Accountancy Cyprus - No. 141 - July 2023

The Institute of Certified Public Accountants of Cyprus is proud to announce that the 3rd ICPAC Mediterranean Finance Summit, will take place on 23-24 of May 2023

The 2nd ICPAC Mediterranean Finance Summit 2023 brought together top finance leaders and decision-makers to address practical challenges and solutions. Attendees had the chance to learn about impactful strategies and technologies that can transform finance into a strategic partner for long-term economic success. The summit was a tremendous success with activities, keynotes, panel discussions, workshops, and networking opportunities.

Kyriakos Iordanou General Manager

Forward thoughts

By Kyriakos Iordanou, General Manager of By Kyriakos Iordanou, General Manager of ICPAC

It is time to take bold decisions!

Repeating a comment that I usually make during the last years, I’d say, “we are indeed living in interesting times!” Interesting from many perspectives, including political, geostrategic, social, diplomatic, financial and investment. There is a continual emergence of crises in the international landscape, which ground governments, the business community and the civic society to a constant struggle in combating them, rather being focused on a more productive agenda and on a more robust future planning.

We have experienced it recently with the covid pandemic, and we currently live it as a result of the war in Ukraine coupled by the political and commercial restrictions and the sanctions imposed. At the same time, a primary place in the daily agenda is kept for the wider compliance matters in the financial and corporate services sectors, the discussions around international tax planning and compliance, as well as the ESG and green transition and the overall sustainability saga.

As a consequence, all of the above led the world and the national economies in the arms of a stubborn high inflation and a radical surge in retail prices, especially in the areas of international trade, energy cost and the supply chains. In addition, the continuous increase in the cost of capital and the interest rates impose additional hurdles in sustaining existing businesses and in providing the essential financial resources for new ventures and start ups. The civilians and tax payers undergo a noticeable contraction of their revenues along with their purchasing power.

We are standing at a critical edge, where, on the one side, governments and national treasuries need to exhibit their strengths and resilience and, on the other, businesses and households, have to measure and strengthen their own financial resilience and set out their priorities.

Inevitably, the effects of the war in Ukraine and the imposition of sanctions on Russian interest entities changes the scenery. Furthermore, the designation of Cypriot natural and legal persons in US and UK sanctions brought new dimensions in the business and political horizon of the country, together with a shade of uncertainty. The aftermath of this development impacts not only the reputation and image of Cyprus, but affects directly the whole services sector.

In my opinion, the last few months unveiled how sensitive and susceptible eventually the services sector is to external influences and international pressure and threats, and also, how profuse speculation and whispers in the media cause panic and uncertainty. Ultimately, the lesson learned over the last few months is that the services sector touches and affects the whole of the economic environment of the country.

At the same time, this predicament highlights the responsibility that all of us who live in/from the servicers sector (eg the State, private sector,

professionals, media etc) must do our best in entrenching and safeguarding the sector, taking good care of its institutional, regulatory and operational framework.

There is an imminent need to amend errors and close loop wholes, by departing from ill practices of the past. We have to adapt to the new realities as they are brought into the scene from the international community, creating thus a truly modern, attractive, transparent, credible, growth oriented and sustainable business model.

It's about time to adopt best international practices, putting aside legacy habits and perceptions of “citykingdom”. It’s about time for everyone to rise to the occasion of the circumstances, to take up his/her own share of responsibility and, under the umbrella of a national strategy and supreme authority, to progress forward. Maybe, it is about time to instigate the discussion for a national Financial Services Authority, as other more advanced countries have, within the ambit of which all current competent authorities (governmental and private sector) to work together in a coordinated and uniform manner. Although it may sound like a taboo for some, probably this is the only reasonable and acceptable way forward, in rectifying the country’s bruised reputation.

We have a duty to dare making the next big leap, taking advantage of the opportunities that lie ahead, ensuring that Cyprus exits the stressful and restricting dires that currently constrain it, in becoming once again an international business jurisdiction of repute and trust.

The way towards that goal is not easy, but it is feasible given we commit to it. One of the most catalytical factors to that end is of course technology and digital governance. Therefore, accelerating the pace of its implementation is of paramount importance. Additionally, by taming the beast of bureaucracy and investing in the increase of efficiency and competitiveness, in a culture of meritocracy, we can increase the speed of economic growth and credibility, achieving better ratings from international investors, stable and lasting growth rates as well as a parallel enrichment of the welfare and prospects of the businesses, of the society and of the people.

ICPAC has been at the spearhead of professional services for decades now. ICPAC and its members have been instrumental in the development of the economic model and the evolution of Cyprus as a business centre. We shall remain as such. We remain at the disposal of the government, the stakeholders and the society towards this quest. We will not be tired of submitting proposals and options aiming at the improvement of the business landscape, of the competitiveness and innovation of the country, and of the strengthening of the professional services sector and the economy in general.

Afterall, we all share the same country, the same challenges, the same prospects.

ACCOUNTANCY CYPRUS

ISSN 1450-2380

The Institute Council Nicos Chimarides (Chairman)

Odysseas Christodoulou (Vice-Chairman)

Eleni Pyrgou (Secretary)

Members

Andreas Andreou, Andreas Avraamides, Pieris Markou, Demetris Vakis, Gabriel Onisiforou, Stavros Ioannou, Maria

Pastellopoulou, Petros Petrakis, Demetris Siakallis, Spyros Spyrou, Constantinos Kallis, Marios Demetriades

General Manager

Kyriakos Iordanou Address

11 Byron Avenue, 1096 Nicosia, Cyprus

Mailing Address

P.O.Box 24935, 1355, Nicosia, Cyprus Tel.: +357 22870030

Fax: + 357 22766360

e-mail: info@icpac.org.cy www.icpac.org.cy

The publication is prepared by FMW Financial Media Way

23B Armenias Street, Office 101

Strovolos, 2003, Nicosia Tel.: 22342005

Fax: 22342006

e-mail: info@fmw.com.cy

www.fmw.com.cy

Design and Pagination:

Christiana Loizou

Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is send free to all members of the Institute as well as to a large number of other persons, companies and organisations. The Institute can accept no responsibility fot the accuracy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.

08

ICPAC NEWS

• 13th Nicosia Economic Congress

• Relations ICPAC - CFA

• Memorandum ICPAC - Philips University

- Kapodistrian University of Athens

• The 6th Cyprus International Tax Conference

• The 2nd ICPAC Mediterranean Finance Summit

- A Gathering of World-Class Finance Leaders

• New ICPAC Council

• Short bio the new President

COVER STORY

The 62th Anniversary Annual General Meeting

• ADDRESS BY THE PRESIDENT OF THE REPUBLIC, Mr NIKOS CHRISTODOULIDES

ICPAC is an essential partner of the government for the Tax Transformation

• GREETING BY THE MINISTER OF FOREIGN AFFAIRS

FINANCE, Mr. MAKIS KERAVNOS

These are the government's goals for tax reform What measures are being taken for investments?

• ADDRESS BY THE CHAIRMAN OF THE ICPAC

Mr. PIERIS MARKOU

We need a modern and effective Tax Transformation

Interview with the new President of ICPAC Mr. Nikos Chimaridis

ICPAC has a major challenge agenda ahead of it

30

TAXATION

• Transfer Pricing Risk in Disallowing of Intra-Group Services

Christos A. Theophilou TTaxand Cyprus | Partner | International Tax –Transfer Pricing

• The impact of AI on tax professionals – Friend or Foe?

Andreas Papagavriel Senior Manager, Tax Services Baker Tilly

• The importance of establishing a robust transfer pricing policy

Charalambos Palaontas, Head of Transfer Pricing Services, EY Cyprus, Maria Panayiotou, Assistant Manager, Transfer Pricing Services, EY Cyprus

36 AUDIT & ACCOUNTING

• ISQM 1 Quality Assurance Management as an essential element of modern practice

Nicole Stavrinidou, BSc, MSc, BFP, ACA, Quality Assurance Director RSM Cyprus Limited

38

SUSTAINABILITY

• Aligning with SDGs on a nonlinear planet Nicos Sika, Strategy, Innovation & Communication Consultantt

40

BUSINESS & ECONOMY

• European Year of Skills

Loukas Fourlas, Cypriot journalist and politician Member of the European Parliament

44 IFAC ACTIVITIES

• CSRD AND CSDDD Directive. What is new about CSR?

Panos Demetriou, On behalf of the Board of Directors of Together Cyprus CSR Manager Together Cyprus

• Educational Beach Cleanup by ICPAC

Niki Christofi, Member of the Corporate Social Responsibility Committee of ICPAC Business Mentor

48 IFAC LATEST ACTIVITY

• IFAC’S Global Knowledge Gateway

• International Auditing and Assurance standards Board (IAASB)

• International Ethics Standards Board for Accountants (IESBA) code of Ethics Effective Dates

13TH NICOSIA ECONOMIC CONGRESS

It is one of the most important meetings where high-level executives of all Cypriot companies, entrepreneurs, economists, academics, ministers and relevant government officials have an opportunity to learn about current economic issues and also ask their questions and develop their own positions and opinions.

Memorandum ICPAC - Philips University - Kapodistrian University of Athens

The CFA Society Cyprus and the Institute of Certified Public Accountants signed a Memorandum of Understanding to expand and strengthen their relations. For the 13th consecutive year, the Nicosia Economic Congress is organized with the aim of outlining the current state of the Cypriot economy and listing its prospects.

Singing of a Memorandum of Understanding between the Institute of Certified Public Accountants of Cyprus , Philips University and the National and Kapodistrian University of Athens.

THE 6TH CYPRUS INTERNATIONAL TAX CONFERENCE

The 6th Cyprus International Tax Conference is considered one of the most important gatherings for tax professionals in Cyprus. This year, the conference aims to address critical tax developments, as the European Commission, the OECD and other authorities have introduced new tax initiatives. Distinguished speakers from the private and public sectors and policymakers will take the stage to share their insights on recent and upcoming tax developments such as BEPS 2, tax incentives as an instrument of fiscal policy, transfer pricing, un-shell directive and much more. At the same time, the conference attendees will have the chance to question the speakers and network with other tax expert professionals and other significant executives of the finance and professional services sector in Cyprus.

The 2nd ICPAC Mediterranean Finance Summit - A Gathering of World-Class Finance Leaders

The Institute of Certified Public Accountants (ICPAC) through its CFO Committee and QUBE Events successfully wrapped up the 2nd edition of the ICPAC Mediterranean Finance Summit (“Summit”). Following the success of the 1st Summit, the ICPAC CFO Committee and QUBE Events started planning the Summit back in September 2022. It took almost eight months of rigorous planning to put together the agenda, the speakers and panellists, the sponsors and the venue.

The Summit was hosted at the Four Seasons Hotel, in Limassol. On the 18th and 19th of May 2023, prominent finance leaders and key decision-makers from Cyprus and around the world gathered for a one-anda-half-day conference, filled with insightful presentations and relevant discussions, paving the way for valuable knowledge exchange and relevant networking opportunities.

