International Accountant 117 by Association of International Accountants

INTERNATIONAL

ACCOUNTANT MAY/JUNE 2021 ISSUE 117

Cryptocurrency: poised to take centre stage The impact of Brexit on international tax Moving towards electronic verification Anti-money laundering in Ireland

CONTENTS

In this issue Contributors 2 Meet the team

News and views

Workforce engagement lies at the heart of good corporate governance

AIA news

of approximately €50,000. Giorgio Vaselli and Lauren Rapeport (Withers Worldwide) explore the recent international tax and anti-money laundering developments on crypto assets.

financing. David Potts (AIA) reviews the impact of the latest anti-money laundering regulations in the Republic of Ireland.

Launch of AIA Achieve Academy: a new online learning platform

Students 8 How to approach your learning Your path to being successful in exams is a simple one – the course programme is critical to your understanding of the qualification. This article examines how you can structure your study and exam practice to make the most of your learning and achieve the best results.

Artificial intelligence

The revolution is nigh Powerful AI solutions have been made possible by the ever-growing quantity of financial data available in the Cloud. Chris Downing (Sage) considers the financial revolution that awaits us all when accountants harness the powers of artificial intelligence.

Cryptocurrency 12 Poised to take centre stage In the first quarter of 2021, Bitcoin exceeded an unprecedented valuation

Anti-money laundering

An Irish update Accountants play an important role in keeping citizens and society safe from money laundering and terrorist

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

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International tax

Cyber crime

Dates for your diary

The impact of Brexit Following the UK’s exit from the EU, the EU-UK Trade and Cooperation Agreement was finally delivered on 30 December 2020 to govern the future relationship between the UK and EU. Mark Taylor (Duncan & Toplis) considers the impact that Brexit has played on international tax issues and the changes to taxes for multinationals. Moving towards electronic verification An estimated 80% of crimes now have a digital component. Martin Cheek (SmartSearch) considers the new EU roadmap to combat cyber crime, including a greater reliance on digital solutions and electronic verification, as well as a shift in attitudes amongst those responsible for preventing financial crime.

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

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Upcoming events

Technical 29 Global updates

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Editor’s welcome

Contributors to this issue

Editor’s welcome

CHRIS DOWNING

Chris Downing is Director of Product Management at Sage, with 19 years’ experience in practice and a passion for helping businesses to make the best use of technology. DAVID POTTS

David Potts is director of operations at the AIA, and is responsible for maintaining AIA’s international recognition and implementing the professional body’s regulatory strategies. GIORGIO VASELLI

IA will shortly be launching its new professional qualification and online learning platform, AIA Achieve Academy. The new professional qualification sets out the knowledge, skills, behaviours and values that underpin today’s accountants and helps professionals to thrive in their career. The qualification structure has been streamlined, reducing the number of exams from 16 to 10 or 11 depending on whether you are taking the accountancy or audit route, making it both quicker to complete and more accessible and affordable. The Foundation level is now tested through a single integrated, multiple choice exam, covering Financial Accounting, Management Accounting, Corporate Governance and Audit, and Business Management and there is a greater emphasis on professional ethics through the inclusion of a standalone paper at Professional Level 2. To allow further flexibility for students taking the accountancy route, there is the introduction of optional papers, Developments in Assurance and Accountability and Business and

Rachel Rutherford Editor, IA

Financial Management, at Professional Level 2. The new qualification is fully accessible, with students now able to choose to study entirely online through AIA Achieve Academy. The online platform offers a complete learning environment in which students can utilise a range of learning tools and methods. This streamlined qualification will help deliver AIA’s vision of supporting accounting professionals throughout their whole career. In this issue, we consider the impact that Brexit has played on international tax issues and the changes to taxes for multinationals; review the new EU roadmap to combat cyber‑crime, including a greater reliance on digital solutions and electronic verification; and explore the recent international tax and anti-money laundering developments on crypto assets. We also consider the increasing role of AI solutions, which will enable accounting and finance professionals to progress from depending on monthly or yearly cycles, and moving instead towards being able to offer continuous, real-time practices in accounting, trust and insights.

Giorgio Vaselli is special counsel in the Italian Private client and tax team at Withers Worldwide, with particular focus on corporate clients, investment funds, real estate and trusts. LAUREN RAPEPORT

Lauren Rapeport is an associate in the private client and tax team at Withers Worldwide, advising on trusts, tax, probate and succession planning issues, for individuals, trustees and charities. MARK TAYLOR

Mark Taylor is head of tax advisory services for Duncan & Toplis and a member of the firms’ management board, with 30 years’ experience of working with owner managed businesses of all sizes. MARTIN CHEEK

Martin Cheek is the managing director of SmartSearch, providing online anti-money laundering and fraud prevention services. ISSUE 117 | AIAWORLDWIDE.COM

News CORPORATE GOVERNANCE

Workforce engagement lies at the heart of good corporate governance An effective feedback loop between boards and the workforce is needed to achieve meaningful dialogue. Those who act as an interface between the board and the workforce, whether sitting on a panel or as worker directors, should receive appropriate support. Energies should be focused principally on the substance of the engagement, not the process. The UK Corporate Governance Code asks companies to report on their engagement with the workforce. The Financial Reporting Council (FRC) has published research by Royal Holloway, University of London and the Involvement and Participation Association which found that many FTSE 350 annual reports appear to downplay the importance of their workforce engagement. Changes in workforce engagement have been more an evolution than a revolution, with many companies amending existing practices that have been in place for several years. The case studies included in the report set

out innovative approaches and fresh thinking that could potentially be applied more widely. Good practice identified in the research shows how the exact mechanism of engagement is less important than companies’ desire to genuinely engage with employee views and recognise the benefits that such engagement can bring. Sir Jon Thompson, FRC CEO said: “The report highlights some good examples of productive workforce engagement. It takes time to put in place, and develop, workforce engagement mechanisms, create a feedback loop and see the consequent results. Ultimately, the main goal is a better performing company. I hope companies and boards will consider this research and engage with the good practice examples.” Chris Rees, Professor of Employment Relations, Royal Holloway, University of London and Patrick Brione, Head of Policy and Research, IPA, said: “Our review has highlighted some interesting areas of innovation and good

Sir Jon Thompson

practice in how to bring an effective workforce voice into the boardroom. At the same time, we found that there remains much room for improvement for many firms, in both their practice and reporting. We hope to see continued progress in this area, as part of a broader move towards building more purposedriven companies that reflect the interests of all their stakeholders.”

FLEXIBLE WORKING

PWC announces new flexible work deal for employees Following extensive consultation with employees, PwC has announced to its 22,000 people changes to allow greater flexibility for post-pandemic working. Called the “Deal”, the announcement reflects the firm’s commitment to supporting its people and responding to changing working patterns accelerated by Covid-19. The changes will help to embed a hybrid working model and align with PwC’s Net Zero commitment. The Deal is part of a workforce framework covering everything from learning and development to how PwC’s people can make a positive societal difference. It’s built on twoway flexibility and trust to meet the needs of teams, clients and the firm. AIAWORLDWIDE.COM | ISSUE 117

The full detail will be shared over the coming weeks but the three key elements are: ● an “empowered day”, which gives its workforce more freedom to decide the most effective working pattern on any given day; for example, an earlier start and finish time; ● flexibility to continue working from home as part of blended working, with an expectation that people will spend an average of 40% to 60% of their time co-located with colleagues, either in PwC offices or at client sites; and ● a reduced working day on a Friday during July and August, with the assumption the majority of people will finish at lunchtime having condensed their working week.

Kevin Ellis, chairman and senior partner at PwC, said: “We’ve long promoted flexible working, and we hope today’s announcements make it much more the norm rather than the exception. We want our people to feel trusted and empowered. “These changes are in direct response to soundings from our people, who’ve said they value a mix of working from home and in the office. We want to help enshrine new working patterns so they outlast the pandemic. Without conscious planning now, there’s a risk we lose the best bits of these new ways of working when the economy opens up again. The future of work is changing at such a pace that we have to evolve continually how we do things to meet the needs of our people and our clients.”

News

Ireland announces stamp duty measure for bulk purchasers for homes The Minister for Finance Paschal Donohoe TD has brought a Financial Resolution to the Dáil, which will impose a stamp duty charge of 10% on the multiple purchase of ten or more residential houses. This higher charge, as well as applying to bulk purchases, will also apply to a situation where a person acquires ten or more units on a cumulative basis over a 12 month period. Once triggered, the 10% rate will apply to all houses acquired in that 12 month period, including the first nine purchases. The background to this Financial Resolution is the purchase by institutional investors of all or a significant proportion of residential housing estates, particularly close to the time of completion. This 10% rate is intended to provide a significant disincentive to this practice of multiple purchase by institutional investors of large parts of, or indeed whole, housing estates before they reach the market, thus denying first-time buyers an opportunity to purchase a home. Multiple purchases by local authorities, approved housing bodies and the Housing Agency will be outside the scope of this higher stamp duty. The most significant exemption from this higher stamp duty charge is the multiple purchase of apartments. Apartment developments face significant viability challenges and there are clear indications that any additional cost burden in apartment developments would have significant negative consequences for supply, and consequently impact on our future housing model, in particular for urban living.

EUROPEAN COMMISSION

European Commission publishes Communication on Business Taxation for the 21st century

IRELAND

The European Commission has adopted a Communication on Business Taxation for the 21st century, reiterating its desire to promote a robust, efficient and fair business tax system in the European Union. It sets out both a long term and short term vision to support Europe’s recovery from the Covid-19 pandemic and to ensure adequate public revenues over the coming years. It also takes account of the progress made in the G20/OECD discussions on global tax reform. The Commission will present by 2023 a new framework for business taxation in the EU, which it states will reduce administrative burdens, remove tax obstacles and create a more business-friendly environment in the single market. The “Business in Europe: Framework for Income Taxation” (or BEFIT) will provide a single corporate tax rulebook for the EU. The Communication also sets out the Commission’s plans for the implementation in the EU of the

reform of the international corporate tax framework, as well as short term initiatives in the area of corporate taxation, including a set of five action points for the European Commission’s agenda for the next two years: ● a legislative proposal for the publication of effective tax rates paid by large companies, based on the methodology under discussion in Pillar 2 (by 2022); ● a legislative proposal setting out rules to rules to neutralise the misuse of shell entities for tax purposes (by Q4 2021); ● a recommendation on the domestic treatment of losses; ● a legislative proposal creating a debt equity bias reduction allowance (by Q1 2022); and ● Business in Europe: Framework for Income Taxation (BEFIT), moving towards a common tax rulebook and providing for fairer allocation of taxing rights between member states (by 2023). ISSUE 117 | AIAWORLDWIDE.COM

