceeds received via a liquidation distribution as an income and not a capital receipt. Obviously, this is not an issue if the purpose of entering into a members’ voluntary (solvent) liquidation process is due to the owner calling it a day!

In summary

The members’ voluntary (solvent) liquidation process should not be overlooked as an effective means to triggering a capital receipt. We fully expect an increase in enquiries from business owners and their advisors as the race to exit and extract value from their businesses intensifies in the months ahead, with the shadow of capital gains tax reform looming large once more. Our Corporate Simplification team’s experience working with shareholders to maximise their returns tax, cost effectively and expediently puts us in pole position to help you and your clients implement their business exit. As ever, early consultation is recommended to ensure desired timelines are achieved. ● ISSUE 118 | AIAWORLDWIDE.COM

Events UPCOMING WEBINARS

The secrets to a successful funding application 10 August 2021 Time: 10.30 – 11.30 Speaker: Phil Thompson The global pandemic has brought about many challenges, not least in the world of debt funding. Banks and other lending institutions have seen massive lending in the last 18 months. High Street banks have lent more in that period than they did in the previous five years! Have the rules and protocols in relation to lending changed, or is it even more important now to provide a clear and compelling case when applying for funding? This webinar will provide delegates with an understanding of the types of finance solutions available and how to present an application for funding in the current market. Audit developments (Ireland) 12 August 2021 Time: 10.30 – 11.30 Speaker: Christine Nangle The audit profession has been living with talk of audit reform since the last global recession in 2008 but with the Kingman, the Competition and Markets Authority (CMA) and the Brydon reviews complete and under consideration, the shape of what audit reform will look like is starting to become a little clearer. Add to this the end game with respect to Brexit, that brings with it further changes on how the auditor is governed, as well as increased business risks and audit risks for consideration, as the transition period comes to an end and the real impact of Brexit is felt by organisations, in both the UK and Ireland. Covid-19 brings more change for the auditor in the form of the challenges posed through remote working, the impact of Covid-19 on obtaining sufficient appropriate audit evidence and the significant business risks and audit risks surrounding going concern, liquidity, asset and stock valuation, etc. Finally, as cyberattacks become big business, the auditor has to increase their in-house capability to consider the impact on the audit or rely on auditors experts, which brings its own challenges.

Risk management 24 August 2021 Time: 10.30 – 11.30 Speaker: Michelle Crawley The world has changed dramatically in the last few years, with the role of an accountant being scrutinised more than ever. This session will examine the risks faced by accountants and ways of managing them. We will touch on how risk profiling has changed due to the pandemic and what issues accountants across the various sectors continue to face. This webinar will provide delegates with an up to date picture of how accountants approach risk management post pandemic. How to be an ethical accountant 7 September 2021 Time: 10.30 – 11.30am Speaker: Chris Cowton As a professional, an accountant has a responsibility to be both technically competent and ethical. Indeed, it might be said that an accountant should be ethically competent. However, if we look around us, that doesn’t always seem to be the case. Why is this so, and what can you do to be(come) an ethical accountant? The session will cover the following questions, seeking to provide practical advice and actionable insights along the way:

● Why do ethics matter? ● What do we mean by professional ethics? ● What are the challenges to being ethical? ● How can we make ethical decisions? ● How can we promote ethical behaviour in our organisations? ● What might an ethical accountant look like? Intellectual property 16 September 2021 Time: 10.30 – 11.30am Speakers: Nikki Evans and Dave Hopkins In today’s knowledge-based economy, intangible assets such as brands, innovative products and services, trade secrets, inventions and the look of a product, can in many cases represent significant assets that the business has. This webinar will cover the four main areas of intellectual property (trademarks, patents, designs and copyright) and how to protect intellectual property rights. It’s a great opportunity to receive the latest information and advice on IP – direct from the Intellectual Property Office. From this webinar you will: ● gain a better understanding of what a trademark is and how it differs from the registration of a limited company; ● find out about copyright ownership. Who owns the IP material (reports, written financial forecasts, etc.) that you create for your clients? Who owns the IP rights in a business website, a logo, plans, reports?; ● build your understanding linking innovation to intellectual property and in turn potential benefits from R&D tax credits and patent box; and ● find out about a range of FREE online support available to both you and your clients. Visit www.aiaworldwide.com/events for more information and registration.

