Kyriakos Iordanou
General Manager of ICPAC
| Forward thoughts
ICPAC hails the new Lobby legislation
The theory and the academic approach suggest that the enemy of corruption is transparency. Of course, this is not merely a theoretical approach, but it has also been confirmed in practice.
The Government and the State in general, exhibiting their commitment to the combat against corruption and supporting a transition towards a more ethical, meritocratic and transparent culture, proceeded in 2022 with the enactment of legislation concerning the establishment and operation of the Anti-Corruption Authority, the Protection of Persons Reporting Violations of EU and National Law (whistleblowing), as well as Transparency in Public Decision Making Processes (Lobbying).
These are three very important pieces of legislation that portray the scenery of the anticorruption and transparency framework of the country.
More specifically, the establishment of an operating mechanism for the lobby, which is congruent with good paradigms from the European Union and other third countries, aims at enhancing transparency in the public decisionmaking processes, reduce possible intertwining and control group or individual interests more effectively in their dealings with state authorities. Moreover, through this framework, the public perception of the lobby could be "dedemonized", especially when it is carried out by professionals or professional interest groups whose work requires regular contact with state and other administrative authorities.
ICPAC, as one such professional group with frequent and multifaceted action in a wide number of sectors, supports this new mechanism. ICPAC operates for a long time now within a framework of transparency regarding its encounters with public institutional bodies and stakeholders, making publicly known the areas of its concern, its positions and the meetings held with political and governmental officials. At the same time, ICPAC is a registered stakeholder in the European network of the EU Transparency Register, from where it has the opportunity to promote its positions and participate in the European public debate officially.
Undoubtedly, keeping a respective register in Cyprus for domestic lobbyists enhances transparency in our country, which, simultaneously, limits undesirable practices of the past. Through the keeping of the register and the recording of various contacts, there is an increasing pressure
on both the State and the private sector in terms of their accountability for any decisions that may or may not be considered so "clear" or in the wider public interest.
ICPAC rushed to register in the public register with registration number 12. As a professional body, acting as an official representative of the accountancy profession, this development facilitates its encounters with the State and the individual departments and units of the public services, by elevating the importance to the quality of the proposals and suggestions it submits. This also helps in reducing any subjectivity and prejudice threats, whilst its role as a prominent figure of the economic and social scene is underscored. This in effect enhances ICPAC’s prestige and reputation as a reliable and objective body, both to domestic and foreign institutions.
The new framework for lobby provides the opportunity to distinguish between those who really contribute substantially and selflessly to the public debate by projecting their technocratic and specialized knowledge for the greater good, from any egotistical and "awkward" actors. This is fundamental in shedding more light where there were “actual or presumed shadows”, should there is a proper and effective application of the legislation.
It should be emphasized that, the purpose of the lobby legislation is to establish genuine transparency in the public decision-making processes, not any other social or random contact with the Government, the State or the House of Representatives. The aim of the framework is that both parties of the lobby equation is the production of effective, fair, objective, unbiased, useful and ethical public decisions. It can serve as a shield against heterocracy and opaque motives or other self-interests, increasing the accountability of the state authorities that will ultimately make the decisions.
This is a positive initial step against corruption and the strengthening of transparency, leading to a more ethical, meritocratic and objective culture in the civic society, enhancing trust and the sense of security citizens feel towards the State. This also helps in reinforcing the framework of democracy and the level of the wider public interest protection, which ultimately impact favourably the reputation and image of the country itself, both domestically and internationally.