News ECONOMIC PLAN

VAT

CBI sets out new UK economic strategy Tony Danker, CBI Director-General, has outlined findings from a new, landmark economic plan seeking to establish a competitive, dynamic and future-focused UK following the shocks of Brexit and Covid-19 and in the run up to COP26 in Glasgow. “Seize the moment: how can business transform the UK economy?” is the result of months of research and business consultation. It identifies six ways to transform the economy after the crisis to realise a decade of better economic growth and social solidarity. The plan includes: ● A decarbonised economy: decarbonisation, innovation and “levelling up” as part of a package worth £700 billion in commercial growth for UK companies to win the race to net zero; ● An innovation economy: a call for the government to reform regulation to incentivise investment in these goals with breakthrough ideas and technologies to be adopted by all; ● A globalised economy: making the UK a trading powerhouse; ● A regionally thriving economy: ensuring every nation and region has distinctive, global strengths; ● An inclusive economy: where work enables all talent to progress; and ● A healthier nation: a greater role for firms in the health and skills of employees post-pandemic. The plan sets out what business can do to achieve these goals, and how every firm can accelerate their path to net-zero, adopt new technologies and export more successfully. It looks at out how business can at its core enable millions of employees to gain greater resilience, wellbeing and opportunities at work – a new social contract to enable people to succeed, borne of the pandemic. And it examines how businesses can lead a broader transformation by pursuing these prizes in the interests of local communities and the nation as a whole. The strategy is designed to complement the UK government’s Plan for Growth. And it sets out how the government’s ambitions can be delivered by businesses across the AIAWORLDWIDE.COM | ISSUE 117

UK, with concrete recommendations for different sectors and for individual firms. It outlines tangible commercial prizes borne from policy ambitions including decarbonisation and skills investment. And it directly responds to the UK government’s plan with suggested improvements and additional reforms – specifically around regulation, levelling up and skills policy. The plan is based on how the government can build on its Build Back Better plans by: undertaking regulatory reform for investment and innovation; creating globally leading clusters in our regions and nations; transforming skills provision for the economy of tomorrow; unlocking finance for growth and investment; and a longterm tax roadmap for the UK. The CBI says: “This is a once-ina-generation opportunity to unite as a nation and agree to transform the UK economy for the decade ahead. Covid-19, our new relationship with the EU, our goal to reach net-zero emissions and the ever-accelerating pace of technological advancement demand a far more ambitious and joined-up strategy than the UK has ever produced. Anything less would be to miss the significance of both the threats and opportunities before us.” Read the full report at: www.cbi.org.uk.

One month left to join VAT Deferral New Payment Scheme Businesses that deferred VAT payments last year have until 21 June 2021 to join the new online payment scheme to spread the cost of their deferred VAT. The HMRC’s VAT Deferral New Payment Scheme will allow them to pay in monthly instalments. Over half a million businesses deferred £34 billion in VAT payments due between March and June 2020 under the VAT Payment Deferral Scheme. Businesses had until 31 March 2021 to pay this deferred VAT or, if they could not afford to do so, they could go online from 23 February to set up a new payment scheme and pay by monthly instalments to spread the cost. AML

Hong Kong consults on AML regulations The government has published a paper outlining the views received during the consultation on proposals to enhance anti-money laundering and counter-terrorist financing regulation in Hong Kong. A total of 79 submissions were received during the consultation from 3 November 2020 to 31 January 2021. The government said it is pleased to note that the respondents generally agreed with the overall direction, principles and the broad framework of the legislative proposals, which mainly seek to introduce a licensing regime for virtual asset service providers and a registration regime for precious metal and stone dealers. The government will fine tune the proposals, having regard to the comments and suggestions received, and aim to introduce an amendment bill to the Legislative Council in the current legislative session.

AIA News

AIA

NEWS AGM

AIA Annual General Meeting 2021 MEMBER SURVEY

Member feedback survey 2021: win a year’s free membership

We want to know what’s important to you, what you value about your AIA membership and how we can improve the services we offer. Complete our membership survey today and you could win a year’s membership just for taking part. One member will be selected from all valid completed surveys within seven days of the survey closing on 30 June 2021. The survey will take approximately five minutes to complete and is available at: forms.office.com/r/2X0FgWcuh9. Members have also been emailed a link to the survey.

The Association of International Accountants (AIA) has held its 89th Annual General Meeting. In light of the coronavirus pandemic and the restrictions on social gatherings, the AGM was held, for the second year, as a virtual event with members given the opportunity to use online voting. All the resolutions of the AGM were passed and the following members were re-elected to Council: Philip Ford, Seth Ganu, George Josephakis and Gloria Murray, who reflect the AIA’s international form and represent members from the UK, Ghana and Greece. Following the previous update to AIA’s Constitution in November 2019, a number of amendments and revisions resulting from regulatory requirements, best practice and legislative updates were also agreed at the AGM. 2020 was a year like no other. The Covid-19 pandemic created a global health and economic crisis which presented colossal challenges. Governments were forced to implement social distancing measures causing widespread disruption and businesses throughout the world were required to adapt to a rapidly changing world. Like other organisations, AIA felt the impact acutely and our response was crucial not only to ensure the continuity of service to our members and students, but also to deliver a longer-term plan that continued to meet our strategic objectives. Despite these obstacles, AIA has come through the period stronger and more resilient than before. AIA President Shahram Moallemi said: “I remain confident that despite everything that Covid-19 has challenged us with, we

AIA President Shahram Moallemi

remain well placed to adapt and grow as an organisation. This is largely possible because our members and students continue to support us, our partners and branches have advocated on our behalf and our staff have worked tirelessly on a programme of work that has seen many changes throughout our global operations. It is down to our collective hard work that we have been successful, and I look forward to working together as we build on our successes in the future.” 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 ISSUE 117 | AIAWORLDWIDE.COM

AIA News ONLINE LEARNING PLATFORM

AIA launches new online learning platform In conjunction with the launch of the new AIA professional qualification, AIA will launch a new online learning platform to boost learning and development opportunities for those wishing to study accountancy. AIA Achieve Academy is a dedicated resource for all AIA students, providing them with a hub of interactive learning resources. Available worldwide, the platform has been designed to ensure users have the support and learning opportunities available to suit their learning preferences and incorporates a range of effective and proven learning tools. This new eLearning platform provides all the support and materials students opting for self-study require to be successful in the exams. AIA Achieve Academy has been designed to make learning and development easier and more accessible for members to complete

their studies at a convenient time for them, allowing users to choose which resources they would like to complete, at their own pace and in their own surroundings. AIA Achieve Academy is a fully integrated online learning platform which provides students with a structured programme of study for all papers within the AIA professional qualification. The programme includes: ● recorded lectures, structured in line

with the qualification for optimum results; ● AIA Learning and Practice Workbooks for each paper; ● AIA text books and recommended reading; ● practice questions; ● tutor feedback; ● graded check-point tests; ● live topic workshops; and ● mock exams with performance feedback.

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STUDENTS

How to approach your learning This article examines how you can structure your study and exam practice to make the most of your learning and achieve the best results.

our path to being successful in the exams is a simple one – make sure you review the course programme, which is critical to your understanding of the qualification. By actively participating in the course, reviewing lectures, acquiring knowledge and key skills, practising questions and taking time to consider tutor feedback, you have every opportunity to reach your potential. In preparing your study plan, you need to decide what works for you. You can re-read chapters from the study texts, practise questions and access the recorded lectures as many times as you like. The following guidance is to assist you in studying for the AIA’s professional qualification and in preparing for the online exams: ● Questions set for every exam paper cover the learning outcomes. You should read the learning outcomes in the paper syllabus you are studying. A learning outcomes approach focuses on the candidate’s demonstrated achievement of the learning outcomes, at a targeted level of proficiency. ● Appropriate command words for the level are used. The “Levels of proficiency and levels of learning” document explains the cognitive levels of learning and the command words used at the Foundation, Professional 1 and Professional 2 levels. ● Questions offer an appropriate balance of application versus knowledge for the associated level of attainment. ● Questions offer an appropriate coverage of the prescribed subjects and international education standards. The PQ Programme Section 3.2 provides a summary of the competencies mapping for the prescribed subjects and international education standards.

● The number and type of questions differ between papers and levels. It is important that you read the “Syllabus structure” to understand what is required. ● Questions ensure appropriate coverage of the syllabus subject; i.e. all subjects are examined throughout the qualification.

The different types of questions

Case study questions are substantial questions where candidates face (typically) a number of issues which they have to analyse. These questions are often presented over two to three screens, and require candidates to select specific issues and explain their implications. Additional material is presented as an “Exhibit” button, which candidates can “pop-out” to view. A key issue is to identify the key components but also analyse them, identifying links between the issues raised. Some elements may be superfluous, but candidates need to identify what is irrelevant to provide an appropriate response. A case study involves a detailed examination of issues within a specific context. At the professional levels, the examiner is expecting you to demonstrate critical thinking skills. You will identify the arguments and conclusions, evaluating the evidence and drawing conclusions. At the higher level, you should draw together your judgments to form a new position. Critical thinking requires you to be more accurate and specific in noting what is relevant or not in your answers. You should read the question requirements carefully, identifying the key points in the context of the case and analysing what is required. A case scenario is a smaller question which embodies elements of a case study but ISSUE 117 | AIAWORLDWIDE.COM

STUDENTS ©Getty images/iStockphoto

How to allocate time to answer exam questions

addresses more limited and potentially less complex issues. Typically, it could be used in a shorter question or shorter series of questions. It can be used in a problem-solving way to resolve real life issues. Case studies and scenarios may be based on real or imaginary data. The allocation of marks to these types of questions vary – you should therefore refer to the syllabus overview for each paper. AIA has a list of recommended reading texts which provide advice on areas such as how to improve your study skills and critical thinking. AIAWORLDWIDE.COM | ISSUE 117

Generally, we would advise candidates to work out how long they have for each question depending on the marks. Refer to the syllabus “Structure of paper” for details on the assessment. If it is a three hour paper (excluding reading time), then that equates to 180 minutes or 1.8 minutes per mark (assuming 100 marks). Below is set out an example of how to approach a sample paper: Multiple choice questions

10 marks

18 minutes

Long question

40 marks

72 minutes

Short form questions

20 marks

36 minutes

Choice questions

30 marks

54 minutes

Total

100 marks

180 minutes

STUDENTS 40 mark question, you might possibly allow 62 minutes, plus 10 minutes for checking over and reading through your work (a total of 72 minutes). If after the time you have allocated for a question you are not finished, the general advice is to leave it and go on to the next question, coming back to it if you have time at the end of the test. How much time you allocate per question doesn’t depend on the level of the qualification – it depends on the marks allocated in the syllabus.