CPD on demand Have you missed out on AIA’s recent CPD Webinars? Our on demand content is delivered by industry experts and leading professionals, giving you the flexibility to learn and develop your skills where and when suits you best. Each webinar is worth one verifiable CPD unit and can be purchased through the AIA shop. AIAWORLDWIDE.COM | ISSUE 118

The following content is available now: UK workplace pension update; ● Navigating the impact of Covid-19: An Irish employment law perspective ● Solvent and insolvent liquidation: how and when should it be used? ● What does Budget 2021 mean for tax?

● Self-assessment for landlords ● Finance Act 2021 ● Covid-19 and the implications for information security ● Helping employers navigate postpandemic working practices. Login to your AIA online account and choose “Shop” from the My AIA menu.

Technical INTERNATIONAL

IFAC Supports IOSCO’s vision for a global baseline of investor-focused sustainability standards The International Federation of Accountants (IFAC), which represents more than 3 million professional accountants globally, welcomes IOSCO’s new report in which it elaborates on its vision and expectations for the IFRS Foundation’s work toward a global baseline of investor-focused sustainability standards. IFAC has long advocated for the IFRS Foundation to establish an International Sustainability Standards Board (ISSB) focused on enterprise value creation, and based on a building blocks approach. Strong support from public authorities like IOSCO is critical to the success of the IFRS Foundation’s initiative. IOSCO has delivered this important support with its recent publication and

INTERNATIONAL IFAC continues its drive against financial crime The International Federation of Accountants (IFAC) welcomes the work of the World Economic Forum’s Unifying Framework for the important added visibility it provides in the fight against financial crime from a crosssectoral perspective. The release of the Forum’s report is a significant step in raising awareness about the good work of gatekeepers – individuals including accountants, bankers and lawyers – who work to prevent or interrupt financial crime, and particularly money laundering, illicit financial flows and corruption. By endorsing this work, IFAC hopes that it can inspire other gatekeeper professions to adopt ethical frameworks on a par with the International Ethics Standards Board for Accountants’ (IESBA’s) International Code of Ethics for Professional Accountants, the gold standard for ethical behaviour. Kevin Dancey, CEO of IFAC, said: “This new report by the Forum is

related work under the Sustainable Finance Task Force. IFAC specifically agrees with IOSCO’s analysis that: ● investors are not currently getting the information they need from sustainability disclosures; ● the IFRS Foundation should establish an ISSB alongside the IASB; ● the ISSB will need to build on existing work; and ● we need to create a flexible global system based on a building blocks approach. IFAC will continue to support IOSCO and the IFRS Foundation as they make progress on the ISSB. As momentum continues for harmonising global sustainability-

broadly aligned with the longstanding principles of the Code, which governs the conduct of approximately 3 million professional accountants, defined as those who are members of one of the 180 professional accountancy organisations (PAOs) around the world recognised by IFAC. “We encourage other gatekeeper professions across all sectors to look to the Code as a model.”

IFRS Foundation response to G20 Finance Ministers’ Communique The G20 Finance Ministers and Central Bank Governors published a Communique following their meeting in Venice, Italy, on 10 July 2021, referencing the IFRS Foundation. The Communique states that: “We will work to promote implementation of disclosure requirements or guidance, building on the FSB’s Task Force on Climaterelated Financial Disclosures (TCFD) framework, in line with domestic regulatory frameworks, to pave the way for future global coordination efforts, taking into account jurisdictions’ circumstances, aimed at

related reporting standards, IFAC has also initiated a workstream focused on global assurance related to sustainability information and looks to engage closely with IOSCO on any related investor protection issues. IFAC CEO Kevin Dancey said: “IOSCO sets out a clear vision for the way forward on sustainabilityrelated reporting – one that IFAC whole-heartedly agrees with. A global system for sustainabilityrelated reporting will meet the information needs of investors and stakeholders more broadly. IFAC encourages IOSCO to continue actively engaging with the IFRS Foundation so that the unprecedented and necessary momentum toward establishing an ISSB can be maintained.”

developing a baseline global reporting standard. “To that aim, we welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the TCFD framework and the work of sustainability standard-setters, involving them and consulting with a wide range of stakeholders to foster global best practices.” Commenting on the Communique, Erkki Liikanen, Chair of the Trustees, said: “We welcome the G20 Finance Ministers and Central Bank Governors’ recognition of the IFRS Foundation’s work to establish a new board focused on sustainability-related disclosure standards that meet the information needs of global capital markets. “The necessary preparatory work is progressing with other investor-focused standard-setting organisations. “This will provide the basis for development of a global baseline of investor-focused disclosure standards that jurisdictions can combine with their public policy requirements and use in their legal frameworks.” ISSUE 118 | AIAWORLDWIDE.COM