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THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF CYPRUS
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Telephone: +357 22 870030, Fax: +357 22 766360 info@icpac.org.cy www.icpac.org.cy
ISSN 1450-2380
The Institute Council
Nicos Chimarides (Chairman) Odysseas Christodoulou (Vice-Chairman) Eleni Pyrgou (Secretary)
Members
Andreas Avraamides, Andreas Andreou, Marios Demetriades, Afxentis Zemenides, Stavros Ioannou, Constantinos Kallis, Eliza Livadiotou, Ioanna Nicolaidou, Demetris Shacallis, Nicolas Shiakallis, Spyros Spyrou, George Hadjineophytou
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
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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
16 COVER STORY
• The government supports the ICPAC and its members for a robust and competitive economy Address by the President of the Republic Mr. Nikos Christodoulides at the ICPAC General Assembly
• The cooperation between the Cyprus Parliament and the ICPAC is vital for the development of the economy Address by the Speaker of the House of Representatives Mrs. Annita Demetriou
• The ICPAC is ready to contribute to Cyprus’ next day According to the Institute of Certified Public Accountants of Cyprus (ICPAC) President, Mr. Nikos Chimarides
22 ARTICLE
Moving on for Prosperity, for the People and for the Planet Thinking Ahead - Kyriakos Iordanou General Manager of ICPAC
24 BUSINESS & ECONOMY
• INTERVIEW by Hilde Blomme Deputy Chief Executive Accountancy
Europewith ICPAC President
The current major developments in the European profession
• The multi-tasking role of a modern CFO
Irene Loizidou Head of Administration & Finance
• Quality management and innovation accounting
Nicos G. Sykas Strategy, Innovation and Communication Consultant
• Labour Inspectorate
Andis Apostolou Acting Director of the Department of Labour Relations Supervisor of Labour Inspectorate Trade Union Registrar
• European Labour Authority and fairness in the European Union
Niki Christofi Member of the Corporate Social Responsibility Committee of ICPAC Business Mentor
34 TAXATION
• Trademark Transfers & Transfer Pricing: Recharacterization & licensing
Christos A. Theophilou Taxand Cyprus | Partner | International Tax – Transfer Pricing
• OECD transfer pricing guidance with respect to financial guarantees
Efthymios Kanaris Director | Head of Compliance & Tax Kanaris, Demetriades & Associates
14TH NICOSIA ECONOMIC CONGRESS
It is one of the most important meetings where highlevel 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.
ICPAC / ACCA Sustainability Conference 2024
For the first time, a conference on Sustainability: Reporting, Assurance, Ethics and Governance was organized in Cyprus, with the cooperation of the Institute of Public Accountants and ACCA. The conference was attended by local and foreign speakers.
| ICPAC NEWS
The 3rd ICPAC Mediterranean Finance Summit: Uniting International Finance Leaders in Cyprus
The 3rd ICPAC Mediterranean Finance Summit, co-organised by the Institute of Certified Public Accountants of Cyprus (ICPAC) through its CFO Committee and QUBE Events, was recently held in Cyprus for the third consecutive year. This prestigious Summit brought together approximately 250 senior industry experts at the luxurious Four Seasons Hotel in Limassol on 23 -24 May 2024 for a day and a half of insightful discussions and impactful networking.
The Summit served as a focal point for addressing critical financial challenges and opportunities currently reshaping the global landscape. The agenda covered a broad spectrum of topics, including “Embracing the Next Phase of Finance 4.0,” “Digital Transformation in Finance and Accounting,” “Finance Automation,” “Artificial Intelligence and Machine Learning,” “The Future of Global Financial Markets,” “The Digital Euro,” “Sustainable Finance,” “Cybersecurity,” “Talent Management,” “Cross-Collaboration in the Finance Function,” and “Building Resilience.”
The 3rd ICPAC Mediterranean Finance Summit featured a prestigious lineup of speakers from leading global organisations such as ACCA, Bank of Cyprus, Deloitte, PwC, PepsiCo, IKEA, Island Oil (Holdings) Group, Bank of Greece, Flyfish, APS Bank, and the Malta Institute of Accountants. These industry leaders explored future visions, the latest market developments in finance, and advancements in digital transformation.
“The ICPAC Mediterranean Finance Summit is more than just an event; it is a catalyst driving innovation in the finest financial sectors!” as stated by Odysseas Christodoulou, Vice President of the Institute of Certified Public Accountants of Cyprus (ICPAC)
In addition to its distinguished lineup of global finance leaders and innovators, the Summit featured exclusive and impactful sessions that highlighted its commitment to broader societal and inspirational themes. Notably, Angelos Charisteas, Vice Governor of the Region of Central Macedonia and former professional footballer for the Greek national team, captivated attendees with his session titled "ΑΝΑΤΡΟΠΗ," offering profound perspectives on leadership, resilience, and strategy.
"Winning isn't just about achieving a prize; it's about changing your life. For me, winning means transforming from nothing to something, spreading love, and most importantly, doing it joyfully," as stated by Angelos Charisteas.