The Summit brought together over 200 local and international finance executives from major companies, including Deloitte, UBS, PwC, Visa, Exness and Adobe to name a few, and international organisations like the ACCA. Panellists and speakers exchanged ideas and experiences, explored the latest financial trends and navigated today’s challenging business landscape. Multiple panel discussions and keynote speeches took place throughout the summit with a number of networking breaks and beneficial one-to-one meetings with the prestigious sponsors of this exclusive event.

Pieris Markou, the President of ICPAC, took the stage to deliver the welcoming speech, followed by Mr. Constantinos Herodotou, the Governor of the Central Bank of Cyprus who officially kicked off the day with his opening keynote speech. The first day of panel discussions and speakers

featured an array of topics, with insights from leading finance professionals, such as Georgia Paphiti, CFO at UBS Europe SE, who shared insights on how to “Become a Valued Partner to Your CEO.” The line-up also featured a special address from the Executive Director - Strategy & Governance at the ACCA, Maggie McGhee, who spoke about the changing expectations of the CFO and the finance team as they strive to drive sustainable business value for the long run considering the changing stakeholder expectations. The Summit Chairman, Peter McKenzie, General Manager at Anticipa Real Estate, also presented his views with an excellent keynote session on what it takes to become “The Rockstar CFO!”. In addition to the keynote speeches, the Summit welcomed multiple panel discussions surrounding topics such as “Ensuring Compliance,” “Strategies for Coping with Inflation,” and “Investing in Digital Currencies & Payments,” with speakers from multiple leading financial institutions sharing and exchanging their ideas and thoughts on such topics. Participants had a unique opportunity to

learn of “How to do Money Laundering in 2023”, through an insightful presentation by Yiannis Pettemerides. The first day of the Summit came to a close with an incredible inspiration session by Nikos Zisis, currently the General Manager of the Greek National Basketball Team and a living legend of the game. Nikos shared his life story with unique messages about facing adversity and the importance of teamwork and shared visions and goals, which left us all humbled and energized.

In his closing remarks, Kyriakos Iordanou, the General Manager of ICPAC, expressed his satisfaction with the outcome of this year’s Summit, highlighting the event’s objectives to make Cyprus a focal point for such exclusive finance gatherings in the Mediterranean. Overall, ICPAC, through its CFO Committee and QUBE Events managed to host a remarkable Summit that provided a solid foundation for attendees to immerse themselves in the future of the finance sector while fostering valuable connections. We look forward to next year’s Summit, which we aim to be bigger and better than this year’s.

New ICPAC Council

The Institute of Certified Public Accountants of Cyprus (ICPAC) held its 62th Annual General Meeting on 21 June 2023 online from Nicosia Municipal Theatre. Following the procedures of the General Meeting, the new Council was formed as follows:

President: ................................... Nicos Chimarides

Vice-President: Odysseas Christodoulou

Members: Andreas Andreou

Andreas Avraamides

Pieris Markou

Demetris Vakis

Gabriel Onisiforou

Stavros Ioannou

Maria Pastellopoulou

Petros Petrakis

Demetris Shacallis

Spyros Spyrou

Constantinos Kallis

Marios Demetriades

The Council is thankful to the former president Mr. Pieris Markou, for his valuable services.

SHORT BIO OF THE NEW PRESIDENT

Nicos is a partner in PwC Cyprus. He is a member of the Management Board and Tax & Legal Leader. He has over 25 years of experience in advising large MNCs on international tax matters. Nicos is the President of the Council of Institute of Certified Public Accountants of Cyprus. He is a member of the Institute of Chartered Accountants in England and Wales and holds a Bachelor’s degree in Economics and Computer Science from Queen Mary College, University of London.

The 62th Annual General Meeting

ADDRESS BY THE PRESIDENT OF THE REPUBLIC, Mr. NIKOS CHRISTODOULIDES

ICPAC is an essential partner of the government for the Tax Transformation

It is with great pleasure that I attend today's ICPAC General Assembly. My presence here is an indication of appreciation and recognition of the extremely important role and work you perform, substantially strengthening the common effort, because this is how we approach it, for the development and promotion of the economy of our country. As a State, we approach ICPAC as a key partner and companion in the effort to successfully address the multiple challenges we face, all those we have before us, but also to promote the necessary reforms that will take our country even further and create hope and prospects for the entire Cypriot people. And I insist on reforms because the challenges we have to face are mainly exogenous, we do not affect them, we cannot change the facts in relation to the Russian invasion of Ukraine, but as far as reforms are concerned, it is solely our responsibility, and both you and the parliamentary parties, the Government, The executive reaches out as partners to achieve common goals.

In this context, ICPAC is an essential partner and partner of the Government in a major effort for the tax transformation of our country, which is a top priority for the Government. And I would like to mention, by the way, that you were the first to publicly express the need for such a development, something that we adopted and in this context of implementing our governance program, one of our first decisions was to start the effort for tax transformation, with the aim of modernizing and simplifying it. The main axes of the tax reform promoted are to increase the competitiveness of Cyprus' tax model, reduce the administrative burden for taxpayers and of course businesses and, at the same time, provide a fairer redistribution of the tax burden, while maintaining fiscal neutrality. At the same time, the aim is to fully align our tax policies with the objectives of the European Green Deal, another challenge we need to meet, also in the context of the green tax reform being promoted. An effort that will lead to the imposition of taxation for the consumption of natural resources that pollute the environment, shifting the burden of taxation towards environmentally damaging activities. Green tax reform will undoubtedly contribute to the fulfillment of our country's environmental goals, reduce distortions in the economy, improving habits in the polluting transport and energy sector, water, promote the circular economy and boost innovation and "green" investments in the energy sector, environmental protection and waste reduction.

At the same time, from the first days of taking office, we had to manage an additional challenge, that of safeguarding Cyprus' name as a reliable business and financial centre. The Government immediately, in cooperation with all supervisory bodies, in cooperation with you, and I would like to thank you, is taking all necessary measures and will continue to demonstrate zero tolerance on this issue, I want to repeat. The decisions taken by the American and British Governments have not been a positive development, but we must see these decisions as an opportunity to put an end to this issue which, unfortunately, is afflicting the executive, is afflicting the legislature, is inconvenience to all of you, and that is why we must all work together bearing in mind the need for zero tolerance. Let us put an end to this issue once and for all. And I would like to call on all of you, bodies of the accounting and auditing profession, to continue to approach this issue with absolute seriousness and to work together to eliminate, through actions and not words, any shadow or doubt that exists internationally about

business activities in our country. That is our clear intention and I am sure you share the same view. Cyprus cannot afford not to rise to the occasion and continue, due to the behavior of a minority, to suffer a blow to its image. Rest assured that there is strong investment interest in our country, we will see significant investments from foreign countries in 2023. Today, I had a first meeting with a delegation from the United Arab Emirates, accompanied by investment funds and other investors from the country, who are really interested. There was a very substantial meeting with a number of Ministers, with the public sector dealing with this issue. Tomorrow morning we have another meeting with all those who have invested in our country to hear their own concerns. The issue of attracting quality investments is a top priority for the government and I want you to be sure that our country has the infrastructure to attract such investments, as long as we do what we have to do without having to be imposed on us by any third party, but we who care more than any third party about the name of our country. For the future of our country, for the future of our economy, we must do our part. On behalf of the Government, I want to assure you that we will be by your side to work closely together and find effective solutions to the challenges our country is facing, such as those that continue through Russia's invasion of Ukraine, inflation, interest rate increases, energy costs, but also the challenges in the labor market that, Undoubtedly, among many other effects, they are, in some cases, obstacles to doing business.

Together, we will also continue, with the same responsibility and intensity, the effort to promote economic recovery measures, as well as measures to attract quality investments in our country, which will also create new jobs.

My vision for our country, as I mentioned yesterday during the press conference on the occasion of the completion of 100 days since taking power, is to develop into a model state, with favorable conditions for attracting quality investments and promoting entrepreneurship. A state that will be able to be social and fair due to its economy and will ensure a high standard of living for all its citizens. A country that will dare to take steps forward, that functions as a reliable business and financial center, free from bad practices of the past. A country that – we will have to adapt – exploits the potential of technology, that innovates, that sets a high bar for the digital and green transition. A state that can respond to international geopolitical, economic and other challenges quickly and effectively. The formulation and implementation of a new development model is an important goal for the Government, so that the country, as recorded in the "Vision 2035", a vision presented during the previous Government and in particular the issues of the vision for the economy should not be affected by electoral cycles. This would be a sign of non-seriousness for our country, so we adopt "Vision 2035" in order for our country to become an ideal place for everyone to work, live and grow in business.

A robust economy, after all, and I often say this, in order to be able to have social policy and manage challenges such as high prices, we need to have a strong economy.

The triptych of our economic policy focuses on fiscal discipline, a stable financial system and continued structural reforms.

In closing, I would like to thank you for the invitation and reiterate our readiness to continue our cooperation.

These are the government's goals for tax reform What measures are being taken for investments?

In his address, the Minister of Finance, Mr. Makis Keravnos said among others the following: A particularly important part of the government's program, which has been a constant demand of ICPAC in recent years, is tax reform. The Government's intention is for the new tax proposal to weigh the modern economic model and its evolutionary prospects. The new tax reform must aim at a transparent and simplified system, with minimal bureaucracy. It must be encouraging business and at the same time be socially just, within European standards and aim to reduce tax evasion and avoidance.

We hope that it will be a mechanism for improving the equal distribution of output and income and strengthening social cohesion and encouraging and facilitating investment activity. Finally, it should be fiscally neutral and stable in order to be an incentive for foreign and domestic investors. This project has been assigned to the Centre for Economic Studies of the University of Cyprus, which will also make use of foreign experts.

Rest assured that at the appropriate time we will involve your Association and utilize your views and all the expertise we recognize your members have.

At the same time, the Ministry of Finance promotes the Neutral Green Tax Reform which will contribute significantly to the achievement of the green goals of Cyprus within the European Union, stemming from the Green Deal and the National Energy and Climate Plan for 20212030 for a 24% reduction in greenhouse gas emissions.

The focus of the government's development strategy is guided by the implementation of the two flagship Public Investment programs, the National Plan Recovery and Resilience and the THALEIA Programme 2021 – 2027. Two Programmes that implement plans and actions on the basis of the Long-Term Development Strategy for Cyprus. The long-term Strategy for the Sustainable Development of the Cyprus Economy, entitled

"Vision 2035", supports the promotion of digitalization and environmental sustainability with the main objectives of the transition to a new, modern economic model, the creation of new jobs, the achievement of sustainable long-term growth and the enhancement of international competitiveness with the ultimate goal of citizens' well-being.

Especially in relation to the recent sanctions on individuals, the Government reacted immediately and decisively. He saw this negative development as an opportunity for the definitive cleansing of Cyprus' name as a country providing quality professional services. Having before me professionals who excel, I consider it my obligation to assure that the government is making every effort to preserve Cyprus' reputation as an international service center. Our Government, aiming in this direction and ensuring even more the attraction and retention in Cyprus of foreign companies and their executives, despite four months of government,

immediately proceeded to new measures and manipulations:

• It extended the tax incentive to foreign executives of these companies in case they change employers. The relevant bill will be submitted tomorrow for voting in the plenary session of the House of Representatives.