Technical IFAC welcomes IFRS Foundation Constitutional Amendments to establish a new ISSB and urges global accountancy profession support In The Way Forward roadmap toward a global system for reporting on sustainability-related information, IFAC called on the IFRS Foundation to establish a new International Sustainability Standards Board (ISSB). With its independence, good governance and track record of due process, the IFRS Foundation is uniquely positioned to establish an independent ISSB within existing IFRS governance, comprised of the Monitoring Board, IFRS Foundation Trustees and IFRS Advisory Council. The proposed multi-stakeholder expert consultative committee will also be crucial to bringing the right stakeholders to the table in support of the standardsetting activities of the new Board. IFAC’s response strongly supports the four-point strategy put forth in the Trustees’ proposals: ● the ISSB will have an investor focus on enterprise value; ● the ISSB will prioritise climate-related reporting first; ● the ISSB will build on the work of existing initiatives; and ● the ISSB will take a Building Blocks Approach. IFAC CEO Kevin Dancey said: “Agility and flexibility in the organisational arrangements supporting the establishment of the new ISSB are needed for the IFRS Foundation to move with speed – making as much progress as possible in the shortest amount of time, while remaining focused on high-quality outcomes. In our analysis, the proposed amendments appropriately incorporate this imperative, which underlies all other criteria for success. As comments from key global stakeholders come in, it is great to see such widespread and broad support for the ISSB initiative.”

IFAC releases latest Point of View: Greater Transparency and Accountability in the Public Sector The public sector is facing a myriad of competing priorities, including an unprecedented global health crisis and climate emergency, and must make critical decisions that will affect generations to come. In this environment, this involves helping citizens to understand how public funds AIAWORLDWIDE.COM | ISSUE 118

are being managed and spent, as well as the reasoning behind decisions and their consequences; and meeting the heightened need for transparency and accountability necessary to retain and grow stakeholder trust. IFAC’s Point of View explores the need for strong governance and public financial management, so that governments and public sector entities around the world can make informed, data-driven decisions for people, the planet and the economy. It also outlines how the accountancy profession, with its public interest mandate, can support the public sector in achieving long-term financial sustainability and resilience, to help create a better world with stronger economies and fairer societies. “Our latest Point of View focuses on actionable steps that professional accountants in the public sector can take to foster trust and increase resilience globally,” said Kevin Dancey, IFAC CEO. “Calls for transparency and accountability in the public sector are not new, but we have outlined systems, processes and practices that the public sector can integrate to achieve the strong financial management necessary to build a sustainable, inclusive and prosperous future for all of us.”

UK AND IRELAND FRC revises UK quality management standards The Financial Reporting Council (FRC) has issued revised quality management standards for an audit firm’s responsibilities to design, implement and operate a system of quality management: ● International Standard on Quality Management (UK) 1: Quality management for firms that perform audits or reviews of Financial Statements, or other assurance or related services engagements; ● International Standard on Quality Management (UK) 2: Engagement quality reviews; and ● International Standard on Auditing (UK) 220 (Revised July 2021): Quality control for an audit of Financial Statements. These standards introduce a new quality management approach that is focused on proactively identifying and responding to risks to quality. This new approach requires a firm to customise the design, implementation and operation of

its system of quality management based on the nature and circumstances of the firm, using an integrated approach that reflects upon the quality management system as a whole. The standards are effective for audits of financial statements for periods beginning on or after 15 December 2022. Early adoption of the revised standards is strongly encouraged. The feedback statement and impact assessment are available on the FRC website.

FRC outline necessary action for effective ESG reporting The FRC has published the FRC Statement of Intent on Environmental, Social and Governance challenges. This paper sets out areas in which there are issues with ESG information if companies are to report in a way that meets the demands of stakeholders, how to address some of these demands, and the FRC’s planned activities in this area. There is an ever increasing amount of regulatory change. As these changes are implemented, there remain a range of underlying issues with the production, audit and assurance, distribution, consumption, supervision and regulation of ESG information. In the FRC’s view, we need better: ● Production: to ensure that better internal information leads to better decisions and better insight for stakeholders; ● Audit and assurance: so that the reported information is robust and reliable; ● Distribution: so that information is made accessible to interested parties; ● Consumption: to ensure this information leads to better decision making by stakeholders; ● Supervision: so that information and activity are appropriately monitored and requirements are enforced; and ● Regulation: as coordinated and coherent regulation leads to efficiency. The FRC supports global standards for non-financial reporting and welcomes the activity of the IFRS Foundation Trustees to set up an International Sustainability Standards Board. Last year, the FRC announced an expectation that public interest entities should report against the Task Force on Climate-related Financial Disclosures framework and the Sustainability Accounting Standards Board (SASB) sector-specific metrics relevant to the