The Summit commenced on Day 2 with a compelling social responsibility session led by Costas Vichas, recipient of the prestigious "European Citizen" award in 2020. Costas, an accomplished actor and renowned for his humanitarian contributions to Cypriot society, delivered an inspiring session that moved the audience with his unwavering commitment to supporting underprivileged communities. His insights and dedication to social causes resonate deeply with the summit’s mission to foster impactful change through financial leadership. We are pleased to support this meaningful cause by donating 5% of this year’s participation fees of this Summit to this meaningful cause.
The ICPAC Mediterranean Finance Summit acted as a foundation for attendees to stay aligned and engaged with the future of the finance function.
"The role of the CFO is continually evolving. The CFO of today is the trusted advisor of the owner, the CEO and the top management of each organisation. Modern Finance leaders need to have a wide spectrum of knowledge and experience to help them cope with this demanding role. This was exactly the aim of the very successful 3rd ICPAC Mediterranean Finance Summit, to bring new concepts and ideas and enhance further the knowledge of the Finance Leaders," as stated by Stavros Kattamis, Chairman of the CFO Committee of the Institute of Certified Public Accountants of Cyprus (ICPAC).
"We are very proud of the success and impact of the
This prestigious Summit brought together top-tier finance professionals and thought leaders from around the world to discuss critical issues shaping the future of finance. We look forward to continuing our mission of hosting impactful and transformative events that shape the future of global finance," stated Lilly Pavlou, Executive Director at QUBE Events.
For more information about the upcoming 4th ICPAC Mediterranean Finance Summit in May 2025, hosted in Limassol, Cyprus, please visit the QUBE Events website at https://www.qubevents.com/forums.
3rd ICPAC Mediterranean Finance Summit in Limassol.
| ICPAC NEWS
ICPAC Members Open Days– April 2024
As part of ICPAC's continuous actions and efforts to keep its Members informed and updated on all developments in the Profession’s field, the current Institute’s affairs, as well as matters related to their obligations, three open discussion days with Members were held during April 2024 in Nicosia, Larnaca and Limassol. Through relevant presentations by ICPAC’s representatives and within a spirit of dialogue and interchange of opinions and views, Members were given the opportunity to articulate their concerns and raise suggestions regarding the Profession and the challenges it faces in a rapidly changing financial services sector.
The open days moved in three thematic directions. In the first topic, ICPAC’s Head of Technical and Professional Matters, Ms. Eleni Assioti, provided an update on the development progress of the financial reporting framework for small-sized entities. Members were given comprehensive information on how ICPAC approached the move towards a financial reporting framework for smallsized entities and additional details on the use of the IFRS for SMEs as the basis to develop a local generally accepted Accounting Principles (‘local GAAP’), compatible with relevant EU Regulations. Members were also recapped on
the adoption option of the simplified assurance process for entities meeting the set criteria, using the International Standard ISRE 2400 (Revised) and were briefed on the upcoming requirements for Companies in scope, arising from the EU mandatory standards to be known as the European Sustainability Reporting Standards (‘ESRS’).
The second thematic direction of the open days, included a presentation by the Institute’s Head of Learning and Development, Ms. Efi Marcou, on the main pillars summarizing the department’s affairs, being the organization and provision of learning and educational activities to ICPAC’s Members, the framework of Continuous Professional Development (CPD), the Joint Examination Scheme maintained with ACCA, the AML/CFT Certification provided in collaboration with ICA and CBA, as well as the engagement in activities and actions to promote the attractiveness of the accounting profession both locally and abroad. Members were given the opportunity to hear about the registration and attendance process of ICPAC’s learning activities, the obligations stemming from the CPD Scheme in conjunction with the established regulatory review process of their CPD evidence, as well as to be informed
about upcoming educational activities planned by ICPAC.
In the last thematic part of the open days, ICPAC’s General Manager, Mr. Kyriakos Iordanou, provided an overall update of the current developments concerning ICPAC, the Profession and the challenges it faces, along with the Institute’s continuous efforts to remain relevant and add value to all its key stakeholders. During this part, in addition to the information provided on ICPAC’s main lines of activity – as a professional body, as a Competent Supervisory Authority and as a key stakeholder of the economy and society - the Members seized the opportunity to discuss and interact with the representatives of the Institute. Individual topics touched upon by Mr. Iordanou’s presentation focused
on the work produced by ICPAC Committees, the domestic and international collaborations maintained by ICPAC with other institutions and organizations, the consultation with the State and the House of Representatives, the actions to combat corruption, as well as ICPAC’s contribution to the implementation of the long-term strategy of the Cypriot economy "Vision 2035".