Tips on preparing for online exams

You can improve your success in online exams by implementing the following tips: ● Make sure that you prepare your exam environment. Most papers are closed book so your room should be free of other material and books. ● Take some time to relax before the exam. Be ready early before you need to login. ● Take a comfort break before you start. You are only permitted one during the exam. ● Remember to manage your time – there is an onscreen timer. ● If you experience technical difficulties, use the onscreen Chat Box to ask for assistance. ● Show all your workings in your answers, as correct parts will receive marks. Any workings shown in the onscreen Note Pad will not be marked. ● Practise your exam technique by answering practice questions. ● Be up to date on current accountancy issues, including the examinable standards. Put simply, all candidates have to do is multiply the marks by 1.8 to calculate the number of minutes to spend on any question. For example, for the paper “Financial Accounting and Reporting 2” at the Professional 2 Level, which is a three hour exam: ● Question 1 (Scenario) (40 marks): 72 minutes ● Questions 2, 3 and 4 (20 marks each): 36 minutes each for each question or a total of 108 minutes Some candidates make a small deduction for reading through and checking answers. You can also review answers you may have “flagged” by clicking on the “Navigation” button. For a

You should make sure you understand how to sit online exams. The Online Exams page on the AIA website provides key advice on how to sit the exams and how to make sure your computer is compatible. 10

©Getty images/iStockphoto

Practice questions

When answering “practice questions”, candidates should always try to undertake the questions as if under exam conditions. Initially, questions may take longer (and that is fine) but by the time candidates are ready for the exam they should try to replicate exam conditions. To monitor and improve your performance in the practice questions you should: 1. Check the model answers and review these answers against your responses. 2. Review tutor feedback you receive for graded practice questions and follow up recommendations. 3. Be reflective: consider any knowledge gaps you may have and refer back to the study texts and other recommended reading texts. 4. Consider additional revision sessions: review your study plan. 5. Request advice from the study support team or the tutor. We are here to help you improve. Time management is critical, and hence may not be so straightforward. You may, for example, be better using 15 minutes to start answering a new question rather than using that 15 minutes to polish up or finish an answer you have already written. Generally speaking, it is better to attempt each question, even if that means leaving some questions incomplete. It is always important to review your answers – this is key to producing a clear and well organised conclusion, especially for case study type questions. You should make sure you understand how to sit online exams. The Online Exams web page on the AIA website provides key advice on how to sit the exams and how to make sure your computer is compatible. There are specific rules for sitting online exams. Make sure you understand these – a useful first step is to try out the onscreen sample assessment. The Online exams web page provides key advice on how to sit online exams. You should also access this resource by logging in to My AIA: www.aiaworldwide.com ● ISSUE 117 | AIAWORLDWIDE.COM

CRYPTOCURRENCY

Poised to take centre stage Giorgio Vaselli and Lauren Rapeport explore the recent international tax and anti-money laundering developments on crypto assets. Giorgio Vaselli Special counsel, Withers Worldwide Lauren Rapeport Associate, Withers Worldwide

ryptocurrencies have been gathering pace ever since the second half of 2019, reaching a monumental breakthrough in the first quarter of 2021 when Bitcoin, the most representative crypto asset, exceeded an unprecedented valuation of approximately €50,000 (along with Ethereum, the second best crypto assets valuing up to approximately €1,600). Globally, crypto assets encompass more than 8,000 projects (where serious realities are flanked by sham projects) and are worth as much as one Google. Although crypto assets are still somewhat behind the scenes, and the tax and legal framework is still in the making, they are soon poised to take centre stage in the international business community, raising the attention of lawmakers and tax policymakers. Hence, investors and service providers should seize the opportunity to seek out the right tax and legal advice. From a wealth planning position, the considerable value of some crypto assets, along with an international legal context in the making, requires careful analysis of selected strategic areas including the following: ● anti-money laundering regulations (particularly with regard to EU jurisdictions); ● international exchange of information between tax administrations; and ● international taxation. Due to the changing face of the crypto assets reality, lawmakers are attempting to pin down certain procedures aimed at increasing the level of transparency on this market. As of today, antimoney laundering (AML) regulations represent the first steps to achieving a standard of practice.

ISSUE 117 | AIAWORLDWIDE.COM

CRYPTOCURRENCY

Anti-money laundering developments

In general terms, the threat posed by the cross‑border flexibility of cryptocurrency transactions stems from the fact that, differently from traditional money, users do not need any professional intermediary to intervene. This is where traditional AML policies and the blockchain technology that underlies cryptocurrencies collide as the AML legal framework focuses on intermediaries, who seek to identity suspicious transactions through the customer due diligence procedures. Considering that the pseudo-anonymity of cryptocurrencies may pave the way for their potential misuse for criminal purposes, in 2018 the fifth EU anti-money laundering directive introduced, for the first time, specific provisions aimed at monitoring the use of “virtual currencies”. (Money laundering is just one type of crime associated with cryptocurrencies. Another associated crime is ransomware, which occurs when criminals lock access to a computer or data until the target pays for getting access back: such payment is often demanded in cryptocurrencies.) In detail, EU resident and established providers engaged in exchange services between cryptocurrencies and fiat currencies, as well as custodian wallet providers, have been subject to the standard AML obligations that include customers’ identification procedures and the obligation to identify suspicious activity for AML purposes. Custodian wallet providers are defined as “an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies”. To this end, cryptocurrencies fall within a rather broad new definition of “virtual currencies” introduced in the EU AML directive: “…a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted ... as a means of exchange and which can be transferred, stored and traded electronically.”

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©Getty images/iStockphoto

Lawmakers are attempting to pin down certain procedures aimed at increasing the level of transparency on the crypto assets market.

However, anonymity looks set to stay for a fair share of transactions without currency exchange service providers and custodian wallet providers. In order to tackle the misuse of cryptocurrencies: ● EU states are required to ensure that the abovementioned players are duly registered and should consider the possibility to allow users to self-declare to designated authorities on a voluntary basis; and ● by January 2022, the EU Commission should propose, where appropriate, empowerments

CRYPTOCURRENCY to set up and maintain a central database registering users’ identities and wallet addresses accessible to FIUs, as well as self-declaration forms for the use of “virtual currency” users. The amendments provided by the fifth EU AML directive have a limited scope, as they do not specifically address all types of crypto assets (but only cryptocurrencies) and do not cover cryptoto-crypto exchangers. (Some EU members, such as Italy, have implemented in their domestic legislation a broader definition to include cryptoto-crypto exchangers.) Nonetheless, a new update of said directive should be discussed in 2021. From an investors’ standpoint, the expanding AML legal framework is an inevitable development that should be welcomed as an opportunity to increase and facilitate circulation of cryptocurrencies in order to bridge the existing gap between the latter (still qualifying as barter or reciprocal transactions, particularly for tax purposes internationally) and fiat currencies (which are a legal means of payment). Looking ahead, investors and holders of cryptocurrencies, as well as the above-mentioned service providers, should seek legal advice to address AML to enhance their potential profitability arising from their trading activities. Internationally, it is noteworthy to mention that some banks have started to update their policies relating to cryptocurrency holders, considering whether to fully or partially cash out their investments and switch to traditional finance. Specific protocols dedicated to the most popular cryptocurrencies and exchangers are already in place. Indeed, in this respect, a key role is played by the supporting documents showing the source of funds and the transaction history confirming the increase of cryptocurrency amounts and values in the hands of an investor. The biggest exchangers and wallet providers have already implemented client due diligence procedures based on high standards available; and support their customers with personalised services to document the transactions history for the above purposes. Such developments in AML regulations are bound to affect other strictly related practice areas, such as the international agreements and directives on the exchange of information between tax administrations. It is noteworthy that at EU level, member states are required to allow their respective tax authorities to access the information and documents collected for AML purposes pursuant to the EU AML directive and to share the same with the competent authorities of other EU member states (see Directive 2016/2258/EU (known as “DAC 5”)).

International exchange of information between tax administrations (CRS)

The great variety of players and trading platforms actively involved in the transfers of crypto assets, and the quasi-financial nature of the latter (with

The expanding AML legal framework should be welcomed as an opportunity to increase and facilitate the circulation of cryptocurrencies.

particular regard to cryptocurrencies) is raising an important debate on whether the same should fall within the scope of the international automatic exchange of financial information between tax administrations. From 2016, the so-called “common reporting standard” (CRS) developed by the OECD provides an international framework and standards for countries to gather and exchange information with respect to foreign financial accounts. The purpose is to increase global tax transparency and efficient tax administration. CRS was inspired by the Foreign Account Tax Compliance Act (FATCA), which is the first system of automatic exchange of financial information globally implemented by US in 2010 on a bilateral basis. In essence, under CRS, selected financial institutions are required to report information to the tax administration in the jurisdiction in which they are located. The information consists of details of financial assets they hold on behalf of non-resident taxpayers and the income derived therefrom. The tax administrations then exchange that information with the jurisdiction(s) of residence of the taxpayer (see OECD’s 2018 CRS Implementation ). Lacking clear guidelines from the OECD, it is uncertain whether the current legal framework allows us to consider exchanges, trading platforms and wallets providers (and alike) as akin to financial institutions required to apply CRS regulations (in the same manner that CRS applies to other foreign financial accounts). Despite this uncertainty, some service providers, out of an abundance of caution, have already started to request details from clients and users that are relevant for CRS (and FATCA), such as personal identifying information. International bodies are keen on giving a prominent role to intermediaries to provide states’ tax administrations with reliable and timely information on transactions involving crypto assets. In the light of the recent developments on the anti-money laundering legislation (also supported also by a clear stance taken by the Financial Action Task Force on money laundering), the OECD recently remarked that it is opportune to consider the manner and extent to which this sector should be covered by the CRS, given that the anti-money laundering/know your client documentation is a cornerstone of the CRS due diligence procedures. Moreover, on July 2020, the EU Commission officially announced that in 2021 it will endeavour to update the directive on administrative cooperation to cover crypto assets and e-money. A public consultation (from March 2021 to June 2021) was launched accordingly to help the Commission determining whether an EU legislative initiative is needed to target tax revenue losses due to the underreporting of income/revenues generated by crypto assets and e-money. In this respect, the public consultation states that there is a risk of under-reporting or no reporting of taxable income, leading to a loss of tax revenues, and possibly distorting competition ISSUE 117 | AIAWORLDWIDE.COM

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simple cryptocurrency-to-cryptocurrency or cryptocurrency-to-fiat cryptocurrency exchanges (pairs) to derivative-like transaction and token trades).

with traditional financial instruments which could also have the potential of becoming a vehicle for the shadow economy. In such context, the CRS seems likely to be expanded to crypto assets. The tax and legal implications of the upcoming developments should be considered accordingly in light of the substantial volume of information that could henceforth become available to the tax administrations of the CRS participation countries.