Technical entity as building blocks towards this international approach and to assist investors to understand material ESG issues at companies. The FRC has assessed UK SASB reporting practice and has also published a snapshot of market practice, showing an increase in uptake, but that more and better reporting is needed. As we work towards a more effective system of production, audit and assurance, distribution, consumption, supervision and regulation, the FRC will work within its remit and with standard setters, regulators, market participants and other stakeholders to build a system that is forward-looking and fit for purpose.

Central Bank publishes findings and expectations from a review of compliance with Market Abuse Regulation The Central Bank has published a series of findings and expectations from its industry-wide review of compliance with the Market Abuse Regulation (MAR). This review examined how regulated firms, issuers and advisors who act on behalf of issuers are meeting their obligations to ensure organisational arrangements are effective in mitigating the risk of market abuse and ensuring market transparency. The publication can be found on the IAASA website. MAR promotes market transparency and prohibits market abuse. Compliance with MAR by all relevant market participants is vital to the preservation of market integrity. Unlawful behaviour on financial markets undermines market integrity, impedes transparency and reduces confidence in securities markets. For investors to trust securities markets, they must feel confident that markets are transparent and free from misconduct such as market abuse.

FRC is seeking views on amendments made to the Audit Enforcement Procedure The Financial Reporting Council (FRC) operates the Audit Enforcement Procedure (AEP). The FRC has reviewed the AEP and intends to amend it. Through this consultation, the FRC seeks feedback and comment on these proposed amendments. The FRC would particularly welcome the views of statutory auditors and audit firms and other regulatory bodies,

including professional associations. When responding, please state whether you are responding as an individual or representing the views of an organisation. Please respond by 7th October 2021 to AEPconsultation@frc.org.uk or: General Counsel’s Team The Financial Reporting Council 8th Floor, 125 London Wall London EC2Y 5AS Consultation link: www.frc.org.uk/ consultation-list/2021/frc-seeking-viewson-amendments-made-to-the-audit

Diverse boards lead to better corporate culture and performance There has been a step change over the past decade with UK Listed company boards becoming more diverse than ever before, primarily as a result of the Hampton Alexander review and more recently the Parker review. The research, Board Diversity and Effectiveness in FT350 Companies, published by the FRC in conjunction with London Business School, Leadership Institute and SQW, found that the effort to diversify boards pays benefits in terms of boardroom culture and performance. To maximise these benefits, boards should recognise that change takes time and that diversity without active inclusion is unlikely to encourage new talent to the board. The main findings of the research concluded that: ● It is the responsibility of the Chair of a board to drive inclusion. ● Regulators and companies must focus on collecting more data on the types of diversity, board dynamics and social inclusion ● The Nomination Committee itself should be diverse and have a clear mandate to work with search firms that access talent from wide and diverse pools. ● The greater representation of women in the boardroom is reshaping culture and dynamics and benefiting businesses from a social justice as well as a performance perspective Sir Jon Thompson, CEO, FRC, said: “The FRC wants to see companies which thrive in the long term and both benefit the economy, society and reflect its make-up. I want to see boards invest time and energy in making diverse

appointments not to achieve a target but because it will have a positive impact on their business. The UK Corporate Governance Code makes it clear that board appointments should promote diversity and we want to see nominations committees reporting on progress. “I am pleased that this research supports the need for companies to set clear targets and report against them as a means to improving diversity. Many companies only set targets for gender and to a lesser degree ethnic diversity. We support the proposal that nominations committees should be diverse and have a mandate to work with executive search firms that will find talent from diverse backgrounds.” Dr Randall S. Peterson, Academic Director, London Business School Leadership Institute and Osman Anwar, Director, SQW, said: “Board diversity should be a priority for every organisation. Successful boards care because they want to perform as a team in service of their organisation, and in service to the world. “Diversity takes many forms. The findings of the report remind us what is at stake: diversity is not just a numbers game with regards to who is on the board, how board members interact really matters.” We hope this report will stimulate new thinking and action on how all groups can genuinely feel included and supported at the “top table”.