• A tax bill has been submitted to the House of Representatives, which will grant increased capital discounts to assets that will improve the energy efficiency of businesses.

• He immediately promoted a Bill on Funds Administrators, which concerns the regulation of the profession of performing management functions of Collective Investment Undertakings. Within the next week it will be submitted to the Legal Service for legislative review.

• A bill is being prepared for the establishment of a framework for the screening of Foreign Direct Investment (FDI) after consultations, among others, with ICPAC.

ADDRESS BY THE CHAIRMAN OF THE ICPAC Mr. PIERIS MARKOU

We need a modern and effective Tax Transformation

I have the pleasure and honour to welcome you to the 62nd Annual General Meeting of the Institute of Certified Public Accountants of Cyprus. Special thanks go to His Excellency the President of the Republic, Mr. Nikos Christodoulides, who, despite his busy schedule, is with us today to address our Annual General Meeting. This fact is indicative of the importance that the State attaches to the work and mission of ICPAC and its members.

As you all know, this year's AGM coincides with many developments, both at international, European and local level, which in one way or another affect the professional services sector, the image and reputation of the country and the general economic activity and attraction of businesses in Cyprus.

ECONOMY

Starting with the economy, we note that, in the post-pandemic era and, after 15 months of war in Ukraine with all of its consequences, the growth rate of the economy is running at 3.4% for the first quarter of 2023, unemployment is limited to 5%, inflation for the first four months of the year is at 6%, while public debt shows a continuous downward trend with the expectation that it will close to 81% of GDP at the end of the year. The initial reading leaves a positive feeling, compared to last year's corresponding period, while energy costs, supply chain costs and disruptions, the cost of money and ever-rising interest rates, costs and forms of employment, and persistent inflation remain high, which has a clear impact on the potential of public and private finances. The above factors have a negative effect on the course of our economy, creating tendencies of slowdown in growth. In particular, the increase in interest rates in an effort to contain inflation at a pan-European level, makes the cost of money unprofitable for new investments and new economic activity, while putting even more pressure on existing borrowers and the ability to repay their loans.

SERVICES SECTOR

This period, in our view, revealed how sensitive but at the same time important the services sector is for the Cypriot economy. It is not immune to external pressures and developments, while its further development is regulatory and regulatory framework.

Dear friends,

We have before us today an extremely important opportunity, I would say unique, to apply what we have learned from the lessons of the last decade.

Therefore, the State and the private sector must cooperate, in a coordinated and structured manner, accelerating the transformation of the economic and operational structure of the State and business activity, on the basis of advanced technology, good administration, innovation, competitiveness and the resilience of the economic structure.

ECONOMIC SANCTIONS

To confirm what I have just mentioned, is the implementation of sanctions against Russia and the inclusion of natural and legal persons from Cyprus in sanctions lists of countries such as the United States and the United Kingdom, something that changed the scene as we knew it until today. ICPAC, as the competent authority, carefully monitors developments from the very beginning, taking a number of actions and initiatives both to inform and train our members, as well as to strengthen our supervisory role. Seamlessly and methodically, we exercise the role entrusted to us by the State, having regular contacts with various units both within and outside of Cyprus, being in contact with the other competent authorities of the Republic. We have publicly expressed our support for the establishment of mechanisms at State level for the most effective control of sanctions and beyond, through a framework that will enhance coordination, cooperation, guidance, legal clarity, as well as prosecution of all those who break the law.

Under no circumstances will ICPAC accept members and licensed entities to vilify the reputation of our profession and the image of the country.

Your Excellency Mr. President

I would like to confirm everything we said during our meeting held in your office last April, as well as what was conveyed in our letters that have been communicated to the Government and Parliament.

We believe that we now have the opportunity to turn this challenge into a new opportunity by turning our weaknesses into points of superiority.

To do this, it would be wise to adopt the good practices and examples of more advanced countries, establishing a higher authority at state level to take on the overall task of monitoring and implementing sanctions, while supporting the work of individual sectoral authorities in exercising their own competences.

Our humble request, however, is that the individual supervisory authorities should be able to participate effectively and efficiently in the consultation process for the design of this new authority.

Ladies and gentlemen

REFORMS

We stand at a pivotal point for substantial change and readjustment. All the above support the urgent revision of the economic and business model of the Cypriot economy, for its immediate and necessary survival. There is therefore an urgent need for the swift implementation of horizontal reforms such as those of the public sector, the tax system, sustainable development and the green transition, labour issues, local government and the justice sector. We have submitted a relevant letter to the Government in April with our specific proposals for the further development of the economy.

TAX REFORM

Let me first start with the Tax Transformation, as we like to call it. For a few years now, and from this very podium, we have been expressing our strong view that the time has come to reform our tax system.

We say Transformation instead of just reform, because, in our view, what we have to do is the transition and transfrom the existing system into a new one, modern, more relevant and connected to today's fiscal, social and business life. A new system that will include not only the obvious (such as rates, tax base and incentives), but also the operational, digitalisation, administrative and institutional framework. The aim is for the Tax Transformation to be a modern and effective tool for the fiscal, investment, development and social policy of the State. To be the overlay of the national long-term strategy for the country's sustainable development, as elaborated by the Economy and Competitiveness Council, known as "Vision 2035".

Mr President,

We welcome your public announcements on the tax transformation, as well as those of the Minister of Finance which are in the same direction, for its timely elaboration. As ICPAC we are present to help in any way required.

But please allow me point out that, although we had the impression that we would receive your invitation to start the relevant debate, we have nevertheless been informed that the study for this project has recently been commissioned to an academic institution.

Although this is an important first step towards the transition from political announcements to action, after some time, we nevertheless maintain the strong conviction that ICPAC's presence, as the competent body on taxation issues, based on the many years of know-how and expertise of its members, in the planning and organization of the project is a sine qua non.

I could submit from this podium an anthology of individual proposals, recommendations and suggestions for the revision of our tax system, but that is not my purpose today. We do not believe that a simple redistribution of rates and compensatory measures constitutes reform. We insist on the view that a coherent, horizontal and holistic approach is needed, re-evaluating both the environment in which we live and operate as well as international imperatives and developments.

We declare our long-standing readiness to make concrete proposals and to contribute effectively to the evolution of our tax system.

DIGITAL TRANSFORMATION

Dear friends, No reform effort will succeed unless it is supported by the digital transformation. It is perhaps the biggest bet Cyprus has to win today. Admittedly, some steps have been taken in recent years, but there is still a long way to go. The State is called upon to deal with bureaucracy, outdated infrastructure and labyrinthine procedures, the delay in serving the citizen and the inconvenience of investors and businesses, which hinder the development of the economy and society.

We expect that my friend the Deputy Minister of Research, Innovation and Digital Policy will ensure that the procedures and actions of his Deputy Ministry are accelerated, so that we can have tangible results within set

timetables. Living in the era of globalization and digitalization, Cyprus' capability to act is not limited to its narrow geographical boundaries, but reach the limits of technology. The "small" Cyprus is able to compete and operate much further from its coast, acquiring a virtual size that equates it with other larger countries, in cyberspace.

OTHER REFORMS

I would also like to refer for a moment on the reform of the justice sector, since it is an important link in the business chain. Indeed, several projects are underway, and we welcome the changes at the top/constitutional level, as well as the creation of the Commercial Court and the Admiralty Court.

At the same time, we take the view that justice would be much more efficient and better administered if we were able to operate more specialised courts. At the same time, we support the concept of the Tax Tribunal and call on the government to consider upgrading it to a specialized dispute resolution body, which will facilitate both taxpayers and the Tax Department, thus enhancing tax justice.

Ladies and gentlemen

FOREIGN DIRECT INVESTMENT

The reputation of each business destination is based on the quality of its investors, the framework of services by state and private sectors, the security it exudes through its institutional framework, the ease and speed of execution of business actions and the framework of transparency, stability and culture against corruption.

Therefore, our main concern, in addition to the above, should now be the careful and qualitative selection of investors and businesses that we attract and host in Cyprus, the simplification of procedures and the establishment of competitive and transparent operating frameworks. On the same wavelength is the implementation of the relevant European Regulations, such as the Bill on the screening of foreign direct investments on the basis of the European Union's "Foreign Direct Investment Screening Directive".

As one can see from recent international publications as well as from decisions of the European Parliament, our country has another hurdle to overcome. It is extremely important to put the emphasis where it matters until we are in manageable stages.

ECONOMIC DIPLOMACY

Even the extroversion of the country and the government, I would say, is of great importance in promoting Cyprus abroad, projecting our own narrative on the one hand and on the other, responding to various negative publicity, which may often be ill-intentioned.

With a view to substantially reviving the concept, we reiterate our proposal for the establishment of an advisory body composed of state and relevant private sector bodies to help the government achieve its goals, improve/reverse Cyprus' image in the international business arena and strengthen it as a prestigious regional business centre.

Cyprus is located in a strategic geographical position, between three continents, and this creates a great strategic advantage. Our responsibility is to use this opportunity to strengthen our economy.

REPUTATION

Dear friends,

Continuing from Economic Diplomacy, it is accepted that, in recent years, the reputation and image of Cyprus internationally has been significantly damaged. Despite all the efforts made by many state and private sector agencies, we need to do something more to achieve

the restoration of the perception that exists for our country. First of all, the most important thing is to tidy up our own house and highlight this through relevant communication. It also requires consistent and systematic monitoring of the international media and projection of responses, a clear strategy in economic diplomacy and, of course, an excellent product to promote or an excellent story to tell. Perhaps, at this moment, this is the biggest wound that the State is called upon to manage, restoring Cyprus' credibility on the international stage, which will allow it to continue its actions as a regional center providing services with prestige and reliability. Ladies and gentlemen

CORRUPTION / TRANSPARENCY

Undoubtedly, one of the issues that has been in the headlines for a long time, without being able to ignore it, is that of fighting corruption. Apart from the social and political dimension, as long as Cyprus remains at low levels of evaluation, it is difficult to emerge as an international centre for the provision of prestigious and trusted services.

For us at ICPAC, the immediate implementation of good governance practices is essential, along with the appropriate and effective implementation of the provisions of the General Principles of Administrative Justice Law. The establishment of the Independent Authority against Corruption is a good start, but one that has a lot to do going forward. The principles of meritocracy and legality should be the main concern, while the implementation of e-government is also an important tool.

ECONOMIC PROSPECTS

Dear friends,

ICPAC, despite the difficulties and problems, believes that our economy has the ability to do better than forecasts indicate in 2023. We see prospects in new sectors of the economy, such as energy, research, innovation, technology, green and blue growth, sustainability and others. To these sectors we should add shipping, private healthcare and education, which today contribute significantly to the development of the country.

The implementation of the Recovery and Resilience Programme, the green transition and our commitments to the European Union's Green Deal, as well as actions for sustainable growth should play an important role in the equation of the outlook. However, in order to achieve this, it is necessary to take those bold and groundbreaking decisions concerning reforms, institutional changes and modernization initiatives. We must be bold, not tolerant, of distortions if we want to build a better and sustainable tomorrow, regardless of any temporary political cost.