Moving forward

Taxation

As things currently stand, the taxation of income or gains arising from crypto assets remains a matter of the national tax law of each state authority and more generally is still an uncharted territory. Internationally, a first official attempt to shed some light on the approaches taken by states with regard to the taxation issues concerning crypto assets was carried out by the OECD. In detail, on October 2020, the OECD issued an overview of the tax treatment and emerging tax policies based on the responses to a questionnaire filled in by more than 50 countries concerning the definitions of cryptocurrencies for tax purposes and key taxable events under income taxes and VAT. The survey addressed several areas of taxation, including income tax and value added tax. For income tax purposes, according to the survey, taxable events (across the participating countries) include: ● the creation of cryptocurrencies (a small number of countries indicated that the first taxable event would occur on disposal, with a cost basis of zero); and ● the exchange of the same with fiat currencies, other cryptocurrencies or goods/services (transactions range from AIAWORLDWIDE.COM | ISSUE 117

In many countries, the tax treatment of transactions in cryptocurrencies also varies depending on the status of the taxpayer (if arising outside of a business activity, it is generally characterised as capital gain or other income). As of today, regulators and competent authorities have barely addressed the tax implications of decentralised finance. For value added purposes, an important role was played by the European Court of Justice. In the case of Hedqvist (Case C-264/14), it issued the first decision of the VAT treatment of certain services concerning cryptocurrencies (in particular as VAT exempt services). In a nutshell, according to the OCED survey, the exchange of cryptocurrencies (with other cryptocurrencies or fiat currencies) is generally exempt and the use of cryptocurrencies to acquire goods or services is outside the scope of VAT; however, the supply of taxable goods and services paid with cryptocurrencies remains subject to VAT as appropriate.

The taxation of income or gains arising from crypto assets remains a matter of the national tax law of each state authority and is still an uncharted territory.

The current uncertain tax treatment of crypto assets (and more specifically incomes arising from the investment in cryptocurrencies) is compelling entrepreneurs and investors to identify those jurisdictions whose tax system can already grant an acceptable degree of certainty and protection. Lacking best practices and clear international tax guidelines, investors’ approaches may vary substantially, depending on personal circumstances and needs. One instance is “bullish” investors who are interested in stability, discretion and adequate asset protection, while those intending to cash out their investments are in the quest of favourable tax regimes available to them. In such context, the tax competition among EU and non-EU jurisdictions is at the get-go stage and clear guidelines and regulations could eventually mark the difference in international wealth planning projects involving crypto assets.

The Italian case

As concerns Italy, as of today, crypto assets have been regulated at two speeds. On the anti‑money laundering side, Italy was amongst the early implementers of EU Directives. Accordingly, cryptocurrency exchanges and service providers are subject to the standard customer due diligence and related reporting duties on suspicious transactions. On the tax side, only a few official guidelines have been issued on selected areas and investors may only rely on some (un)official tax rulings of 2018 based on which cryptocurrencies are to be deemed as akin to foreign currency (going even further than the findings of the aforementioned ECJ’s Hedqvist decision on VAT). Accordingly:

CRYPTOCURRENCY

HMRC was one of the first tax authorities to issue guidance on crypto assets, albeit very basic guidance, as early as 2014.

● Proceeds arising from “speculative” exchanges between cryptocurrencies or from cryptocurrencies to fiat currencies should be subject to the standard rules applicable to income arising from trades of foreign fiat currencies (i.e. subject to a flat 26% substitutive tax for Italian resident individuals/ non-commercial entities and to the standard corporate income tax for Italian resident/ established entities). Tax authorities consider there is speculative activity if, during the fiscal year and for at least seven consecutive days, the threshold of ownership of cryptocurrencies exceeds €51,645.69. Similar rules apply to proceeds arising from trades of utility tokens. ● The “market value” of cryptocurrencies is to be annually reported as if the same assets are held abroad by Italian resident individuals/ non-commercial entities. (The omission is potentially subject to a penalty ranging from 3% to 15%). A few practitioners have criticised such an approach, considering it highly inconsistent with the key features and the inner nature of cryptocurrencies. In effect, the Italian standard tax rules applicable to the fiat currency are not fit for cryptocurrencies, which are extremely volatile, far from being generally accepted as means of payment and often hard to convert to the fiat currency (due to money laundering concerns). Eventually, this could result in a burdensome taxation on an accrual basis rather than on a cash basis (as it is instead for fiat currencies). In this respect, the aforementioned OECD’s survey of October 2020 also suggests that excluding exchanges between different types of virtual currencies from income tax consequences may also ease compliance requirements, while still ensuring that gains are taxed when tokens are converted into fiat currency or used to purchase goods and services. Others highlighted that Italian annual reporting duties (generally applicable to assets held abroad) are in contrast with the nature of crypto assets, which cannot be located in a specific jurisdiction. Moreover, some authors pointed out that no tax reporting obligations should arise if an Italian tax resident holds the private key in a cold wallet physically located in Italy. Nonetheless, as things currently stand, new Italian tax residents holding cryptocurrencies may consider assessing the potential benefits available to their specific case under the so-called “new residents tax regime”. In detail, pursuant to such regime: ● Italian-source income and gains are taxable in the usual way; ● foreign income and gains are sheltered from Italian taxation; ● foreign assets are neither subject to the standard reporting duties nor to Italian inheritance and gift tax (as well as property taxes); and ● no remittance taxation mechanisms apply.

The main conditions to benefit from this regime are that the new resident: ● has not been Italian tax resident for the last nine out of 10 years (before the relocation to Italy); and ● pays an annual charge of €100,000 (which can be increased by €25,000 per each family member relocating with them to Italy under the regime). Hence, the Italian tax authorities’ current approach (also confirmed in their reply to the OECD’s survey issued in October 2020) may have opened the door to possible wealth planning strategies valuable at an international level.

The UK case

HMRC was one of the first tax authorities to issue guidance on crypto assets, albeit very basic guidance, as early as 2014. Since then, fuller guidance has been provided in respect of both individuals and businesses, first in 2018 (updated in 2019 to include much-needed commentary on the location of crypto assets) and most recently in late March 2021, as a formal manual, suggesting the increased frequency with which HMRC is now encountering these assets. The latest research by the UK’s Financial Conduct Authority found that approximately 4% of the UK population are invested in crypto assets of any kind, with the majority of retail investors viewing them as a speculative investment. From a tax perspective, the status of crypto assets in the UK has long been as an asset rather than as a currency (in contrast to Italy), following the Bank of England’s view that crypto assets do not bear any of the hallmarks of money. Initially, HMRC ISSUE 117 | AIAWORLDWIDE.COM

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CRYPTOCURRENCY

considered that investing in crypto assets could be sufficiently speculative as to constitute gambling, the proceeds of which are not subject to tax in the UK. However, in 2018, this position was reversed. Crypto assets are primarily taxed on the occurrence of a disposal, which includes crypto to fiat trades, crypto to crypto trades, using crypto assets to pay for goods or services, and gifts. HMRC confirms that no disposal will occur where an individual simply moves his or her crypto to a different wallet without the ownership of the tokens changing hands. In most cases, these disposals will be subject to capital gains tax at 10% or 20% on any gain made, taking into account the sterling value of the token being disposed of at the date it was acquired and the sterling value of the token it is being exchanged for, if not fiat currency. However, if the taxpayer is buying and selling crypto assets in the nature of a trade (e.g. if the trades are sufficiently frequent or carried out with sufficient expertise), then income tax may be levied on the profits instead, at up to 45%. Crypto assets are also within the scope of inheritance tax (0% on an individual’s available “nil rate band” amount, currently £325,000, and 40% on any value above this). Where jurisdictional issues come into play, the position is more complex due to the decentralised, virtual nature of most crypto assets. If there is no asset underlying a token that is capable of identification under existing rules (e.g. property, securities, art, gold), as is the case with exchange tokens such as Bitcoin, HMRC will treat an individual’s crypto assets as located in the UK as long as that individual is UK tax resident. Conversely, where a token is underpinned by an existing class of asset, whether tangible or AIAWORLDWIDE.COM | ISSUE 117

intangible, then the usual rules applying to the location of that asset will apply to the token. Accordingly, the manner in which an individual stores crypto (e.g. through a wallet or via an exchange) is largely irrelevant to the determination of where it is situated for tax purposes. This rule represents a planning point for UK resident individuals with a foreign domicile holding crypto, particularly those claiming the remittance basis of taxation (whereby one can keep non-UK assets outside of the UK tax net, paying a charge of between £0 and £60,000 per year depending on the duration of residence). Unless they transfer their crypto assets to another person or structure, a remittance basis user’s crypto assets will be within the UK tax net, regardless of whether they access them from the UK or benefit from them in any way. A UK resident with a foreign domicile (even if not claiming the remittance basis) holding crypto assets directly will be within the scope of UK inheritance tax as a UK sited asset. Foreigners living in, or moving to, the UK with significant interests in crypto or with plans to invest in crypto going forwards should seek tax advice to ensure that they are able to plan around their crypto assets effectively. From a reporting perspective, the UK has also implemented the fifth anti-money laundering directive discussed above, and is highly likely to adopt new measures going forwards to counter money laundering risks as this area develops.

Conclusions

Author bio

Giorgio Vasellie is special counsel in the Italian Private client and tax team at Withers Worldwide.

Author bio

Lauren Rapeport is an associate in the private client and tax team at Withers Worldwide.

The swift and exponential development of crypto assets as investment assets and their potential applications in several economic sectors has been gathering pace over the last years. However, experts and economists are still divided between those who believe that crypto assets are here to stay for long and those who still consider them a form of financial bubble. Lawmakers and regulators of the vast majority of countries are in the process of reviewing the existing legal framework and considering possible updates in different areas of law. Intergovernmental bodies are constantly monitoring this phenomenon on a global scale to tackle the misuse and abuses and highlight the potential risks for investors’ savings. In this context, considering the large values accrued by cryptocurrencies (i.e. the most common type of crypto assets currently available), it is the right time for entrepreneurs and investors to start reviewing their businesses and investment from a legal standpoint in order to cope with the developments in terms of compliance, reporting and taxation that are likely to occur in the near future on a global scale. In detail, anti-money laundering, international exchange of information and taxation are interconnected fields of law that need to be addressed consistently. On the tax side, a clear legal framework may eventually pave the way for legitimate tax planning opportunities to be carefully considered. ●

ARTIFICIAL INTELLIGENCE

The revolution is nigh ©Getty images/iStockphoto

Chris Downing considers the financial revolution that awaits us all when accountants harness the powers of artificial intelligence. Chris Downing Director of Product Marketing, Sage

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“computer” hasn’t always been the electronic screen we spend much of our working day glued to. Before the rise of electronic machines, computers were humans employed to perform long and tedious mathematical calculations. Today, however, everyone recognises computers as machines that augment our work and perform many of the tasks our parents had to complete manually. The last generation of human computers, meanwhile, became some of the earliest programmers and computer experts. This shift in perspective is important today, as it’s exactly what’s happening in finance regarding artificial intelligence (AI). Many of the slow, manual and error-prone processes currently performed by accountants will soon be automated by AI software and systems. In fact, it’s already happening. This will redefine the role that humans play in the world of finance and business at large. These powerful AI solutions have been made possible by the ever-growing quantity of financial data available in the Cloud, accessible from anywhere and on any smart device. Indeed, it’s estimated that half of all data will live in the Cloud by 2025, but this could be accelerated even faster due to the pandemic. This will enable accounting and finance professionals to progress from depending on monthly or yearly cycles, and move towards continuous, real-time practices in accounting, trust and insights.