The overall message that was reiterated to Members through these open days is that ICPAC is always at the forefront of developments, always aiming at supporting them in their needs and development process, whilst working determinedly based on the tripartite: VisionStrategy - Dedication.
| ICPAC NEWS
Global Money Week 2024
In the context of Cyprus’ participation in the annual Global Money Week (GMW) 2024 organised by the Organisation for Economic Co-operation and Development (OECD), ICPAC joined forces with other institutions and organisations under the coordination of the Central Bank of Cyprus by participating in a number of events and actions. The general purpose of this yearly initiative is to empower youth with essential financial knowledge, skills, and behaviours, enabling them to make informed financial decisions via enhancing and promoting financial literary.
The theme of this year’s GMW campaign was “Protect Your Money, Secure Your Future,” and aimed particularly at raising awareness and highlighting the importance of managing money safely and making well-informed and responsible financial decisions in today’s fast-paced world. ICPAC’s actions included a series of presentations in high schools across the island covering the area of "Opting for a career in the Financial Services world", extensively illustrating the prospects of the profession in a rapidly changing local and international environment, explaining the requirements for obtaining such a professional qualification and addressing the multiple roles that a Professional Accountant can take today in a business world full of challenges and opportunities.
The representation at GMW 2024 was organised by ICPAC’s Learning and Development (L&D) Department and presentations were delivered by the Institute’s General Manager, the Head of L&D Department and a dedicated team of ICPAC Members coming from the biggest accounting & audit firms in Cyprus. During the presentations, representatives of ICPAC included also team members from the Monitoring & Compliance, Learning & Development and the Admissions & Licensing Units, indicative of the importance placed on issues concerning training and development of youth. This year’s actions reiterated that ICPAC, as part of its strategic objectives, is always at the forefront of any initiatives that serve the public interest and positively impact the society as a whole.
New ICPAC Council
The Institute of Certified Public Accountants of Cyprus (ICPAC) held its 63th Annual General Meeting on 19 June 2024 online from Nicosia Municipal Theatre. Following the procedures of the General Meeting, the new Council was formed as follows:
President: Nicos Chimarides
Vice-President: ..........................................................
Members:
Odysseas Christodoulou
Andreas Avraamides
Andreas Andreou
Marios Demetriades
Afxentis Zemenides
Stavros Ioannou
Constantinos Kallis
Eliza Livadiotou
Ioanna Nicolaidou
Demetris Shacallis
Nicolas Shiakallis
Spyros Spyrou
George Hadjineophytou
The term of the new Counsil is for period 2024 – 2025
The 63rd Annual General Meeting
ADDRESS BY THE PRESIDENT OF THE REPUBLIC MR. NIKOS CHRISTODOULIDES AT THE ICPAC GENERAL ASSEMBLY
The government supports the ICPAC and its members for a robust and competitive economy
For the government, the ICPAC and its members are valuable partners in the great common effort to accomplish a more robust and competitive economy.
As Mr. Christodoulides pointed out, the government’s vision envisages the modernization of the tax system (a longstanding position of the ICPAC), since the latest reform occurred in 2002. This will improve our economy’s competitiveness, it will lead to the reduction of the administrative burden for taxpayers and businesses, and it will achieve a fairer redistribution of the tax burden, with special attention on the middle class of our country, which has been the backbone of the Cypriot economy. Mr. Christodoulides added that the government aims to align the tax policies with the objectives of the European Green Deal, in the context of the promoted green tax reform that aims to address the huge challenges of climate change, the consequences of which we are experiencing on a daily basis.
Another major objective, Mr. President said, which they have set from the beginning of their mandate is to preserve the reputation of Cyprus as a credible business and financial centre. From the very first moment, he pointed out, they have been working on safeguarding the name of our country in cooperation with the supervisory bodies and the support of
international institutions. He stressed that everyone should address this issue with utmost urgency and with specific actions, such as the establishment of the Single Supervisory Mechanism for administrative service providers, in order to reverse the current prevailing perception about our country. Mr. President took this opportunity to thank the ICPAC for their contribution to this effort, particularly for the establishment of a Single Supervisory Mechanism.