ICPAC ACTIONS

Mr President,

Last year was very peculiar and with unforeseen difficulties for ICPAC. The impact of the war in Ukraine on our profession and members has created a negative environment for our industry, bringing a cloud of uncertainty.

ICPAC, in cooperation with the government, managed these issues to the best of its ability. With seriousness and responsibility we limited the negative impact and now we are trying to avoid other adventures. At the same time, ICPAC participated in many meetings of Parliamentary Committees on legislative issues, contributed to the promotion of amendments to tax legislation, further promoted corporate governance, managed issues related to money laundering and the audit profession, exercised its supervisory role with due seriousness and impartiality,

proceeded to new local and international collaborations with other economic operators, it expanded the training of its members, strengthened its services internally and generally developed a multidimensional action in all areas of interest to its members. At the same time, it successfully promoted the adoption of the International Standard on Review Inspections (ISRE 2400) to allow micro-enterprises to be audited through an alternative procedure, which falls under the principle of proportionality and aims to reduce the administrative burden on all stakeholders.

At the same time, ICPAC took the initiative to submit a proposal for the establishment of a national financial reporting standard for small and medium-sized enterprises, based on the corresponding standard of the International Federation of Accountants. In addition, ICPAC continued its internal organizational and operational strengthening, strengthened its supervisory role by implementing new Disciplinary and Administrative Regulations, while it demonstrated significant work in informing its members on compliance and sanctions issues against Russia, issuing numerous guidelines and relevant Regulation. Where possible, we also showed our social side by offering financial assistance to vulnerable groups in our country, as well as through the ICPAC Member Relief Fund. In conclusion, judging today what happened last year, amid the pandemic and international economic uncertainty, I believe that, under the circumstances, we managed to keep ICPAC's flag high. Our members should feel both satisfaction and pride in what has been achieved at a very difficult time indeed.

NEW ERA

Dear friends,

The new era that is coming will be very different from what we have experienced in previous years. In this new era, Cyprus must have a strong economy, a functioning state, modern institutions and dynamism in its businesses and human resources. Without these conditions we will not be able to offer to our citizens a better standard of living and a better life.

ICPAC is ready to help the economy and Cyprus, with proposals, actions and initiatives. We are at the disposal of the State for the required steps forward.

The new era is here and as Cyprus we should be faithful to our appointment. And this is the message we are sending today from the podium of our AGM: All together for a better Cyprus...

THANK YOU

Dear friends,

Concluding my speech, I would like to inform you that today my term as President of ICPAC comes to an end, while remaining a member of the Governing Council for another year.

I wish the new President every success in the beautiful task he is undertaking. I would also like to express my thanks to all the members of the Governing Council for their close and excellent cooperation. I would also like to thank the General Manager and ICPAC's officers for the hard work they are doing for the good of our Institute and our members. I also extend additional thanks to the members of the Institute’s Committees who donate time and knowledge for the benefit of ICPAC and its members.

It would be remiss of me not to thank the government and the competent Ministries, the Parliament, PCAOB, other government departments and services, as well as institutional, professional, academic institutions and organizations, for the close and excellent cooperation we have over time. The biggest thank you, however, belongs to you, our members, who support ICPAC and are always by our side at all times.

As a final point, I would like to express the sincere condolences of ICPAC and our members to the families of two dear colleagues who we have sadly lost this year. I refer to Costakis Christofides and my very good friend Panicos Tsiailis, who also served as ICPAC's presidents, offering so much both to ICPAC and to the profession in general. Their memory is eternal.

Thank you very much.

Site Tour

www.icpac.org.cy

ICPAC issues technical circulars for the technical support of its members.

The technical circulars of ICPAC aim at informing the members as regards changes or amendments of regulations and procedures relating to the accounting/auditing profession, which stem either from ambiguities or omissions that are identified during accounting or auditing work, or from harmonisation directives of the European Union for the accounting/ auditing profession.

Find the most recent technical circulars sent to the members below.

What is CPD?

Continuous Professional Development (CPD) is the learning and development activity that you will do throughout your ICPAC membership. CPD will provide you with the knowledge and skills required to perform your day-to-day job in your chosen professional role, as well as to enhance your employability for the future.

Find more …

Find our yearly «ICPAC action» booklet.

INTERVIEW WITH THE NEW PRESIDENT OF ICPAC MR NICOS CHIMARIDES

ICPAC has a challenging agenda ahead of it

ICPAC has a challenging agenda in the coming years, yet with the cooperation with its members and in collaboration with the relevant stakeholders, it is confident that it will be able to address them successfully.

This is stated in an exclusive interview with the new ICPAC President Mr Nicos Chimarides, who adds that "Cyprus must take some bold decisions if it aspires to have a profound impact on the economic challenges that lie ahead".

In his interview, Mr Chimarides states that he is fully aware of the responsibilities he assumes as ICPAC's President and points out that a top priority is to promote tax transformation. "We want a 'courageous' and in-depth tax reform that modernises the tax framework, is aligned with the long term strategic needs of the economy, as these were articulated in the “Vision 2035 “ report, is synchronised with the EU as well as with the trends of the international economic and regulatory landscape, facilitates taxpayers and, ultimately, contributes to the promotion of Cyprus as an attractive investment and business destination."

Referring to ICPAC's next moves, he says that he will seek meetings with the President of the Republic, the President of the House of Representatives, the Ministers closely intertwined with ICPAC's agenda, the leaders of the political parties, as well as the productive bodies of the economy and the private sector, sharing with them ICPAC's technocratic opinions and other proposals.

The interview of Mr. Chimarides can be read below: How important do you consider the assumption of the duties of ICPAC President?

As you are aware, ICPAC is a professional association which plays a leading role in the economic life of Cyprus since its founding in 1961. Over time, ICPAC contributed significantly to the development of the Cypriot economy, the recognition of the profession of the certified public accountant, the promotion of a series of tax and other reforms in Cyprus, the evaluations of Cyprus by international organisations and the efforts to

strengthen and further improve the country's reputation as a credible international business destination. At the same time, it exercises its supervisory role for our profession, for the professional activities of its members whilst, at the same time, offers its good advisory services to the government on a number of issues, in taxation, business and other financial matters. In addition, further to the objectives of the Institute, ICPAC works towards the facilitation and promotion of the public interest.

With this range of responsibilities and tasks, I think it is easy to understand how important the position of the President and the

Council of ICPAC is, particularly in the current environment where we are additionally called to manage the issues of sanctions, reform aspirations and other more complex challenges.

Being the incoming President, which are the areas of emphasis you think are a priority?

The strategies, policies and objectives of ICPAC have been designed to have a lasting applicability, relevance, consistency and continuity. We are committed to the key strategic objectives of our Institute, namely:

• Strengthening the country's economy and its status as a reliable and trustworthy business center

Strengthening the accounting profession, in Cyprus and abroad

• Strengthening ICPAC's role, reputation and credibility

• Strengthening the organizational structure and operation of the Institute.

These objectives are further broken down into individual objectives

and actions. So, if I were to group our priorities for the next two-year period, they would be:

(a) the internal organisation, development and upgrading of the operational activities of the Institute in order to be able to meet its objectives, and fulfill its responsibilities and obligations towards its members and the country.

(b) (Enhancement of its supervisory roles, for all areas within its remit, working in a constantly changing compliance environment. At this point, I would like to underline ICPAC's commitment to cooperate with the government in establishing mechanisms at State level for the most effective regulation and oversight of sanctions, AML and beyond, through a framework which will enhance coordination, cooperation, guidance, legal clarity and enforcement.

(c) Tax reform. A very important project in the effort to keep Cyprus at a growth and competitive level.

(d) strengthening and growth of the economy through other necessary institutional and operational reforms.

(e) strengthening the cooperation between private and public sectors, establishing cooperation and synergies with adjacent stakeholders and bodies, locally and abroad.

(f) technology and sustainable green transition constitute the imminent future of our country. Therefore, our aims are, on the one hand, to adapt to new technological realities, while, on the other hand, the transition to the "green economy" making assisting in the effective implementation of the Resilience and Recovery Plan.

(g) the continuous training and development of our members for upskilling and reskilling to ensure we stay relevant in the fast changing business environment.

What are the main parameters of ICPAC's desired tax reform?

We need a “courageous” and in-depth tax reform that modernises the tax system, is in line with the current and future economic needs, is synchronised with the EU and the international economic and regulatory trends, facilitates taxpayers and, ultimately, contributes to the promotion of Cyprus as an attractive investment and business destination.

We are not proposing a mere adjustment in either tax rates or incentives given to taxpayers.

We aspire for a tax transformation which includes modernisation of the system, simplification or abolition of taxes, changes in practices and mentalities, elimination of bureaucratic procedures, technological upgrade of the Tax Department, digital services to taxpayers, promotion of tax consciousness, etc. Tax transformation should be a modern and efficient tool for the fiscal, investment, development, and social policy of the State. Along with the general reform, we believe that the time has come to regulate the profession of tax advisor (currently unregulated), so that Cyprus complies with the European Directives and its international obligations.

We are confident that ICPAC's presence as the most relevant and competent body in the area of taxation, would be valuable, useful and necessary for the government in the ambitious project of a proper, holistic and rigorous tax reform.

What do you think will be the biggest challenges for ICPAC in the coming years?

In general, the accountancy profession follows the path of the economy. Hence, at a macroeconomic level, ICPAC will need to respond to market developments and the economic developments in general.

Main challenges include the continuous digital and organisational development of ICPAC, in order to best serve its members, students and businesses. In addition, serious attention will be given to the execution of the supervisory and regulatory roles of the Institute, in the areas of audit monitoring, AML and Sanctions compliance.

A major change that is around the corner is the harmonization with the EU for the transposition and adoption of the European Corporate Sustainability Reporting Directive (CSRD). This Directive introduces new requirements for corporate reporting and places the responsibilities of the auditors at a much higher level. This is a collective task involving the cooperation of various stakeholders, primarily the Ministry of Finance and the Ministry of Energy, Commerce and Industry. ICPAC's initiative to adopt a more simplified domestic standard for the preparation and presentation of financial statements of small and medium-sized enterprises is on the same wavelength and will significantly contribute to the simplification and more proportionate implementation of existing procedures, while reducing the administrative burden on businesses. All of the above are aligned with ICPAC's efforts to attract young people to the accountancy profession and advance the fundamental principles and ethical standards of the profession.

How much do ICPAC’s views resonate with government and the Parliament and what do you foresee happening with the new administration?

We maintain open channels of communication and cooperation with the government, ministries, the House of Representatives, business stakeholders and many other organizations, always operating objectively, selflessly and in the public interest. Our relations are at an excellent level and we share our suggestions and proposals freely, respectfully and without any restrictions.

Obviously not all our views are necessarily adopted, but overall, I must say that we are very pleased with the open and transparent discussion on our propositions which are consistent with the shared objective to strive for the greater good of the economy. We are always available to provide accumulated knowledge and know-how, preferably ex-ante (at the planning stage) rather than ex-post (at the stage of general consultation or implementation) in the areas of our specialisation and expertise.