Closing the close process

For many years, accountants have struggled to minimise the closing process, whether monthly, quarterly or annually. Expected to meet strict standards and under high pressure, accountants have expended valuable time and resources on the process down the years. Yet with the power of AI at last, the industry is on the verge of eliminating the manual close process for good. To facilitate this, companies first need to capture all business activity in real time. They then have to transition to continuous reconciliation. The final step is to train AI to make continuous adjustments as the business environment evolves. Accruals, allocations and other period-end adjustments should occur automatically and continuously. In this manner, virtually every business day is a closing day where systems capture, reconcile and adjust transactions in real time. AI can facilitate this in a variety of ways, including tools and technologies that automatically capture and code data (such as travel and entertainment charges and invoices), smart reconciliation engines and intuitive conversational interfaces. This is all underpinned by machine learning models that grow smarter over time through use.

Continuous assurance

Just as accounting moves into an ongoing, real-time process, we will similarly see audit and assurance evolve into a continuous activity. AIAWORLDWIDE.COM | ISSUE 117

ARTIFICIAL INTELLIGENCE Fundamentally, the heart of all financial activity is trust. Key stakeholders, including investors, bankers and regulators, trust that finance teams will not only be compliant, but also provide guidance grounded on accurate insight and information. The continuous auditing process starts with continuous detection. This is only possible when we leverage AI’s ability to detect and report irregular activity in real-time across vast quantities of data. Rich data sets and powerful cloud computing allow firms to build machine learning models that learn how to understand accounting transactions and detect anomalies to expose inaccurate, non-compliant or even fraudulent activity. This is especially useful given that 10% to 20% of journal entries typically need adjustment when added to general ledgers. Organisations can then capitalise on new graphical user interfaces that help users to review and make intelligent decisions when AI flags irregularities. As users and AI technology learn to work together on continuous auditing, accountants can improve their controls and assurance models to minimise exceptions. With AI working on continuous accounting and continuous trust, accounting and finance teams are free to focus on more strategic activities. This is perhaps the most exciting advantage AI can provide – elevating the work of professionals from repetitive tasks to creating strategic value for the future. AI augments employee value – it can increase team productivity by 40% when it’s deployed.

Known unknowns

AI helps us to identify unknowns by making more accurate predictions about the future. Armed with this insight, professionals will ultimately make smarter decisions and be more comfortable taking decisive action. The real advantage is that AI never sleeps; it continuously watches activities, identifies exceptions and patterns, and posts an alert when it foresees sudden or unexpected changes. For most companies, forecasting is a very intensive process, and as a result, it’s only feasible to get a reasonably accurate forecast a few times a year. But with AI powered forecasting, they gain unprecedented speed without compromising accuracy. They also know when the forecast changes in real time and can understand the factors affecting the change. This allows businesses to reallocate resources to capitalise on opportunities, respond to previously unseen threats and secure a better outcome. As finance and accountancy teams integrate AI into their daily workflows, they’ll be able to rise from their traditional back-office role to one that is at the forefront of the business. AI opens up the potential for true organisational leadership, driving efficiency, ensuring trust and revealing future unknowns. Teams and organisations that embrace and harness AI’s power will gain a new voice and a 360° view of the business. ●

Author bio

Chris Downing is Director of Product Management for Accountants and Bookkeepers at Sage.

ANTI-MONEY LAUNDERING

An Irish update David Potts reviews the impact of the latest anti-money laundering regulations in the Republic of Ireland. David Potts Director of Operations, AIA

ccountants in the Republic of Ireland are key gatekeepers for the financial system, facilitating vital transactions that underpin the Irish economy. They play an important role in keeping citizens and society safe from money laundering and terrorist financing and have a significant role to play in ensuring that their services are not used to further a criminal purpose. Accountants’ day-to-day work will be affected by the new regulations, which respond to public calls to counter terrorist financing and address significant lack of beneficial ownership transparency, as well as acting to implement the EU Fifth Anti-Money Laundering Directive. Whilst many of the changes will not directly affect accountancy firms in Ireland, such as an expansion of the scope of the regulated sector, there are key areas that firms and individuals must address in their policies and procedures; namely, changes to due diligence regulations and high-risk factors.

New legislation

On 22 April 2021, the Minister for Justice in the Republic of Ireland signed a commencement order in respect of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2021. The Act amends the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 2010 Act) and transposes the Fifth Anti-Money Laundering Directive into Irish law. Although the Act transposes most of the new elements of Fifth Anti-Money Laundering Directive, regulations outline in more detail requirements in respect of the register of beneficial ownership of express trusts, which amend the 2010 Act s 35, and in respect of prominent public functions under s 37(12).

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ANTI-MONEY LAUNDERING

Virtual asset service providers

The anti-money laundering (AML) regulatory regime has been extended to financial and credit institutions acting as virtual asset service providers and providing the following services: ● exchange between virtual assets and fiat currencies; ● exchange between one or more forms of virtual assets; ● transfer of virtual assets from one virtual asset address or account to another; ● custodian wallet providers; and ● participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset.

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Firms providing virtual asset services are now classed as “designated persons” for the purposes of the 2010 Act and are required to comply with anti-money laundering/ combating the financing of terrorism (AML/ CFT) obligations, including: carrying out a firmwide risk assessment; undertaking customer due diligence; carrying out ongoing client monitoring; and filing suspicious transaction reports. New and existing virtual asset service providers are required to register with the Central Bank of Ireland (CBI) for AML/CFT purposes, with existing providers having three months from the date of commencement to register. For the CBI to approve an application for registration, it must be satisfied that: ● the firm’s AML/CFT policies and procedures are effective in combating the money

ANTI-MONEY LAUNDERING laundering and terrorist financing risks associated with its business model; and ● the firm’s management and beneficial owners are “fit and proper”. The CBI will maintain a Register of Virtual Asset Service Providers. It has been granted supervisory powers in terms of the beneficial ownership of virtual asset service providers, including placing a restriction on the acquisition of beneficial interest in providers without prior approval of the CBI in writing.

Additional changes to designated persons

The 2010 Act creates three new additional “designated persons” required to apply AML measures during their business and undergo supervision by an appropriate body: ● letting agents (in respect of transactions for which the monthly rent is at least €10,000); ● high-value art dealers and intermediaries (in respect of transactions of at least €10,000 in value); and ● tax advisers (the scope of persons who fall within the definition of tax advisor is extended to include “any other person whose principal business or professional activity is to provide, directly or by means of other persons to which that other person is related, material aid, assistance or advice on tax matters”).

Beneficial ownership: new obligations

Prior to the establishment of a business relationship with a customer, a designated person is required to ascertain that information concerning the beneficial ownership of a customer is entered in the relevant beneficial ownership register. (These comprise an entity’s express trust register; the Central Register of Beneficial Ownership of Companies and Industrial Provident Societies; and the Central Register of Beneficial Ownership of Irish Collective Asset‑management Vehicles, Credit Unions and Unit Trusts.) A designated person must not engage in a business relationship until the beneficial ownership information is obtained (unless the designated person is a financial institution). A financial institution may open an account ahead of obtaining the information but cannot allow any transactions to occur. Where the beneficial owner is recorded as being a senior managing official, a designated person will be required to verify the identity of that person, keep records of the steps taken and record any difficulties encountered in the verification process.

Beneficial ownership: express trusts

The 2010 Act prepares for new regulations on the beneficial ownership of express trusts, providing for certain definitions, including for “relevant trust”, subject to the regulations, and “excluded arrangements” (such as pension schemes, retirement funds and employee share schemes) which are exempted.

Politically exposed persons

The definition of a politically exposed person has been broadened by the 2010 Act to include ‘any individual performing a prescribed function’.

The definition of a politically exposed person has been broadened by the 2010 Act to include “any individual performing a prescribed function”. The Minister for Justice is empowered to issue guidelines in respect of functions considered to be “prominent public functions”. The initial broad scope of the proposed AML measures meant that this section of the 2010 Act was one of the most debated in the Oireachtas (the Irish national parliament), with many TDs and senators expressing their dissatisfaction with the proposed wording for politically exposed persons. However, enhanced customer due diligence measures apply to a politically exposed person’s family members and “close associates” and EU member states do not have discretion in how these measures are applied. The Irish government agreed to the insertion of a sub-section permitting the minister to issue guidelines “for the purpose of facilitating the consistent, effective and risk-based application of this section”. The 2010 Act also permits a designated person to continue monitoring someone who was previously a politically exposed person “as long as is reasonably required to take into account the continuing risk posed by that person and until such time as that person is deemed to pose no further risk specific to politically exposed persons”. More information on establishing whether clients should be classed as politically exposed persons, and subjected to enhanced due diligence, is available on AIA’s AML hub online and the latest AML webinar recorded on 3 June 2021.

Extension of triggers to conduct customer due diligence

The 2010 Act extends the triggers for conducting customer due diligence to include any time that a designated person is required “by virtue of any enactment or rule of law” to contact a customer for the purposes of reviewing information relating to the customer’s beneficial owners.

Enhanced customer due diligence for high-risk third countries

The 2010 Act provides a list of enhanced customer due diligence measures, which a designated person is required to apply when dealing with a customer established or residing in a high-risk third country. These involve obtaining “additional information” on the customer, beneficial owner(s), their sources of wealth, the intended nature of the business relationship, and completed or intended transactions. A designated person is also required to obtain senior management approval for establishing or continuing such a business relationship and to conduct enhanced monitoring “by increasing the number and timing of controls applied and selecting patterns of transaction that need further examination”. ISSUE 117 | AIAWORLDWIDE.COM

ANTI-MONEY LAUNDERING Examination of background and purpose of certain transactions In an amendment which is focused on the financial services industry more than the accountancy sector, the 2010 Act introduces a relaxation of the requirement for designated persons to examine the background and purpose of transactions which are complex or unusually large by providing that a designated person shall do this “as far as possible”.

Low and high risk factors

Schedule 3 of the 2010 Act (low risk factors) has been amended to qualify that the specified geographical risk factors – suggesting a lower risk of money laundering and terrorist financing – refer to the place of registration, establishment and/or residence of the entity/client. Schedule 4 (high risk factors) has been amended to include additional red flags for identifying transactions that pose a higher risk of money laundering and terrorist financing.

Limiting the “tipping off” defence

The 2010 Act limits the “tipping off” defence for disclosure to those specified persons who can prove that the disclosure was made to either: ● a credit institution or financial institution incorporated in a member state, where both the institution making the disclosure, or on whose behalf the disclosure was made, and the institution to which it was made belonged to the same group; or ● a majority-owned subsidiary or branch, situated in a third country, or a credit institution or financial institution incorporated in a member state and where the subsidiary or branch was compliant with group-wide policies and procedures, including procedures for sharing information within a group. Prior to this amendment, the defence could be applied in group situations where the institution to which the disclosure was made was “situated in a member state or a country other than a high-risk third country”. The institution must now be incorporated in a member state for this group exemption from disclosure rules to apply.