ASIA PACIFIC MASB issues Amendments to MFRS 112 Income Taxes on Deferred Tax related to Assets and Liabilities arising from a Single Transaction The Malaysian Accounting Standards Board (MASB) has issued Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to MFRS 112 Income Taxes). The Amendments are word-forword Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12 Income Taxes), issued by the International Accounting Standards Board (IASB). The Amendments to MFRS 112 specify how companies should account for deferred tax on transactions such as leases and decommissioning obligation. In specified circumstances, MFRS 112 exempts companies from recognising ISSUE 118 | AIAWORLDWIDE.COM

Technical deferred tax when they recognise assets or liabilities for the first time. There had been some uncertainties about whether the exemption from recognising deferred tax applied to transactions such as leases and decommissioning obligations – transactions for which companies recognise both an asset and a liability. The Amendments clarify that the exemption does not apply and that companies are required to recognise deferred tax on such transactions. Such clarification is expected to reduce diversity in the reporting of deferred tax on leases and decommissioning obligations. The Amendments to MFRS 112 shall apply for annual reporting periods beginning on or after 1 January 2023. Earlier application is permitted.

New chairmanship at helm of FRF and MASB as of 1 July 2021 The Minister of Finance Malaysia, YB Senator Tengku Datuk Seri Utama Zafrul bin Tengku Abdul Aziz, has appointed Dato’ Zainal Abidin Putih as Chairman of the Financial Reporting Foundation (FRF) with effect from 1 July 2021. He replaced Tan Sri Azlan Zainol, whose term as Chairman of FRF ended on 30 June 2021. On assuming the role, Dato’ Zainal said: “I feel very privileged to take on this role at such a challenging time for our profession. I am indeed very grateful for the trust by the Minister of Finance for this appointment, and after leaving the MASB as chairman 12 years ago, it certainly feels good to be back. I will do my utmost to steer the FRF to continue to be effective in its oversight function and in providing advisory support to the MASB. I know I have big footsteps to follow that Tan Sri Azlan has left after six years of illustrious leadership of the FRF.” Dato’ Zainal is a Fellow of the Institute of Chartered Accountants in England and Wales (ICAEW), a Member of the Malaysian Institute of Certified Public Accountants (MICPA) and a Member of the Malaysian Institute of Accountants (MIA). He has more than 45 years of experience in various capacities in the corporate sector and was Chairman of CIMB Bank Berhad until his retirement in April 2020. He is currently Chairman of Land and General Berhad, Touch ‘n Go Sdn Bhd and Tokio Marine Insurans (Malaysia) Berhad. He also sits on the boards of Khazanah Nasional Berhad, Petron Malaysia Refining and Marketing Berhad, as well as the boards of several private limited companies. AIAWORLDWIDE.COM | ISSUE 118

In welcoming his successor, Tan Sri Azlan said: “I am confident that Dato Zainal’s extensive experience in the corporate world and his past experience as MASB chairman together with his vision, dedication, and passion, would continue to bring the FRF and MASB to a higher level. Equally, I believe Datuk Nasir who is no stranger to the corporate world and now the chairman of MASB would certainly help to bring further success to the FRF and MASB.” The Malaysian Accounting Standards Board (MASB) welcomes Datuk Mohd Nasir Ahmad as the new Chairman of MASB with effect from 1 May 2021. Datuk Mohd Nasir took over from Encik Mohamed Raslan Abdul Rahman whose term ended on 30 April 2021. The appointment, which is for a three-year term, was made by the Minister of Finance in accordance with the provisions of the Financial Reporting Act 1997. Datuk Mohd Nasir is a Past President of the Malaysian Institute of Accountants and currently Chairman of CIMB Group Holdings Berhad. He has vast experience in the areas of leadership, management, finance and accounting which spans over 40 years. He also currently serves as Chairman for CIMB Bank Berhad and CIMB Bank PLC (Cambodia). Datuk Mohd Nasir is also a director of Prokhas Sdn Bhd, besides being a Trustee of Yayasan Canselor UNITEN, Perdana Leadership Foundation and CIMB Foundation.