What message do you want to send to ICPAC members as their new President?

The message is simple and clear, our members are called to remain close to ICPAC and support the institute in its efforts to work to achieve the best for our profession, the society, and the public interest. Today, the profession is amidst many challenges and only by joining forces and coordinating between us, can we effectively face them.

• Priority is given to tax transformation and effective control of sanctions

• We will seek meetings with government, parliament and stakeholders

• Reforms and international visibility of Cyprus a top priority

Intra-group services are regularly scrutinized by the tax authorities, particularly in recent years, when globalization changed the way multinational enterprises operate in a more integrated manner. Specifically, this would be the case in a centralized MNE group, whereas in a decentralized MNE structure, the group companies would normally perform functions among themselves. (A list of intra-group services is provided in Annex 1 of the EU Joint Transfer Pricing Forum Guidelines on low value adding intra-group services.)

Transfer Pricing Risk in Disallowing of Intra-Group Services

Typically, in accordance with the 2022 OECD transfer pricing guidelines, a four-step analysis can be applied in order to price an intra-group service:

• Step 1: Identifying commercial and financial relations;

• Step 2: Recognizing the accurately delineated transaction;

• Step 3: Selecting the most appropriate transfer pricing method; and

• Step 4: Applying the most appropriate method. This article focuses on considering the accurately delineated transaction (steps 1 and 2 above) that will identify whether an intra-group service will be recognized—that is, chargeable or deductible, or not recognized—that is, disallowed. (For completeness purposes, steps 3 and 4 deal with the arm’s-length compensation of intra-group services.)

HAS AN INTRA-GROUP SERVICE BEEN PROVIDED?

To answer the question of whether an intra-group service has been provided, the Organization for Economic Cooperation and Development transfer pricing guidelines provide two tests, applied on a case-by-case basis. First, the so-called benefit test (guidelines paragraph 7.6) considers whether the services rendered provide “economic or commercial value to enhance or maintain its business position” to the service recipient. Second, in applying the benefit test, the guidelines recommend a willingness to pay/perform for itself test, that is, whether “an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity in-house for itself.” Therefore, an intra-group service will be recognized when both tests are fulfilled, and when one of the two tests is not fulfilled, such an intra-group service would normally be disallowed. The two tests should be performed using the two-sided approach, from the perspective of both:

• The service provider, establishing that a service has been rendered; and

• The service recipient, establishing that the service rendered provides a benefit to the service

recipient.

Further, the OECD guidelines provide specific examples that intra-group services under certain circumstances are not charged (that is, a negative definition of the concept of a chargeable service):

• Shareholder activities (paragraphs 7.9-10);

• Duplicated activities (paragraph 7.11);

• Passive association (paragraph 7.12); Incidental benefit (paragraph 7.13 ); and

• On-call services provided that the need is remote (paragraph 7.17).

It is worth mentioning that all five examples above do not meet the benefit test, that is, they do not benefit the service recipient and are therefore not chargeable for transfer pricing purposes.

A point to note is that the “benefit” does not necessarily need to materialize, but rather it can be “expected.” For example, in the case of marketing activities, for an MNE that provides intra-group marketing services, such activities might be realized not in the same year but rather in the following years, or might fail and not be realized completely. Such “expected benefit” would normally be chargeable. (This is implicitly stated in the OECD guidelines at paragraph 7.32 and explicitly stated in the UN TP Manual at B.4.2.5. and B.4.2.6.)

In practice, a transfer pricing study needs to include a benefit analysis to support whether an intra-group service has been provided in case of a tax audit. Such a benefit analysis should demonstrate, for example, the costs savings, administrative efficiencies, better quality control, and the non-monetary benefits of centralized services, such as consistency, ease of management and monitoring, or better data protection. In this context, the transfer pricing study should specify the responsible employees that are in charge of the intra-group services and link such employees with a list of their responsibilities.

PRACTICAL EXAMPLE: DISALLOWING INTRA-GROUP SERVICES

As discussed above, an intra-group service would normally be disallowed (i.e., not recognized or not charged) if one of the two tests is not fulfilled. Assume, for example, that in 2020, a company

Christos A. Theophilou Taxand Cyprus | Partner | International Tax –Transfer Pricing

resident in a state R with a corporate tax rate of 2.5% (Low-tax Co.) enters into an agreement to provide consultancy services to a company resident in state S with a corporate tax rate of 12.5% (High-tax Co.).

Assume further that during the year 2020, Low-tax Co. rendered services amounting to 1 million to Hightax Co., and the latter settled the outstanding amount via bank transfer. Thus, for the tax year 2020, Low-tax Co. paid 25,000 tax (1 million at 2.5%) and High-tax Co. had a tax deduction from its taxable income amounting to 125,000 (1 million at 12.5%).

Assume further that during a transfer pricing audit of High-tax Co. in the year 2022, the tax authorities of state S commenced their review first from the perspective of the service provider, Low-Tax Co., and second from the perspective of the service recipient, High-tax Co. During their analysis, the tax authorities identified that Low-tax Co. staff properly provided consultancy services to High-tax Co. However, such consultancy services have not satisfied an identified need from the perspective of High-tax Co., and an independent enterprise in comparable circumstances would not have performed the activity in-house, nor had the activity performed by a third party.

As a consequence, the tax authorities in state S disallowed the consultancy expenses of High-tax Co. amounting to 1 million, and thereby increased the taxable income of High-tax Co. by the same amount, resulting in an additional tax amount of 125,000.

To avoid double taxation, assuming there is a double tax treaty concluded between state S and state R that follows either the OECD or the UN Model, then under Article 9 paragraph 2, a corresponding adjustment is possible. Such corresponding adjustment will be provided if the tax authorities of state R agree with the primary adjustment of not recognizing the service performed by the tax authorities of state S. If the tax authorities do not agree wholly or partly to reduce the revenue of Low-Tax Co. then double taxation would arise.

CASE LAW EXAMPLE: INTRA-GROUP MANAGEMENT SERVICES

Another area that tax authorities scrutinize with respect to the benefit test and disallowing intra-group

services is management services. This is because MNEs might be inclined to charge management services to a jurisdiction with a high tax rate. In the case Italy vs Alfa Gomma Sud s.r.l., July 2014, Supreme Court 16480, the Italian tax authorities disallowed the management services (a contract for the provision of general management services such as marketing, telephone, and legal, accounting, and tax consultancy) provided by the parent company, Alfa Gomma S.p.A., to the taxpayer (the Italian company). This was because the taxpayer did not provide sufficient proof of the benefits of the management services received. The Supreme Court’s judgment was in favor of the tax administration and it dismissed the taxpayer’s appeal.

The Supreme Court, among other points, noted the following:

• Several invoices issued by the parent to the taxpayer did not relate to the latter but rather to other intra-group companies;

A certain number of invoices issued by the parent company to its subsidiaries did not indicate to whom the services had been provided;

• The level of service required and charged to the subsidiaries by the parent was not proportionate;

• As per the agreement, the remuneration of the parent for the management services was fixed and did not take into consideration the required level of service of each subsidiary;

• Various costs charged had been incurred for the benefit of the parent and not the taxpayer.

The main reasons the Supreme Court ruled in favor of the tax authorities were because the taxpayer’s documentation was insufficient, and further failed to prove that there was a direct link between the activities and costs incurred by the parent company, and the benefit received by the taxpayer. The deduction of management costs was therefore disallowed.

PRACTICAL APPLICATION AND PLANNING POINTS

In light of the above, it is apparent that there are difficulties in applying the benefit test in practice. This is because it requires detailed documentation

and a breakdown analysis of the benefit for each service recipient. Further, in case of dispute, MNEs would normally not initiate the mutual agreement procedure to resolve the conflict, as this would be time-consuming, expensive, and therefore very burdensome, possibly outweighing any potential benefit. Thus, a detailed functional analysis is required in order to reduce the number of controversies. Moreover, in the post-Covid era, the above complications are compounded, and more disputes may arise with respect to activities performed remotely or by personnel who are seconded within an MNE group to perform work for an associate enterprise. Unfortunately, the OECD transfer pricing guidelines do not provide detailed guidance on this issue. Interestingly, the OECD is considering revising the guidance in Chapter VII (intra-group services) of the guidelines, as the original text of Chapter VII was included in 1995, and since then has remained largely unchanged.

Bearing in mind that intra-group services are considered to be a significant target of tax audits, normally tax authorities will first challenge whether such a service will be chargeable and, if so, will then challenge whether such a charge is sufficient, that is, at arm’s length. As a consequence, to avoid nondeductibility of intra-group services, MNEs need to have adequate documentation in place to support the two tests (benefit test and willingness to pay/perform for itself test) from both perspectives:

• From the perspective of the service provider, establishing that a service has been rendered; and

• From the perspective of the service recipient, establishing that the service rendered provides a benefit to the service recipient.

Such transfer pricing documentation should include the following:

• Evidence of the receipt of service costs and other relevant details such as emails, reports, and correspondence;

• Review and proper documentation of intercompany agreements that are drafted in the same manner as independent enterprises;

• Preparation of an industry analysis highlighting the importance of intra-group services charged;

• Functional analysis that should include the activity of each group member (service provider/ recipient) in detail;

• Documenting of the identified need satisfied by an intra-group service and including at the same time details about the commercial and economic value derived by the group member received by the service rendered; and

• Documentation providing robust evidence to substantiate the benefits received by the taxpayer.

The article was published in Bloomberg BNA at International Tax News

The impact of AI on tax professionals – Friend or Foe?

In the past few months, Artificial intelligence (AI) has emerged as a transformative force across several industries, including financial/professional services, and the field of tax professionals is no exception. As AI technologies continue to advance, their integration into tax processes has the potential to revolutionize the role of tax professionals. Nevertheless, apart from the benefits/advantages and the future prospects, AI may also create challenges for tax professionals. The question is whether we can reach a point in time where AI will be able to replace tax professionals. To date, the most known AI tools in the market are the natural language processing tools, which can understand and process human language. The work of the tax professional mainly involves the processing of documents that are written in human language, such as tax laws, circulars, directives, as well as contracts and supporting evidence of transactions implemented by taxpayers. Hence, if used wisely, natural language processing AI tools can enhance the efficiency and the capabilities of the tax professionals. Some of the key benefits/advantages of making use of AI as tax professionals are the following:

ENHANCED DATA ANALYSIS AND PROCESSING

One of the key areas where AI can significantly impact tax professionals is in data analysis and processing. AI-powered algorithms can automate the collection, organization, and interpretation of vast amounts of financial and tax-related data. By leveraging machine learning and natural language processing techniques, AI systems can quickly identify patterns, anomalies,

and potential risks in complex tax data sets. This advanced data analysis capability enables tax professionals to gain valuable insights and make informed decisions more efficiently, while focusing their expertise on strategic tax planning. AI augments the tax professional's role by handling timeconsuming manual tasks, allowing them to devote more time to value-added activities.