Financial Intelligence Unit feedback

The 2010 Act requires the Financial Intelligence Unit to “provide timely feedback” to a designated person, “where practicable” in respect of suspicious transaction reports made to them.

Breaches within competent authorities

A new section requires each competent authority to establish “effective and reliable mechanisms” to encourage the reporting of potential and actual breaches of the 2010 Act. These mechanisms include the provision of “one or more secure communication channels” for such reporting, which can also be used by persons “to report any threats or retaliatory AIAWORLDWIDE.COM | ISSUE 117

or hostile actions they are subjected to for reporting suspected breaches”. AIA maintains an anonymous whistleblowing channel to receive AML disclosures at: www.aiaworldwide.com/make-a-complaint

Co-operation with member state competent authorities

The European Union (Money Laundering and Terrorist Financing) Regulations 2019 inserted a new section into the 2010 Act requiring competent authorities to take “necessary steps” to co-operate with competent authorities in other member states. The 2010 Act clarifies that co-operation with member state competent authorities may include the sharing of information where it is not prevented by law; and that the provision of assistance must not be refused on the basis that the information involves tax matters, requires the competent authority to maintain secrecy or confidentiality or that there is an inquiry, investigation or proceeding underway.

Appeal Tribunal

The 2010 Act now allows for the establishment of a permanent Appeal Tribunal and outlines how the tribunal is to be constituted, how members are to be appointed and removed, and the conditions of appointment.

Electronic money and anonymous safe deposit boxes

The 2010 Act lowers the value limit for carrying out customer due diligence on e-money instruments (such as pre-paid cards) from €250 to €150. Additionally, it removes the €500 limit exemption for domestic electronic payment instruments, reduces the cash redemption limit from €100 to €50 and adds a new requirement that a transaction cannot exceed €50 if initiated via a remote payment transaction. The 2010 Act also makes it an offence for a credit institution or financial institution, acting as an acquirer, to accept a payment carried out with an anonymous prepaid card issued in a foreign state that does not fall within the exemptions. The existing prohibition on credit or financial institutions setting up anonymous accounts or passbooks is extended to safe deposit boxes.

Guidance and support

As a money laundering supervisory body, AIA understands that compliance can be time consuming, costly and confusing. We provide extensive guidance and support for members so we can work together to tackle economic crime and reduce the risk to you and your business. ● For additional AML guidance, including CPD webinar recordings, see: www.aiaworldwide.com/my-aia/aml. Access the amended 2010 Act at: www.irishstatutebook.ie/ eli/2021/act/3/enacted/en/html

Author bio

David Potts is the Director of Operations at the Association of International Accountants (AIA).

INTERNATIONAL TAX

The impact of Brexit Mark Taylor considers the impact that Brexit has played on international tax issues and the changes to taxes for multinationals. Mark Taylor International Tax Leader, Kreston International

ollowing the United Kingdom’s exit from the European Union on 31 January 2020, the EU-UK Trade and Cooperation Agreement (TCA) was finally delivered on 30 December 2020 to govern the future relationship between the UK and EU. This agreement was signed one day before the end of the transition period, after which the UK would have left the EU with no deal. Many uncertainties in the nature of this agreement remained during the transition period, which significantly reduced the time businesses had to plan for the new rules. The most urgent considerations were in terms of import/export procedures, customs duties and VAT to ensure that cross-border trading activities could continue. Now we have passed the first quarter post‑Brexit, it is worth reviewing the changes to other taxes for multinationals.

Withholding taxes

Author bio

Mark Taylor is the International Tax Leader at Kreston International and the firm’s representative with the Kreston International network.

Many countries withhold tax on the payment of interest and royalties and dividends paid from one country to another. Under the EU Interest and Royalties Directive, EU companies benefited from an automatic exemption from withholding taxes on payments of dividends, interest and royalties. The UK brought these rules into its own domestic law, but is due to repeal them from 1 June 2021. From that date, the requirement to withhold taxes on cross-border payments within the EU reverts to the treatment agreed in double taxation treaties. The individual tax treaty between the UK and the payer/recipient country must now be reviewed to confirm any requirement to withhold taxes. In certain cases, withholding taxes may now arise due to the automatic exemption no longer being available. In these cases, a review of the group structure and flow of funding should be carried out to ensure that the business is not negatively impacted by these changes.

Specific areas to review on withholding taxes include withholding taxes imposed by EU countries on dividends to UK parent companies. There is generally no tax on dividends received by UK companies and therefore this can represent a real cost for groups. For interest and royalties, these will usually be taxable income in the UK. Hence, if tax is withheld by a paying country, double taxation relief may be available (subject to the treaty). Where the treaty does not provide for double taxation relief, the UK company may be able to obtain a deduction for the withholding tax suffered as an expense.

State aid and subsidies

The UK, while a member of the EU, was subject to EU wide state aid rules which prevented state aid being provided to UK companies in certain circumstances. From a corporate income tax point of view, this impacted numerous UK government tax incentives including research and development (R&D) tax credits and tax favourable share option schemes; e.g. enterprise management incentives (EMI). Given that the EU state aid rules no longer apply to the UK, these rules have been replaced by “subsidy control” rules in the TCA. The result is that the UK is now free to set its own policies on subsidy control, albeit there is a declared commitment in the TCA to a “level playing field for open and fair competition”. The UK government has already announced consultations on the possible reform of both the R&D and EMI schemes.

Anti-avoidance

The UK has already affirmed its commitment to continuing with the base erosion and profit shifting ISSUE 117 | AIAWORLDWIDE.COM

INTERNATIONAL TAX Social security

Role of the European Court of Justice (CJEU) The UK will no longer be bound by decisions reached at the CJEU level. Previously, these decisions resulted in many amendments to UK tax legislation; for example, group loss relief rules and anti-avoidance. Therefore, while future CJEU cases may carry influence in the UK, the court’s decisions will no longer be binding in UK law. AIAWORLDWIDE.COM | ISSUE 117

While the immediate impact of Brexit was in relation to VAT and customs, there are many areas where direct taxes will be affected.

It is clear from the Protocol that social security between the EU and the UK has changed significantly and advice should be taken to understand the full implications of these changes.

Summary

While the immediate impact of Brexit was in relation to VAT and customs, there are many areas where direct taxes will be affected, in some cases significantly. The effect of the changes is not limited to companies operating in the UK or EU and can impact the rest of the world, in some cases making the UK considerably less attractive as a distribution hub for the EU. Multinational companies trading with the UK or EU should review their direct taxes as soon as possible to identify any areas where Brexit has created problems or unexpected tax consequences. ●

(BEPS) project driven by the Organisation for Economic Co-operation and Development (OECD). The BEPS project is a collaboration of over 135 countries aiming to put an end to tax avoidance strategies which exploit gaps and mismatches to avoid paying tax. The OECD estimates that $240 billion is lost annually due to tax avoidance by multinational companies. Internationally focused tax avoidance legislation will therefore remain a pillar of the UK tax system. While still committed to BEPS, the UK can now implement its own policies and is no longer required to follow EU directives. An example of where the UK is already diverging from agreed EU rules is DAC6, which is an EU directive requiring taxpayers and intermediaries (e.g. lawyers, accountants and tax advisers) involved in tax “arrangements” to disclose these to their local tax authorities. The UK government announced that it will no longer participate in this regime, instead choosing to implement a lighter reporting regime based on the OECD’s mandatory disclosure rules set out in BEPS Action 12. This means that only cross‑border arrangements fall under the Category D Hallmark; broadly, arrangements will only be reportable if they have the effect of circumventing the OECD’s common reporting standard or obscure beneficial ownership.

The Withdrawal Agreement regulated social security between the EU and the UK from 1 February 2020 until 31 December 2020. This made it possible for persons in a cross-border situation to continue to benefit from the more generous social security coverage under the EU Regulation for coordination of social security systems in the EU (“the European Regulation”). From 1 January 2021, the TCA includes a Protocol on Social Security Coordination (“the Protocol”). The Protocol ensures that individuals who move between the UK and the EU after 1 January 2021 will continue to have access to reciprocal healthcare cover and that cross-border workers and their employers are only liable to pay social security contributions in one state at a time. Generally, this will be in the country where work is performed. According to the Protocol, it should be possible to obtain a certificate confirming the country of insurance for multi-state workers and detached workers (if applicable). Employers must register with the appropriate foreign authorities to remit employee and employer contributions on a monthly basis according to domestic legislation. The coordination rules from the Protocol are generally the same as the rules as laid down in the European Regulation on social security. However, there are some important differences: ● First, the European Free Trade Agreement countries (Iceland, Norway, Liechtenstein and Switzerland) do not fall under the Protocol. ● Secondly, the Protocol does not provide for an extension for assignments beyond 24 months. Under EU Regulations, extensions of up to five years were possible. ● Lastly, it important to note that the Protocol does not apply the same scope of social security as the EU Regulation. The Netherlands have, for example, decided to not include all parts of the Dutch social security scheme under the Protocol; the Long Term Care Act and family benefits, such as child benefits are excluded.

CYBER CRIME

Moving towards electronic verification Martin Cheek considers the new EU roadmap to combat cyber crime, including a greater reliance on digital solutions and electronic verification. Martin Cheek Managing Director, SmartSearch

Accountants are on the front line of defence against money laundering and have an obligation to do more to prevent it. 26

ank robberies and diamond heists may make for great movie nights but, in reality, organised crime is increasingly going digital with criminals swapping balaclavas for laptops as tools of the trade. An estimated 80% of crimes now have a digital component, and the cleaning of the illicitly acquired gains almost always has some digital elements. To combat this cyber-crime wave, the European Union recently set out a roadmap to help stop the 99% of criminal assets that are currently going undetected. This is a long-term, five-year plan and it will require buy-in from a number of sectors. Key amongst these are accountants. Accountants are on the front line of defence against money laundering and, alongside other professions, have an obligation to do more to prevent it. Alongside the review of guidance on data retention and proposals for law enforcement authorities to gain access to encrypted information set out by the EU, the head of the Financial Action Task Force, Dr Marcus Pleyer, expressed his desire for the sector to do more. He commented that it’s time to shift from approaching anti-money laundering processes as a tick box exercise, and instead to adopt a much more risk-led approach. To achieve this, according to Dr Pleyer, there needs to be a shift in attitudes amongst those responsible for preventing financial crime, including accountants. Anti-money laundering needs to be looked at as an opportunity.

Know your customer

One clear opportunity for accountants is to make anti-money laundering processes more efficient. Accountants deal with hundreds of clients every day and thousands across the year. The process of verifying the identity of new and even existing clients can be cumbersome and take up valuable time. Once you’ve added in the need to check sanctions and politically exposed persons lists, accountants can spend a lot of time ensuring that

someone is who they claim to be, and that they are legitimate. Due to the time it takes to review every passport, every selfie and every utility bill, it’s understandable if accountants don’t have the time to meticulously scan these documents for irregularities – particularly as forgeries are incredibly accurate now. Those with skills in photoediting software can easily manipulate passport details to create a completely new identity. It would take a lot of time to inspect these images in microscopic detail to find any irregularities.