Merger of the Accounting and Corporate Regulatory Authority (ACRA), Singapore Accountancy Commission (SAC) and Accounting Standards Council (ASC) Secretariat The Ministry of Finance (MOF) will merge the accountancy related units in the Accounting and Corporate Regulatory Authority (ACRA), the Singapore Accountancy Commission (SAC) and the Accounting Standards Council (ASC) secretariat into a strengthened accountancy function under one entity (henceforth referred to as “merged entity”). The ASC will remain as a Council appointed by the Minister for Finance. The government’s accountancy related functions are currently housed in the following three entities: ● ACRA registers and regulates public accountants, business entities, and corporate service providers; ● SAC develops the accountancy sector and oversees the Chartered Accountant of Singapore

(CA(Singapore)) designation, as well as its qualification programme – the Singapore Chartered Accountant Qualification (SCAQ) programme; and ● ASC sets accounting standards for companies, charities, societies, and co‑operative societies. This merger will strengthen effectiveness of regulation, standards setting and sector development by harnessing synergies across complementary functions. This will strengthen the merged entity’s ability to better develop and manage talent in a sustained manner, as well as provide better career development opportunities to officers. The merged entity will be formed and will commence operations by the second half of 2022. The merged entity will retain the name Accounting and Corporate Regulatory Authority (ACRA), which encompasses the enlarged functions of the merged entity, and is wellrecognised by accountancy and business stakeholders. Mr Ong Khiaw Hong, Chief Executive of ACRA, will oversee the merged entity.

Public consultation on proposed enhancements to Singapore’s regime on transparency and beneficial ownership of companies and limited liability partnerships The Ministry of Finance (MOF) and the Accounting and Corporate Regulatory Authority (ACRA) invite the public to provide feedback on proposed changes to the Companies Act (CA) and Limited Liability Partnership Act (LLP Act) relating to transparency and beneficial ownerships of companies and limited liability partnerships (LLPs). The proposed changes are set out in the draft Corporate Registers (Miscellaneous Amendments) Bill (CRMA Bill). In 2017, the CA and LLP Act were amended to improve the transparency of ownership and control of companies and LLPs, boosting Singapore’s ongoing efforts to maintain high corporate governance standards and a strong reputation as a trusted financial hub. Among other requirements, the legislative changes required: ● local companies, foreign companies and LLPs to keep registers of controllers; ● local companies to keep registers of nominee directors; and ● foreign companies to keep registers of members.

Technical Since then, MOF and ACRA have continued to review the framework, and are proposing further enhancements to Singapore’s regime on transparency and beneficial ownership of legal persons. The changes serve to reduce opportunities for the misuse of corporate entities for illicit purposes, and are in line with international standards set by the Financial Action Task Force for combating money laundering, terrorism financing and other threats to the integrity of the international financial system. The draft CRMA Bill introduces the following changes: ● require local companies, foreign companies and LLPs to enter the particulars of the individual(s) with executive control in their registers of controllers if no individual or legal entity having significant interest in or significant control over the company or LLP has been identified; ● require local and foreign companies to keep non-public registers of nominee shareholders; ● clarify that local companies should update their register of nominee directors within seven calendar days after receiving information and particulars from the directors; and

● specify a 14 day timeframe for foreign companies to update their register of members.

UNITED STATES FASB proposes improvements to discount rate guidance for lessees that are not public business entities The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would improve discount rate guidance for lessees that are not public business entities – including private companies, not-for-profit organisations and employee benefit plans. It is intended to reduce the expected cost of implementing the lease standard (Topic 842) for those entities while retaining the expected benefits for users of financial statements. Stakeholders are encouraged to review and provide comment on the proposed ASU by 16 July 2021. Topic 842 currently provides lessees that are not public business entities with a practical expedient that allows them to make an accounting policy election to use a risk-free rate as the discount rate for all

leases. The FASB originally provided this practical expedient to relieve those lessees from having to calculate an incremental borrowing rate, which could create unnecessary cost and complexity. Some private company stakeholders expressed reluctance to use the riskfree rate election for all leases. Those stakeholders noted that in the current economic environment, a risk-free rate (for example, a US Treasury rate) is low compared with their expected average incremental borrowing rates, and that using the risk-free rate election could increase an entity’s lease liabilities and right-of-use assets. To address these concerns, the amendments in the proposed ASU would allow lessees that are not public business entities to make the risk-free rate election by class of underlying asset, rather than at the entity-wide level. It also would require that when the rate implicit in the lease is readily determinable for any individual lease, a lessee would use that rate (rather than a risk-free rate or an incremental borrowing rate), regardless of whether it has made the risk-free rate election. The proposed ASU is available at www.fasb.org.

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International Accountant 118

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