IMPROVED TAX COMPLIANCE

Tax compliance is a critical aspect of every organization, and AI can play a vital role in ensuring accuracy and minimizing risks and errors. AI-powered systems can monitor and interpret changing tax regulations, automatically updating tax calculations and identifying potential compliance issues. By leveraging historical data and machine learning algorithms, AI can predict and flag potential areas of non-compliance, enabling tax professionals to address them promptly.

AUTOMATION OF ROUTINE TASKS

AI's ability to automate routine and repetitive tasks such as data entry, document classification, data validation and document submission is another significant benefit for tax professionals. This automation not only saves time but also reduces the chances of human error, enhancing the accuracy and reliability of tax-related processes. Moreover, AI-powered chatbots and virtual assistants can interact with clients, providing real-time answers to common tax-related queries, although it is unlikely that such a chatbot will be able to apply critical thinking to a scenario, as it cannot replicate human intelligence. Despite all the benefits outlined above, AI should be viewed as a tool that enhances the capabilities of tax professionals rather than replacing them entirely. The expertise, critical thinking, and strategic insights provided by tax professionals under complex scenarios will remain invaluable.

The future of tax professionals in the age of AI is promising. As technology continues to advance, AI systems will become more sophisticated, capable of handling complex tax issues and providing advanced analytics. Tax professionals will have access to real-time insights, enabling them to offer proactive tax planning and tax risk mitigation strategies to their clients. With proper upskilling and by being adaptable and leveraging AI technologies effectively, the tax professionals can enhance their efficiency, accuracy, and overall value proposition.

Andreas Papagavriel Senior Manager, Tax Services Baker Tilly

The importance of establishing a robust transfer pricing policy

In today's globalized business landscape, groups of all sizes face the challenge of managing crossborder transactions effectively. Establishing a robust transfer pricing (‘TP’) policy is important to ensure transparency, compliance, and optimized tax efficiencies.

TP aims in determining the appropriate prices for goods, services, or intellectual property transferred between related companies (e.g., group companies). The purpose of TP documentation is to support that the pricing of related party transactions is aligned with market prices and reflects the contribution and economic substance of each transaction. This is also referred as arm's length pricing.

In 2022, Cyprus became one of the last EU Member States to adopt TP rules and documentation requirements in accordance with recommendations of the Organisation for Economic Co-operation and Development on Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (‘OECD TP Guidelines’).

In accordance with the TP rules, Cypriot entities engaged into domestic or cross-border transactions with related parties, should support the arm’s length pricing of such transactions. This aims to tackle profit shifting and ensure that income is taxed in the same place where economic value is created.

According to the 2023 EY Tax Risk and Controversy Survey of EY Global, businesses anticipate tax audits to double in the next two years following a distinct pause in tax audits and disputes during the pandemic. Among the 2,127 tax and finance executives in 47 jurisdictions who responded to the survey, 84% of the participants acknowledged that implementing or enhancing an effective policy would add “some or significant” value to their business with regards to tax risks and controversy management.

In light of the above, the significance of implementing a comprehensive and proactive TP policy it is becoming increasingly relevant, considering the key benefits that can be achieved. A TP policy shall be designed based on the business objectives of the group ensuring operating model efficiencies. A well-designed and effective TP policy enables groups to strategically allocate profits and expenses amongst their entities, by aligning prices with the economic substance of each transaction.

Such TP policy establishes consistent guidelines for pricing, agreements, and transactions. This clarity promotes informed decision-making and enhances

collaboration across group companies and jurisdictions in order to allow for better allocation of resources and capital as well as enhance the overall group profitability.

Furthermore, implementing a robust TP policy enhances the compliance with local tax regulations globally, considering that related transactions are priced at arm’s length. Moreover, by maintaining thorough documentation may substantially lower the risk of tax-related issues and act as a strong defence against tax audits, penalties, and disputes. At the end of the day, based on practical

experiences an effectively structured TP policy empowers groups to optimize their global tax position, by aligning pricing strategies with local market conditions and tax regulations. Finally, it is crucial for groups to strategically approach the design of a robust TP policy. Undeniably, a proactive TP policy may allow for enhanced compliance, optimized tax planning, and improved operational efficiency, while groups may consider seeking expert guidance when implementing a TP policy to achieve tax efficiencies and safeguard the group's financial stability.

Maria Panayiotou Assistant Manager, Transfer Pricing Services, EY Cyprus

Charalambos Palaontas Head of Transfer Pricing Services, EY Cyprus

Website Advertising Order Form Year 2023

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ICPAC Form (November 2021)

THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF CYPRUS

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P.O.Box 24935, 1355 Nicosia, Cyprus

Telephone: +357 22 870030, Fax: +357 22 766360

info@icpac.org.cy

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ISQM 1 Quality Assurance Management as an essential element of modern practice

Have you ever wondered how audit firms are organised or what kind of policies and procedures they have in place to ensure quality deliverables through the reports they issue?

Audit firms play a critical role in assisting Companies gain the trust of the economic world, thus it is important they themselves ensure quality is perceived throughout the organisation. The increasing complexities of structures, evolving regulatory requirements, advancement of technologies have led to the adoption of the International Standards of Quality Management 1 ("ISQM 1").

The ISQM1 is designed to provide a robust and consistent approach to quality management within firms that perform audits and other assurance services. The new standard emphasises the importance of a "risk-based" approach to quality management, which means that firms should identify, assess, and manage risks throughout the audit or assurance engagement process. Each audit firm owns unique policies and procedures which need to cover the below eight elements, as required by the Standard. These can be drafted internally or externally through outsourcing and their application needs to be monitored continuously.

RISK ASSESSMENT PROCESS:

It is required that a detailed assessment of the risks associated with an individual engagement, and the risks inherent in the overall business and environment, is performed. This will form the foundations for understanding the critical business process and ensure that the design of policies and procedures is done in a way to mitigate any risks that may damage quality.

LEADERSHIP AND GOVERNANCE:

The overall goals and objectives of the organisation in respect of quality need to be explained and transparent to the stakeholders. Policies need to describe

how high-quality service is provided, how client expectations are met, and how ethics and independence are perceived. Clear roles and responsibilities exist for departmental employees, while effective communication channels for sharing information and feedback need to be present. Top management should be involved in the operations and actively oversee the processes while living the cultural values of the firm.

ETHICS AND INDEPENDENCE:

All staff must understand and adhere to the relevant ethical and professional standards. The need to avoid any actions that could compromise independence is emphasised. Only independent auditors are involved in the audits who are well-educated and informed, act with integrity and deliver only permissible services.

ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND SPECIFIC ENGAGEMENTS

The process of accepting a client relationship and reviewing it at regular intervals based on the risk profile of each client or engagement is described. Audit firms need to adhere to the Anti Money Laundering laws and regulations. The firm must evaluate the engagement risks and take appropriate actions to mitigate them. In cases where an assessment is not

Eleni Ashioti Head of Technical and Professional Matters of ICPAC

Nicole Stavrinidou BSc, MSc, BFP, ACA Quality Assurance Director RSM Cyprus Limited

successful, the relationship needs to be immediately terminated.

ENGAGEMENT PERFORMANCE:

Engagements should involve planning, execution, completion and consultations. Firms must ensure that teams are adequately planned and allocated to projects. They are qualified, experienced, and sufficiently equipped to carry out the work. Each audit or assurance engagement must start by the team acquiring a thorough understanding of the client's business activities, risks, and internal controls. Specific policies and guidance over consultation requests are mandatory for judgmental or complex situations. At the end of each project, the audit firm should evaluate the results and take appropriate action if necessary.

RESOURCES:

An audit firm's resources include human capital, technologies, and infrastructure. All staff members must be adequately trained to own skills and knowledge to perform their duties and responsibilities. This is achieved through coaching, refresher physical or web-based training, or specific technical libraries. Systems must be safeguarded from security threats, and access controls exist while the latest updates of content and technical specifications need to be processed.

MONITORING AND REMEDIATION PROCESS:

The System of Quality Management of firms must be monitored. Technology and tools must be used for the implementation and documentation of monitoring procedures. Monitoring could concentrate on key performance indicators, such as engagement completion rates, staff turnover, and client satisfaction. Audit firms must adhere to high ethical and independence standards to maintain the trust of their clients and the investing public. They should adopt robust policies and procedures that promote trust and confidence that the deliverables are of a high and consistent quality standard.

INFORMATION AND COMMUNICATION:

Focus is placed on effectively exchanging information within teams and between the firm and its clients. This includes establishing clear lines of communication, encouraging ongoing, real-time and effective exchange of feedback between the engagement team itself and the clients'

management.

Effective and appropriate documentation is essential to be maintained throughout the engagement, including the audit plan, work papers and audit reports. This ensures that all audit work is easily identifiable and easier to review and evaluate the quality of the audit work performed.

Aligning with SDGs on a nonlinear planet

ur global vision for sustainable development is expressed in the 2030 Agenda with its 17 Sustainable Development Goals (SDGs) that UN Member States adopted in 2015. These have created a framework for national action and global cooperation on sustainable development. The SDGs provide time-bound targets for prosperity, people, planet, peace, and partnership to guide national action and global cooperation. The 17 Goals of the 2030 Agenda are aimed at everyone, from states to individual citizens.

We cannot achieve sustainability using linear models and static tools created in the past decades for a linear world. Nonlinear phenomena are all around in science, ecology, epidemiology, communities and business. The Black Swans propagated by the multiple, complex and interconnected crisis are derailing SDGs, as humanity continues to move into the Anthropocene at increasing speed.

Nassim Taleb defines a Black Swan as an event with the following three attributes: rarity, extreme impact, and retrospective (though not prospective) predictability. There are positive Black Swans (opportunities) and negative Black Swans (threats) with catastrophic consequences.

In his book ‘The Black Swan – The Impact of the Highly Improbable’ Taleb notes that ‘The notion of asymmetric outcomes is the central idea of this book: I will never get to know the unknown since, by definition, it is unknown. However, I can always guess how it might affect me, and I should base my decision around that […] This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty […] As it happens, many rare events yield their structure to us: it is not easy to compute their probability, but it is easy to get a general idea about the possibility of their occurrence. We can turn these Black Swans into Grey Swans, so to speak, reducing their surprise effect.’

The field of innovation is concerned with finding Black Swans, rare events that capture significant returns. The strategy is to tinker as much as possible and try to collect as many Black Swan opportunities as you can. Since antifragile means to benefit more than to lose (positive asymmetry), the first step is to reduce possible losses. Reducing potential losses means to reduce the exposure to negative disruptive elements (negative Black Swans).

Government, business and more generally brands operate in a high risk/high gain environment. New dynamic tools and nonlinear models are needed to help

public and private organizations detect and exploit favorable asymmetries (exponential opportunities) and avoid unfavorable asymmetries (catastrophic risks) in a systematic manner.

After many years of research, I developed a new Innovation Model which takes into account fragility, nonlinearities and exponentiality. This new Innovation System is presented analytically in a step-by-step practical Guide which among other, includes a comprehensive Innovation Toolbox with 92 strategic tools, mechanisms, techniques, methods, models, frameworks and standards. The most appropriate tools are selected case by case since every innovation is different.