The future is electronic verification

To speed this process up, accountants should look to make the shift to electronic verification. As part of the EU’s plan, digital solutions are suggested to combat the increasingly online threats. The UK government has also made it clear that it supports the use of electronic verification, and that it is high time digital processes were adopted. Not only is this more effective at flagging potential risks, it also saves accountants valuable time and effort.

Preventing money laundering from the kitchen table

This shift will also allow accountants to effectively prevent money laundering, wherever they work. The coronavirus pandemic has led to sectors such as accountancy and financial services moving to more non-contact, digital ways of working as faceto-face meetings are no longer an option. These ISSUE 117 | AIAWORLDWIDE.COM

CYBER CRIME secure and as it is an online solution, it can be carried out anywhere, including at home. To properly onboard a new customer, or an existing one, just a name, address and a date of birth is needed. From only these simple details, the latest technology can combine credit reference data, biometric facial recognition and digital fraud checks, as well as electoral roll data and other reliable public sources to establish identity. By triple checking these different sources of information, a unique “composite digital identity” is produced. This digital identity is virtually impossible to fake. All this can be done online, with no need for in-person meetings, face coverings or hard copies of documents.

HMRC to close loopholes

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changes may become permanent for a significant number. According to research by the BBC, 43 of the top 50 employers in the UK said they would embrace a mix of home and office working beyond the pandemic. With a significant proportion of accountants working from home for the foreseeable future, remote working will certainly need to be factored into any plans for preventing money laundering. However, there are fears that the switch will leave some accountants exposed. FICO senior director for fraud Toby Carlin said recently: “Just as the pandemic put huge stresses on the health care system, it put huge stresses on fraud and financial crime management teams.” These concerns should be unfounded. While the pandemic has certainly seen a rise in attempted fraud and money laundering, working from home should not prevent accountants from properly vetting customers. The issues lie with outmoded methods of ID verification when onboarding customers. That is where the change needs to come. With the increase in forgeries of hard copy documents, such as passports and driving licences – and the level of sophistication of these fakes – electronic verification should be the standard for preventing money laundering and fraud. It’s entirely AIAWORLDWIDE.COM | ISSUE 117

Author bio

Martin Cheek is the managing director of SmartSearch, providing anti-money laundering and fraud prevention services.

In addition to working with individuals, there are also money laundering concerns when dealing with businesses. The chancellor announced in his March Budget that HMRC would be getting new powers and resources to tackle money laundering. This is a positive step, but there needs to be a strategy in place which is based on co-operation with governments around the world, including the EU, to tackle the issue. There are currently a number of loopholes that need urgent attention, such as the lack of verification for registering a business at Companies House. There are addresses all over London that are being used by criminals to register their fake businesses, with one revealed recently to be host to more than 1,000 firms. These loopholes are being exploited, with the pandemic causing more issues. The recent bounce back loans for businesses impacted by the pandemic is a prime example. The National Audit Office predicts that the UK taxpayer could lose up to £26 billion of the £46 billion paid out to companies, and a prime reason for this is the lack due diligence involved. Companies are “self‑assessing” that they are eligible for the scheme, and while this has undoubtedly helped businesses to get much needed finance quickly, it has left the scheme wide open for fraud. Accountants need to ensure they are conducting the due diligence required. If not, there could be serious consequences. The Financial Conduct Authority (FCA) has said it has increased surveillance over the past 12 months in response to the rise in the threat of money laundering. The executive director Mark Steward, speaking at the AML & ABC Forum 2021, said that two of the FCA’s biggest sanctions in the last year related to failures to address financial crime and anti-money laundering risks. Criminals are using all the technology available to them, so those trying to stop them need to make sure they are also using the best available tools to prevent money laundering. Accountants can be up and running with a full one-stop-shop electronic anti-money laundering platform that partners with the world’s best data suppliers in 24 hours, and it is easy for those working from home to access and use the platform. ●

Events UPCOMING WEBINARS

Covid-19 and the Implications for Information Security Speaker: Dave Reynolds 17 June 2021 Time: 10.30 – 11.30 In a post Covid-19 environment, inevitably more people will either choose or be required to work from home. Whilst there can be compelling financial incentives for both the employer and the employee, neither can afford to ignore the security implications where personal and/or sensitive data is concerned. The session will also provide a brief update on GDPR and the Data Protection Act 2018, following the UK’s exit from the EU. Helping employers navigate postpandemic working practices Speakers: Helen Dyke and Hannah Clifford 29 June 2021 Time: 10.30 – 11.30 As we emerge from lockdown measures and start to return to a new norm, there are a number of employment law and HR issues for employers to consider. This webinar will provide valuable insight from Irwin Mitchell’s employment law specialists on the key topics you need to think about now, including: ● HR in an agile world: how this impacts wellbeing and performance;

● legal developments on workforce status and IR35; and ● diversity and inclusion in the workplace. You’ll also have the opportunity to ask questions during the webinar. How appointing an insolvency practitioner could help your client’s business: case studies Speaker: Richard Simms 8 July 2021 Time: 10.30 – 12.00 The appropriate use and potential benefits of business rescue and insolvency options

are often misunderstood. This webinar will clarify many of the options available and help you to understand exactly how an insolvency practitioner could help your client’s business and when it might be relevant for you or your client to contact one. I will also discuss the way forward for a business after a company has been through an insolvency process. The session will cover: ● insolvency market update; ● how to recognise when a client might need some further help; ● case study 1: a review of options when a company can foresee potential financial difficulties; and ● case study 2: a Creditors’ Voluntary Arrangement; ● case study 3: a Creditor’s Voluntary Liquidation; ● case Study 4: an Administration; ● case Study 5: a Members’ Voluntary Liquidation; and ● how FA Simms can help 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.

The following content is available now: ● Changes in the conduct and regulation of external audit ● Forensic accounting: in light of the pandemic ● AML Update: implementing a firm-wide risk assessment ● 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? Login to your AIA online account and choose ‘Shop’ from the My AIA menu.

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Technical INTERNATIONAL

IFAC sees continued opportunity to harmonise Corporate Sustainability Reporting The International Federation of Accountants welcomes the publication of the much anticipated draft text of the European Union’s revised Corporate Sustainability Reporting Directive. This ambitious proposal demonstrates leadership on the issue of corporate reporting. The legislation seeks to put sustainability related reporting on the same footing as traditional financial reporting. This is long overdue. Specific proposals, such as where sustainability information is reported, mandatory assurance, a digital reporting taxonomy and expanded scope for oversight by audit committees, are all important

elements of enhancing the corporate reporting ecosystem to include sustainability related information. As progress on the IFRS Foundation’s Sustainability Standards Board accelerates, IFAC believes that policy makers have a unique opportunity to build a truly global system for sustainability reporting. It hopes that the EU’s important work ultimately contributes to – and amplifies the impact of – the emerging global system. IFAC CEO Kevin Dancey said: “It is great to see a commitment to the needs of investors, as well as other stakeholders, and to co-operation and alignment with international

initiatives, including proposed work of the IFRS Foundation as well as the efforts of various public authorities. “IFAC urges the IFRS Foundation to move with speed so that the benefits of baseline standards for enterprise value reporting will be available to all jurisdictions, while preserving the flexibility for disclosures that meet local needs addressing wider sustainability development goals. “These are truly exciting times. We will continue to engage with the various stakeholders in this space as we all work toward the shared goal of a global system for reporting sustainability related information in the public interest.”

INTERNATIONAL

with a focus on enterprise value creation, a unique connection to the work of the IASB, and backing from IOSCO and other authorities. This approach offers the quickest and most effective route to a baseline of internationally consistent sustainability related disclosures for enterprise value creation developed in the public interest. IFAC calls for international collaboration and cooperation to make this initiative a success.”

IASB proposes amendments setting out accounting for when no foreign exchange rate exists

IFAC continues to advocate for convergence in Global Sustainability Standards The International Federation of Accountants continues its work to support the establishment of global sustainability standards in the public interest. In this regard, IFAC endorses the most recent actions announced by the IFRS Foundation Trustees and IOSCO. Specifically, IFAC supports the IFRS Foundation’s formation of a working group and efforts to set up a multi-stakeholder expert consultative committee, both of which will accelerate progress towards a successful standards setting board. These steps demonstrate the IFRS Foundation’s focus on delivering with speed by leveraging and bringing together the work of existing initiatives. IFAC further supports IOSCO’s establishment of a new Technical Expert Group under its Sustainable Finance Task Force, which demonstrates growing international demand for the work of the IFRS Foundation. IFAC CEO Kevin Dancey said: “IFAC reiterates its support for the IFRS Foundation to establish an international standard setting board AIAWORLDWIDE.COM | ISSUE 117

IASB proposes changes to the IFRS Taxonomy 2021 for Disclosure of Accounting Policies and Definition of Accounting Estimates The International Accounting Standards Board has published a proposed update to the IFRS Taxonomy 2021 for the following amendments to IFRS Standards: ● Disclosure of Accounting Policies, which amended IAS 1 and IFRS Practice Statement 2; and ● Definition of Accounting Estimates, which amended IAS 8. The proposed IFRS Taxonomy Update includes changes to the IFRS Taxonomy elements to reflect the new and amended disclosure requirements introduced by the amendments, issued by the Board in February 2021.

The International Accounting Standards Board has published for public consultation proposed amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates. The proposed amendments aim to help companies determine whether a currency can be exchanged into another currency, and what accounting to apply if the currency cannot be exchanged. IAS 21 sets out the exchange rate a company uses when it reports foreign currency transactions or a foreign operation’s results in a different currency. However, the standard does not set out the exchange rate to use when there is no observable exchange rate the company can use – such as when a currency cannot be converted into a foreign currency. The Board’s proposed amendments to IAS 21 would help companies to identify if this situation applies to them and the accounting to apply when it does. The proposed amendments would improve the usefulness of the information provided to investors by requiring a consistent approach to determining whether a currency is exchangeable into another currency; and, when it is not, determining the exchange rate to use and the disclosures to provide.

Technical The deadline for comments is 1 September 2021.

UK AND IRELAND FRC proposes extending the application period for accounting requirements covering Covid-19 related rent concessions The Financial Reporting Council (FRC) has issued an Exposure Draft that proposes to extend the application period of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the Covid-19 pandemic by one year. FRED 78 proposes that requirements originally introduced into FRS 102 and FRS 105 in October 2020 apply to rent concessions that reduce only lease payments originally due on or before 30 June 2022, provided the other conditions for applying the requirements are met. As pandemic restrictions continue, extending the existing time condition is considered necessary to ensure these concessions are accounted for consistently and in a way that best reflects their substance. The amendments are proposed to be effective for accounting periods beginning on or after 1 January 2021, with early application permitted.