Mr. Christodoulides expressed his confidence that together we can achieve the best for the country, opening up new business opportunities and establishing a competitive and resilient economic model.
Referring to the agreement with the US on the establishment of a strategic dialogue between the two countries, he said that this shall strengthen the position and reputation of the Republic of Cyprus on an international level, offering a solid foundation for the promotion of the interests of Cyprus in the fields of security, defence, energy, research, and especially economy, where
• Our vision is to modernize the tax system
• Our priority is to safeguard Cyprus’ reputation as a reliable business and financial hub
there are vast opportunities. He pointed out that the agreement provides for dialogue on cooperation in trade, investment and development, the significance of which we all recognize for a more resilient and more competitive economy in the country.
Mr. Christodoulides added that they are proceeding with the implementation of the promised "rebranding" of Cyprus, by featuring real data on our country’s capacity as a business and investment destination rather than communication tactics. The President also stated that the fundamental objective of the Government is to ensure macroeconomic stability and efficient management of public resources and financial obligations, leading to the enhancement of the competitiveness of businesses and the improvement of the standard of living of every citizen of the Republic of Cyprus.
He also added:
• We live in a constantly changing, unpredictable geopolitical
environment. We face challenges such as digitization, the emergence of new technologies, climate change, the demographic crisis and an ageing population, with grave consequences for the economy. As far as the rapid digital transition is concerned, which is crucial to our country's competitiveness, we must ensure that both the state and Cypriot businesses adapt to this new reality successfully. And, therefore, we are promoting the Digital Citizen initiative in practice and not in words. Digital Citizen is a Government's initiative, a new tool for citizen interaction with the state, that is expected to be launched in September 2024. Through this application, official documents such as driving licenses, biometric ID cards and vehicle related documents will be digitized and stored in digital format. This will be followed by all documents that are issued by the Government. It is unacceptable that in 2024 one needs to go to the Public Service to request a copy of a document issued by them.
ADDRESS BY THE SPEAKER OF THE HOUSE OF REPRESENTATIVES
Mrs. AΝNITA DEMETRIOU
The cooperation between the Cyprus Parliament and the ICPAC is vital for the development of the economy
“Thanks to the valued knowledge of the ICPAC and your members, you have the capacity to provide solutions to various issues that concern both the state and the business world, acting as the link between the taxpayers, businesses and the state”.
The ICPAC is the link between taxpayers, businesses and the state
This was part of the address to the ICPAC General Assembly by Mrs. Annita Demetriou, Speaker of the House of Representatives.
As Mrs. Demetriou pointed out, the profession of certified accountant entails requirements such as reliability, integrity and transparency on a day-to-day basis. As the Speaker of the House of Representatives, Mrs. Demetriou highlighted the importance of the cooperation between the Parliament and the ICPAC and the need to continue the common efforts to form the appropriate legislative framework that will support the ICPAC and accountants in general, with the objective to formulate a suitable legal framework that will enhance the Cyprus economy.
Finally, Mrs Demetriou thanked the ICPAC for its cooperation, contribution, and its significant role during discussions on relevant bills and legislation.
ACCORDING TO THE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OF CYPRUS (ICPAC) PRESIDENT, Mr. NIKOS CHIMARIDES
The ICPAC is ready to contribute to Cyprus’ next day
The readiness of the ICPAC to contribute with all its forces to the further advancement of the Cyprus economy was expressed by its President, Mr. Nicos Chimarides.
Speaking from the podium of the 63rd Annual General Assembly of the ICPAC members, Mr. Chimarides noted specifically that ‘we are at the disposal of the State for the required step “forward"’, adding that ‘the ICPAC is more than ready to assist the economy and Cyprus with proposals, actions and initiatives’.
Referring to the economy, Mr. Chimarides stressed that 2024 is advancing much better than the first estimates, as this can be verified by the improvement of the fiscal situation, the emergence of a significant fiscal surplus and the reduction of public debt. Regarding inflation and unemployment, he noted that these are exhibiting a marked deceleration, hovering around 2.5 percent and 6 percent respectively.