The Innovation Toolbox can help private and public sector organizations modify their exposure accordingly in order to exploit positive asymmetries (be open to opportunities) and protect themselves against negative asymmetries (decrease exposure to catastrophic dangers). The detection and exploitation of positive asymmetries captures exponential multiplicative returns whilst the avoidance of negative asymmetries lessens the potential damage and eliminates the risk of ruin. This pioneering multitool is applicable to all organizations (public and private sector) regardless of type, size or activities. The practical Guide I have prepared can:

1. Help organizations: a) Innovate under conditions of extreme uncertainty and b) manage known unknowns (currency risk, supplier default, accidents, fire, bad weather) and unknown unknowns (terrorist attacks, pandemics, natural disasters, financial crises).

2. Build business and community resilience.

3. Enhance nonlinear thinking, cross cutting creativity and innovation capability.

4. Accelerate public administration and local government reforms.

5. Improve competitiveness.

In summary: The new Innovation Model presented very briefly above can help public sector organizations and business navigate the nonlinear future and contribute to achieving the SDGs.

Nicos Sika Strategy, Innovation & Communication Consultant

This new Innovation System is presented analytically in a step-by-step practical Guide which among other, includes a comprehensive Innovation Toolbox with 92 strategic tools, mechanisms, techniques, methods, models, frameworks and standards

European Year of Skills

This is the Europe we want, which acts collectively and decisively in difficult times. A Europe of solidarity and common goals. A Europe where the common good outweighs the national interest.

Yes, it's not all rosy. Interests exist and always have. The history of the unification of Europe is not a history of denial of the national state, national interest and national patriotism. It is instead the inspired promotion of the national interest of the member states through the creation of a strong Union, which makes its members much stronger.

Our participation in the European Union has shown us that synergies and collaborations can be the basis for peace, stability and prosperity. Together, we strive for a more effective and more solidary Union. Europe is in a period of transition, where great changes are taking place. Of course, these also concern labor issues and professional employment.

We are facing critical dilemmas that will define the European perspective. In the near future some jobs will cease to exist and some new ones will arise. We monitor the developments surrounding the needs that will arise and prepare for them.

It is really an honor for me and Cyprus but at the same time a heavy responsibility, to be a Rapporteur in such a great project of the European Union, the European Year of Skills.

The importance of skills has been highlighted in recent years, noting the urgent need to equip European citizens with skills for the future. The green and digital transitions create new opportunities for Europeans and the European Union economy. However, beyond the opportunities, we also have to face challenges.

Recognizing these challenges, the European Union is aiming for 80% of adults to have at least basic digital skills. A workforce with the right skills is a prerequisite for the green and digital transition, which is expected to create 2.5 million new jobs in the European Union by 2030.

Therefore, facing the challenges of the

times, we must respond with competence and seriousness. Our goal is that no one is left behind during the transition. Automation, robotics and artificial intelligence are advancing rapidly, changing the nature and number of jobs available. An equally important factor is climate change. Traditional energy industries, and the millions of people employed in them, will see an inevitable restructuring. New jobs will be created in alternative energy, new technical processes, product design, waste management and reuse. Skills have nothing to do with age. They are aimed at students who should choose to study the right profession so that they can work in their field and be paid decently. They are also aimed at people who are already of working age and whose jobs are modernizing and requiring new skills. Therefore, lifelong learning is needed. I am one of those who believe in lifelong learning and this is because development, whether slow or fast, never stops. Lifelong learning therefore, in order to be achieved, requires cooperation with the European Parliament, Member States, social partners, public and private employment services, schools and universities.

Specialization, on the other hand, requires the promotion of targeted investments in actions for training and the upgrading of skills, in order to maximize the abilities of the European workforce. Cooperation with businesses is necessary so that employee training actions keep pace with and meet the demands of the labor market.

Our citizens have sent us a message that they are at the heart of our policy-making and political priorities. We took this seriously, understanding that the participation of citizens in key consultation processes and

Cypriot journalist and politician Member of the European Parliament

other public policies at European level is extremely important.

We listened to them and decided to equip them with the skills needed for the future. Faced with critical dilemmas that will define the European perspective, as the European Parliament we have done our duty. It is now up to each Member State to make use of the programs running for the European Year of Skills. As the Speaker of this great undertaking, I am at the disposal of all those who are interested or need clarification.

The time to implement all that we have promised to the citizens is now. I declare responsibly, that Europe has taken very seriously the issue of specialization and vocational rehabilitation in the future. It is close to its citizens and cares about them. Cyprus' path towards the European Union began in 1972, when the Republic of Cyprus signed an Association Agreement with the European Economic Community. These relations developed gradually and since 2004, Cyprus is now an integral part of the European family. It participates equally and actively in shaping and formulating the principles and policy that will govern the future of the enlarged Europe.

With the Report on the European Year of Skills, which concerns tens of millions of working Europeans, we placed Cyprus in front. We put Cyprus in the first carriage in Europe. On the wagon of evolution.

owadays, the European Union remains one of the few places in the world that harmoniously combines the market economy with social protection and responsibility for the planet, the security of the rule of law with democratic freedoms and human rights, the national with the public European interest.

Loukas Fourlas

MENTORS' PROGRAMME

ICPAC, always a pioneer and close to its members, is continuing with great success to offer the Mentors' programme. This innovative, professional development programme, assists in offering different perspectives in our challenging profession, enables new opportunities to be explored and builds strong relationships amongst members. Through participation in this programme, both Mentors and Mentees will gain great benefits. 26 experienced Mentors from the profession in various industries are participating in the programme and will be happy to share their knowledge, expertise and support to Mentees who register.

The Mentors' programme is offered to ICPAC's members for FREE. For more information and registration, please scan the QR code below:

CSRD AND CSDDD Directive. What is new about CSR?

Corporate social responsibility (CSR) and sustainable development are concepts that are now more important than ever. The planet, the economy, businesses, and society need to understand that social responsibility and sustainable development are the key for a cleaner and more sustainable environment.

Corporate social responsibility (CSR) and sustainable development are concepts that are now more important than ever. The planet, the economy, businesses, and society need to understand that social responsibility and sustainable development are the key for a cleaner and more sustainable environment. That is why the European Union recognized the necessity of disclosure of non-financial information by companies.

In order companies to have sustainable investments should recognize the fact that sustainable development of the company it promotes and contributes to the sustainable development of society. Therefore, the European Union established a series of legislations and initiatives in order to give the trigger and the pressure to the

companies to change their development strategies.

The most important legislations/directives enacted by the European Union are the following:

• Corporate Sustainability Reporting Directive (Corporate Social Responsibility Directive - CSRD)

• Corporate Sustainability Due Diligence Directive (CSDDD)

The Corporate Sustainability Reporting Directive (CSRD) is essential regulation for the accountability and recording of all information that affects society and the environment. It was established by the European Union and the European Commission with the aim of developing a transparent environment and culture in which companies should be accountable and transparent about any information related to or causing a long-term impact on society and the environment in which they interact.

According to the European Commission the Partnership Reporting Directive (CSRD) requires companies that fall into 2 of the 3 criteria below:

• more than 250 employees

• 40 million euros in net turnover.

• 20 million euros on the balance sheet. comply with and disclose information regarding:

• environmental issues

• Social issues and treatment of employees

• respect for human rights

Panos

• fight against corruption and bribery

• diversity on company boards (in terms of age, gender, educational and professional background)

Essentially, the Corporate Sustainability Reporting Directive (CSRD) was created to cover the gaps created by the implementation of the regulation on the disclosure of financial information (non-financial reporting). environment, society, and governance (ESGEnvironmental Social and Governance).

It found that the non-disclosure regulation offered companies "loopholes" so that information that did not correspond to reality was published.

This practice is called "greenwashing" and it enables companies to publicize untrue information in order to reduce costs and increase company name recognition without real effects on society and the environment.

It is for this reason that many managers affected by the Corporate Aviation Reporting Directive (CSRD) consider the directive to be the right direction to upgrade the already existing non-financial information regulations to a stricter implementation framework. Therefore, companies are asked to find the right strategy that fits "glove" to their business activities, planning actions and designers that have a positive effect on the environment and society, and at the same time increase profitability and ensure the long-term viability of the business.

To balance in such an environment with various internal and external factors, companies are required to find the right corporate sustainability and responsibility strategy tools and standards that comply with the Corporate Sustainability Reporting Directive (CSRD).

Such standards are SDGs - Sustainable

Development Goals, GRI -Global Reporting Initiative which focus that companies will achieve their goals for corporate sustainability reporting (CSRD).

The European Union and the European Commission on Corporate Reporting (CSRD) compels companies to comply with the aim of increasing accountability and transparency regarding the actions created by each company.

Οn the other hand, the new directive of the European Union regarding the Corporate Sustainability Due Diligence Directive (CSDDD) aims at the mandatory contribution and involvement of boards of directors in the creation and implementation of a strategy that touches on issues related to human rights, the environment, corporate governance throughout their organization's supply chain.

The new directive concerns:

• large size and limited liability companies in the EU but also companies from 500 employees and net turnover of 150 million

• companies in high-impact sectors with a turnover of 40 million

• third country companies operating in the EU with a turnover threshold aligned with the above groups 1 and 2 produced in the EU.

For the categories of companies mentioned above, the European Union obliges them, among other things, to:

• identify to take into account and mitigate negative impacts on human rights and environmental impacts during their operations

• identify actual or potential adverse impacts on human rights and the environment

• monitor the effectiveness of the due diligence policy and measures

In essence, it obliges directors and senior management of companies to be accountable and take actions and responsibilities so that they comply with the regulation. Therefore, the new directive moves within a stricter framework and at the same time expands the list of companies that are obliged to comply with the new directive.

In conclusion, both directives define a stricter framework of accountability of companies towards the society of its partners and their employees.

Educational Beach Cleanup by ICPAC

In the occasion of celebration of “World Environment Day”, the Corporate Social Responsibility Committee of the Institute of Certified Public Accountants of Cyprus (ICPAC) in collaboration with Let's do it Cyprus, Pervolia Community Council of as well as Larnaka District Administration, proceeded with cleaning of Faros beach at Pervolia, which is one of the most beautiful beaches in Cyprus.

The total attendants were 100 people, from 5 to 88 years old, who collected garbage which was recycled or disposed of appropriately, promoting volunteerism and environmental awareness. Certificate of Achievement was provided to all participants.

ICPAC pioneered in the cleanup, as it organized an Ιnteractive Seminar at the beach, where participants, young and old, were asked to find actions to achieve the 17 Sustainable Development Goals which relate to a healthy planet, as well as to world that is fairer, more peaceful, and prosperous. The 17 Sustainable Development Goals are the world’s best plan to build a better world for people and our planet by 2030.

The Instructor of the Seminar, Mr. Panos Demetriou, Head of Corporate Social Responsibility at Let's do it Cyprus, said that this event encourages us to look at the future with optimism and that Corporate Social Responsibility and Sustainable Development are concepts that are now more important than ever. The planet, the economy, businesses, and we as a “society,” need to understand that the Social Responsibility and the Sustainable Development are the keys for a cleaner and more beautiful environment. He pointed out that it is for this reason that the European Union recognized the necessity of disclosure of non-financial information by companies, according to the guidelines of the Corporate Sustainability Reporting Directive.