FRC announces new approach to publishing corporate reporting reviews The Financial Reporting Council (FRC) has for the first time published summaries of its corporate reporting reviews. Each year, the FRC conducts over 200 corporate reporting reviews to assess whether company reports and accounts comply with relevant accounting and reporting requirements. This increased transparency is aligned with a recommendation of Sir John Kingman’s Independent Review of the FRC that reviews should be made publicly available. Due to company law requirements, summaries can only be published with the consent of individual companies. As part of the recently launched consultation “Restoring trust in audit and corporate governance”, the government is consulting on proposals to allow

the regulator to publish summaries without the consent of companies, once sufficient safeguards around confidential information are in place. The FRC previously published the names of companies reviewed, whether a full review was conducted and whether substantiative correspondence had been entered into, without providing further details of review findings. The FRC’s Executive Director of Supervision, David Rule, said: “Publishing summaries of corporate reporting reviews is an important step towards improving the transparency of the FRC’s monitoring work and an example of the FRC taking forward the government’s programme to restore trust in audit and corporate governance.”

IAASA publishes its AAPA Report for 2020 The Irish Auditing and Accounting Supervisory Authority (IAASA) has published its 2020 Annual Audit Programme and Activity Report. This report provides a summary of the activities performed by IAASA during 2020 to oversee the audit profession in Ireland. The report outlines the outcome of IAASA’s quality assurance review of auditors of public interest entities, as well as IAASA’s oversight of the recognised accountancy bodies that supervise auditors of other Irish entities. Key outcomes of IAASA’s work on the public oversight of statutory auditors in 2020 include: ● inspection of seven PIE firms, reviewing 23 audits and four internal control areas; ● conclusion of a statutory investigation into poor quality audit work by one PIE firm on two PIE audits; ● completion of seven joint inspections between IAASA’s Audit Quality Unit and IAASA’s Financial Reporting Supervision Unit; ● issuance of thematic reports by IAASA’s Audit Quality Unit on the International Standard on Auditing (Ireland) 701 and on the International Standard on Auditing (Ireland) 540; ● completion of four supervisory visits to three of Ireland’s recognised accountancy bodies; and ● hosting of an Audit Committee breakfast briefing.

This report provides useful insights into IAASA’s work in overseeing the audit profession and will be of value to stakeholders seeking an enhanced understanding of audit and its regulation.

Application for revocation of the recognition of the Institute of Chartered Accountants in England and Wales Pursuant to its powers under the Companies Act 2014 s 931(4), the Irish Auditing and Accounting Supervisory Authority has decided that it is minded to revoke the recognition of the Institute of Chartered Accountants in England and Wales (ICAEW) granted under s 930 of the Act with effect from 21 July 2021. This will mean that ICAEW may no longer authorise individuals or firms as statutory auditors in Ireland or undertake any audit related regulatory functions from 21 July 2021. This decision follows the application by the ICAEW to the Authority for revocation of its recognition. By virtue of the revocation of its recognition, ICAEW will no longer be a prescribed accountancy body under the Act and therefore will no longer come under the remit of the Authority with effect from 21 July 2021.

IAASA 2021 Transparency Reporting – Thematic Review IAASA has published its Transparency Reporting – Thematic Review (available at www.iaasa.ie). The objective of this thematic review was to assess the effectiveness of transparency reporting by PIE audit firms in Ireland, to share areas of good practice and other reporting innovations, and to highlight areas where firms need to make improvements. Specifically, the thematic review focused on the following areas: ● compliance: determining the level of compliance with regulatory requirements; ● accessibility: assessing the ease with which transparency reports are accessed; and ● good practice: exploration of areas of good practice. With some exceptions, IAASA found that transparency reports were ISSUE 117 | AIAWORLDWIDE.COM

Technical typically prepared to a good standard, compliant with the Regulation and readily accessible. Although there were some observations identified around compliance and accessibility, there were several examples of good practice in transparency reporting. IAASA encourages firms to consider these areas of good practice and apply them in the preparation and publication of their annual transparency report.

EUROPE ESMA supports increasing corporate transparency through the creation of ESAP The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has submitted its response to the European Commission’s (EC) targeted consultation on the European Single Access Point (ESAP). ESMA recommends a phased approach, which should prioritise financial and non-financial information of public companies. Steven Maijoor, Chair, said: “A single access point for information about companies is one of the key missing components of the Capital Markets Union. ESMA is fully supportive of the ambition to set up the ESAP as it will increase investor trust in companies across the EU and lower the costs of capital. “ESMA is ready to take up a central role in setting up and running the ESAP as suggested by the CMU High Level Forum and the European Parliament.” ESMA also believes that full benefit of the ESAP can be reaped only if information included in the single database is comparable in terms of content and rendered in a structured, machine readable format. Therefore, ESMA supports an increased use of structured data formats whenever appropriate. However, in light of the complexity of the project, ESMA encourages the EC to carefully weight the scope of the ESAP versus feasibility and operability considerations. ESMA’s position is aligned with the final recommendations of the High Level Forum on the Capital Markets Union on the ESAP and by the European Parliament Resolution on the CMU. AIAWORLDWIDE.COM | ISSUE 117

ASIA PACIFIC MASB publishes amendment to MFRS 16 Leases on Covid-19 Related Rent Concessions beyond 30 June 2021 The Malaysian Accounting Standards Board (MASB) has issued Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to MFRS 16 Leases). The amendment is word-forword Covid-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16 Leases) issued by the International Accounting Standards Board (IASB). The original amendment, Covid-19 Related Rent Concessions (Amendment to MFRS 16 Leases) was issued on 5 June 2020 to make it easier for lessees to account for Covid-19 related rent concessions, such as rent holidays and temporary rent reductions, while continuing to provide useful information about their leases to investors. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the Covid-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. This amendment extends the availability of the practical expedient provided in 2020 so that it applies to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022, provided the other conditions for applying the practical expedient are met. Amendment to MFRS 16 shall apply for annual reporting periods beginning on or after 1 April 2021. Earlier application is permitted, including in financial statements not authorised for issue at 31 March 2021.

Singapore’s 2-tier penalty framework deferred to allow more time for transition On 30 December 2020, ACRA announced plans for a two-tier penalty framework for filing of annual returns and annual declarations by Singapore incorporated companies, variable capital companies (VCCs) and limited liability partnerships (LLPs) to take

effect on 30 April 2021. Under the two-tier penalty framework, Singaporeincorporated companies, VCCs and LLPs would incur a late submission penalty of $300 if the annual return or annual declaration is filed within three months after the filing due date, or $600 if the submission is filed more than three months after the filing due date. To allow more time for transition, the implementation of the two-tier penalty framework has been put on hold. The current penalty framework will continue to apply for filing of annual submissions: ● Late submission penalty for local companies and VCCs: flat rate penalty of $300 ● Late submission penalty for foreign companies and limited liability partnerships: eight-tier penalties ranging from $50 to $350 All entities are urged to comply with the statutory timelines and file the annual return or annual declaration on time, to avoid late filing penalties.

ACRA elected to the Board of Global Forum of Audit Regulators The Accounting and Corporate Regulatory Authority (ACRA) has been re-elected to serve on the Board of the International Forum of Independent Audit Regulators (IFIAR) for another four-year term at the elections which took place during the 2021 IFIAR Plenary meeting held virtually from 19 to 21 April 2021. Kuldip Gill, ACRA’s Assistant Chief Executive (Accounting Group) has also been appointed to chair the Human Resources and Governance Committee. Established in 2006 with 18 founding members including ACRA, IFIAR promotes global collaboration and sharing of experience among the audit regulators. This is done through initiatives such as inspection and enforcement workshops, surveys and publications on regulatory trends and developments. IFIAR actively engages the global leadership of six largest international networks of audit firms (known as the GPPC firms) on initiatives to improve audit quality globally. It also provides a platform for dialogue with other international organisations that have an interest in audit quality. As of April 2021, IFIAR’s membership comprises 54 audit regulators from jurisdictions in Africa, the Americas, Asia-Pacific, Europe and the Middle East.

Technical The IFIAR Board was established in April 2017 and is responsible for developing IFIAR’s strategy and determining annual operating priorities. As a board member, ACRA helps to support IFIAR’s objectives of promoting sustainable improvements in audit quality, building members’ oversight capabilities and enhancing the collective impact of the audit regulatory community. ACRA’s Chief Executive, Ong Khiaw Hong said: “We are grateful for the support of IFIAR members in re-electing ACRA to the IFIAR Board. We are committed to serving in IFIAR and look forward to contributing as a Board member to advance IFIAR’s mission to serve the public interest by enhancing audit oversight globally.” Besides serving on the IFIAR Board, ACRA is also a member of the Global Audit Quality Working Group and the Technology Task Force. ACRA’s active participation in IFIAR enables Singapore to provide our insights and raise awareness of audit quality concerns in the Southeast Asia region. It also allows ACRA to learn and benchmark its audit regulation against international practices and engage the international community on cross-border issues that may impact the delivery of high quality audits.

UNITED STATES FASB issues standard clarifying the issuer’s accounting for certain modifications of freestanding equity-classified written call options The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that clarifies

an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU is based on a consensus of the FASB’s Emerging Issues Task Force (EITF). The ASU provides guidance on how an issuer would measure and recognise the effect of these transactions. Specifically, it provides a principles-based framework to determine whether an issuer should recognise the modification or exchange as an adjustment to equity or an expense. The ASU is available at: www.fasb.org.

FASB provides alternative to the goodwill triggering event assessment for certain private companies and organisations The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) that provides an accounting alternative expected to reduce the complexity for private companies and not-for-profit organisations when performing the goodwill triggering event evaluation. Under current GAAP, goodwill must be tested for impairment when a triggering event occurs that indicates that it is more likely than not that the fair value of the reporting unit is below its carrying value. Companies and organisations are required to monitor for and evaluate goodwill triggering events when they occur throughout the year. Some stakeholders raised questions about the value of evaluating a triggering event at an interim date when certain private companies and

not-for-profit organisations only issue GAAP‑compliant financial statements on an annual basis. They noted the cost and complexity of preparing interim balance sheets and projecting cash flows that, according to those stakeholders, may not be relevant at the annual reporting date when financial statements are issued. To address this, the ASU provides an accounting alternative that allows private companies and not-for-profit organisations to perform a goodwill triggering event assessment, and any resulting test for goodwill impairment, as of the end of the reporting period, whether the reporting period is an interim or annual period. It eliminates the requirement for companies and organisations that elect this alternative to perform this assessment during the reporting period, limiting it to the reporting date only. The scope of the proposed alternative is limited to goodwill that is tested for impairment in accordance with Subtopic 350-20, Intangibles – Goodwill and Other – Goodwill. The amendments in the ASU are effective on a prospective basis for fiscal years beginning after 15 December 2019. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance as of 30 March 2021. An entity should not retroactively adopt the amendments in this Update for interim financial statements already issued in the year of adoption. The amendments in the ASU also include an unconditional onetime option for entities to adopt the alternative prospectively after its effective date. No additional disclosures would be required. The ASU, including effective date information, is available at www.fasb.org.

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