It is noteworthy that the participants were also trained in safety rules at the beach by Mrs. Fotini Stampolidou, lifeguard trainer at Larnaka Lifeguard Club. She pointed out

rules such as, do not swim alone in the sea, do not dive into cloudy and unknown waters, do not pass the buoys that define the swimming zone, enter the water at least 3 hours after your last meal, do not push or immerse others in the water, consume plenty of fluids, staying in a shady place is important.

Mrs. Konstantina Achilleos, Communication Officer at ICPAC, said that it is remarkable that last year's ICPAC beach cleanup, was selected for a Pancyprian award by Let’s do it Cyprus, which is part of Let’s do it World campaign, a global cleanup campaign that aims to rid of rubbish from the natural areas of the world. She further noted that for ICPAC, actions such as this event are a priority and will continue in the future. Finally, she stated that this specific action has become an institution and will be extended to other areas of Cyprus, with the support of the Corporate Social Responsibility committee of ICPAC.

Mrs. Chryso Photiou, member of Pervolia Community Council and member of the Cultural Committee, stated that she is proud that Pervolia Beach has been awarded for the eleventh consecutive year with the Blue Flag award. The Blue Flag is an international symbol for beaches that meet certain standards for safety, cleanliness, and environmental awareness.

Mrs. Marlen Kakouridou, representative of KEAN company, said that she is impressed by the fact that young children participate at the event, who are taught from an early age the values of caring and voluntarism, as well as elderly people, who feel that even in an old age, can contribute to the protection of

Niki Christofi Member of the Corporate Social Responsibility Committee of ICPAC Business Mentor

the environment.

Aiming to be a fun awareness day, the beautiful event was combined with Zumba dance, which the children really enjoyed. To end with, i would like to refer to the messages of Mr. António Guterres, Secretary General of United Nations, regarding the World Environment Day as well as the International Day of Zero Waste. The planet is our only home, we have only one earth. Pollution is responsible for approximately 9 million premature deaths

each year. More than 1 million plant and animal species risk extinction, many within decades.

Every year, over 400 million tons of plastic is produced worldwide, one third of which is used just once. Every day, the equivalent of over 2000 garbage trucks full of plastic is dumped into our oceans, rivers, and lakes. The consequences are catastrophic. If present trends continue, by 2050 our oceans will have more plastic than fish. We should eliminate the use of plastic, reuse and

recycle it.

It is time to cleanup our world and make progress towards circular, zero-waste economies. History has shown what can be achieved when we work together and put the planet first. Together we can ensure that our planet not only survives, but thrives. Businesses need to put sustainability at the heart of their decision-making for the sake of humanity and their own bottom line. A healthy planet is the backbone of nearly every industry on Earth.

IFAC Latest Activity

IFAC’S GLOBAL KNOWLEDGE GATEWAY

New articles on the Gateway this month:

• Requesting the opinion of professional accountants working in business and public sector/governmental organizations on the Net Zero Transition

• Call to Action for Sustainability Reporting and Assurance

• Women Take the Lead: Get to Know Accounting's Changemakers

• Interview with Catherine Vaughan, Partner at EY Ireland and Diversity Champion

• Interview with Gavi CFO Assietou Diouf

• Interview with Digital Nomad Heather Smith

• Interview with Hina Usmani, Founder

of an All Women SMP

• What Skills do Financial Professionals Need to Transition to Sustainable Economies?

• Financial Literacy for SMEs: A Lifeline to

the Lifeblood of the Global Economy

• SMP & SME Trends: Enhanced Global Complexity Requires Continued Innovation and Change Management

• The Five Opportunities That Make Accountancy a Passport to Meaningful Careers in the Private and Public Sectors

• Eight Key Takeaways for the Accountancy Profession Facilitating Sustainable Development and Net Zero Transitions

• Case Study: Tesco PLC - Finance Teams Partnering to Enable Net Zero Commitments

• Mental Health Resources

INTERNATIONAL AUDITING AND ASSURANCE STANDARDS BOARD (IAASB)

• IAASB Advances Timeline for Consultation For Proposal On Sustainability Assurance, Ensuring Timely Delivery in 2024 — IAASB confirmed its intention to advance the consultation on its proposed new standard for sustainability assurance, International Standard on Sustainability Assurance TM (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Subject to the expected IAASB approval of the Exposure Draft in June, stakeholders can now expect the public consultation on the proposed standard to open in the latter part of July or early August 2023 and extend into December 2023. The earlier publication, accompanied by a comprehensive and global outreach strategy, will enable the IAASB to gain broad and early input into the development of ISSA 5000. When complete, ISSA 5000 will be a standalone, overarching standard suitable for both limited and reasonable assurance of sustainability information reported across any sustainability topics. The standard will enable engagements of sustainability information prepared under multiple frameworks and be profession-agnostic, supporting its use by both professional accountant and

non-professional accountant assurance practitioners in performing sustainability assurance engagements.

• IAASB approves draft of International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, for public consultation. The consultation will be open by early August until early December 2023.

• IAASB Digital Technology Market Scan: Internet of Things Technologies — In this Market Scan, the IAASB explores the Internet of Things, focusing on Networks for Asset Monitoring and Data Generation, a technology that enables real time tracking, managing and monitoring of business processes and assets. It also may form part of an entity’s internal control system and may provide data inputs to non-financial reporting, such as emissions reporting.

• IESBA And IAASB Highlight Commitment To Deliver On Recommendations In New IOSCO Report On A Global Assurance Framework For Sustainability-Related Corporate Reporting — IESBA and IAASB welcomethe report released by the International Organization of Securities Commissions (IOSCO) on developing a global assurance

framework for sustainability-related corporate reporting. The report calls for timely development of ethics and assurance standards for sustainability reporting by the IESBA and the IAASB. Both the IESBA and IAASB will issue public consultations this year on standards for sustainability ethics and assurance, respectively. Both boards plan to finalize their respective standards in 2024.

IAASB Effective Dates

• IAASB Quality Management Standards — effective date was December 15, 2022. Explore more on the Quality Management Standards by accessing IFAC’s dedicated Quality Management page to view articles, webinars, videos, implementation guides and more resources!

• International Standard on Auditing 600 (Revised) — effective for audits of group financial statements for periods beginning on or after December 15, 2023. The Basis for Conclusions and a Factsheet are availableto support implementation.

INTERNATIONAL ETHICS STANDARDS BOARD FOR ACCOUNTANTS (IESBA) CODE OF ETHICS EFFECTIVE DATES

• IESBA Strengthens and Clarifies Independence Requirements for Group Audits — IESBA released final revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) to address holistically the various independence considerations in an audit of group financial statements. The pronouncement will be effective for audits of financial statements and group financial statements for periods beginning on or after December 15, 2023, with early adoption permitted.

• Global webinar recording with the IESBA Engagement Team –Group Audits Independence on the revisions is now available.

• Public Interest Entities (PIE) related revisions — this pronouncement will be effective for audits of financial statements for periods beginning on or after December 15, 2024. Early adoption is permitted.

Visit IESBA’s dedicated Strengthening International Independence Standards webpage for further guidance and resources on NAS, Feerelated, and PIE revisions!

• IESBA Strengthens Global Ethics Standards To Respond To Transformative Effects Of Technological Innovation — IESBA released final revisions to further increase the Code’s robustness and expand its relevance in a world being fundamentally reshaped by rapid technological advancements and accelerating digitalization. The revisions will guide the ethical mindset and behavior of professional accountants in both business and public practice as they take advantage of the opportunities created by technology and adapt to new technology.Revisions will be effective as of December 15, 2024. Early adoption is permitted.

International Public Sector Accounting Standards Board (IPSASB)

• IPSASB Begins Development of Climate-Related Disclosures

Standard for The Public Sector — The IPSASB has announced that it will move ahead with the development of the first sustainability reporting standard for the public sector. Respondents to IPSASB’s May 2022 consultation paper on Advancing Public Sector Sustainability Reporting agreed that the public sector urgently needs its own sustainability reporting standards and that the IPSASB, with its 25 years of standard setting experience, should lead their development. Following a scoping and research phase, the IPSASB has decided to move forward with the development of a public sector specific Climate-Related Disclosures standard and has published a project brief for this major new piece of work. Reporting on climate change is one of the most important issues in sustainability reporting, which also encompasses environmental, social and governance issues.

• IPSASB Issues Public Sector Guidance To Report On Sustainability Program Information — In light of the urgent need for sustainability reporting guidance for the public sector, IPSASB has issued Reporting Sustainability Program Information—Amendments to RPGs 1 and 3: Additional NonAuthoritative Guidance. Ahead of a decision by the IPSASB on the potential development of a framework for public sector specific sustainability reporting guidance, the additional non-authoritative guidance included in Recommended Practice Guideline (RPG) 1, Reporting on the Long-Term Sustainability of an Entity’s Finances, and RPG 3, Reporting Service Performance Information can be immediately applied

by governments and public sector entities to report on sustainability program information. The additional guidance is intended to support the implementation of the key areas highlighted in the OECD paper Green Budgeting: A Way Forward. RPG 3 includes four illustrative examples.

• IPSASB Calls for Papers For 4th Research Forum — In preparation for its 4th Research Forum, which will be co-hosted by Comparative International Governmental Accounting Research Network (CIGAR) at its June 2024 conference, the IPSASB is calling for scholarly contributions from the academic community. This is an opportunity for researchers to have a significant impact on accounting standards used by governments and public sector entities across the globe. The IPSASB is offering a grant of USD $2,000 for selected scholarly papers submitted covering three research areas. Up to six grants are available in total. The grant recipients, as well as other scholars, will present the first drafts of their full papers at the 2024 Research Forum (June 2024). As a first step, academics are invited to submit abstracts by September 1, 2023.

• Fabienne Colignon Elected as IPSASB Consultative Advisory Group Chair — The Consultative Advisory Group (CAG) of the IPSASB elected Ms. Fabienne Colignon as its chair to lead its advisory efforts for the next three years. The CAG advises the IPSASB on technical projects and issues, as well as on its Strategy, adoption of standards, and other pressing issues.

• IPSASB e-News: June 2023 — the latest on IPSASB projects.

IPSASB Effective Dates

• International Public Sector Accounting Standard® (IPSAS®) 47, Revenue; effective January 1, 2025(Earlier application is permitted)

• IPSAS 48, Transfer Expenses; effective January 1, 2025 (Earlier application is permitted)

• International Public Sector Accounting Standard® (IPSAS®) 45, Property, Plant, and Equipment, effective January 1, 2025 (Earlier application is permitted)

• IPSAS 46, Measurement, effective January 1, 2025 (Earlier application is permitted)

• IPSAS 44, Non-current Assets Held for Sale and Discontinued Operations — Effective: January 1, 2025 (Earlier application is permitted)

• IPSAS 43, Leases — Effective: January 1, 2025 (Earlier application is permitted)

“A model professional body, recognized by the state and the society as the primary stakeholder for the accountancy profession and the economy in general, instilling confidence, credibility and value”