Mr. Chimarides then referred to the following three factors, which, he said, allow us to look optimistically at the near and mediumterm future:
1. Launch of a Strategic Dialogue between Cyprus and the USA
2. Economy upgrade by the international rating agencies
3. Interest rates reduction by the European Central Bank
On the need to restore the country's reputation and credibility, he noted that the ICPAC supports the rebranding efforts and is ready to assist towards this direction, both institutionally as an Association and as professionals. However, he clarified that 'good intentions do not suffice, since there is great need for tangible actions'.
• Yes to substantial tax reform
• In favour of the Single Supervisory Authority
• Optimism for the future of the economy
In this context, Mr. Chimarides supported the establishment of the Single Supervisory Authority, saying that through it, direct foreign investments to Cyprus and the investors themselves will be monitored more effectively and more comprehensively, with the implementation of the relevant European Directives, including sanctions and money laundering. At the same time, the framework for coordination, cooperation and handling of actionable cases by the individual supervisory authorities is strengthened.
On the tax reform that is being promoted, he expressed the satisfaction of the ICPAC, noting that 'this is a necessary infrastructure project, which will form the foundation of economic and business development'.
He added:
• We emphasize, however, that for the project to have substance and effect, it is necessary to examine the entire system horizontally, strengthening its flexibility and simplicity on the one hand and, on the other, by inoculating it with modern international practices, provisions and digital upgrades. He added that the criterion for the system's survival is to achieve the required balances, while giving well-meaning incentives to taxpayers and at the same time preventing potential erosion of public finances.
Mr. Chimarides supported that efforts for the attraction of foreign investments are needed, hence there is also great need for the promotion of reforms and other reform projects, which will enhance the State's functionality, reduce bureaucracy, highlight transparency and the fight against corruption, emphasize the principles of equal treatment, good administration, and modern governance practices. Examples of such projects, he said, are certainly the reforms in the public sector, in local government (the success of this very recent bet will be shown in the course of time), in education, in the judiciary system and, above all, in our mindset and culture.
He then pointed out that what will determine our immediate future are irrevocably technology advancement and the application of artificial intelligence, the green transition along with sustainable development and the circular economy, while social changes play an equally important role.
Finally, Mr. Chimarides referred to the ICPAC's extensive activities, both within and outside Cyprus, concluding with the following:
• The only constant in our course is . . . constant change! We therefore have to adapt and prepare for the next day. A new day, in which Cyprus must have a strong economy, a functioning state, modern institutions and dynamism in its businesses and human resources. Only with such conditions will we be able to offer our citizens a higher standard of living and a promise for a better life.
The ICPAC assembly was addressed by the President of the Republic, Mr. Nikos Christodoulides, and on behalf of the President of the Parliament, the MP Ms. Christiana Erotokritou.
The assembly was attended by Heads or Representatives of Political Parties, Ministers, Members of the Parliament, the Governor of the Central Bank, state officials, business people and members of the ICPAC.
Notes
1. The ICPAC President’s entire speech is attached.
2. Photographic material will be sent to you late in the afternoon.
Moving on for Prosperity, for the People and for the Planet
It has perhaps become trite, but it is a fact that, during the recent years, we are being faced with constant changes and challenges in the international geostrategic, political, economic and business scene, as it is shaped through overt military wars, as well as, through economic and trade wars, which are perhaps obscured to the public eye.
Therefore, we operate in an environment of relative uncertainty and instability, whilst remaining alert for any new challenge that may arise.
ARTICLE - Thinking Ahead
Probably, the best defense in such times, given the size of our country, is the establishment of international partnerships and alliances, the strengthening of the economic and business base, the reputation and attractiveness that the country exudes towards third countries and foreign investors, good and sound internal governance and internal social cohesion. It is of paramount importance to establish as primary business and trade partners international corporations and third countries, aligning thus their own interests with those of our own country.
by Kyriakos Iordanou General Manager of ICPAC
The extroversion and recognition of Cyprus and its institutions for their capabilities and capabilities at European and global level will obviously provide the necessary impetus for this purpose.
I would like to refer to such a development, which I consider a success for Cyprus, where the Public Oversight Authority of the Audit Profession (CyPAOB), through its General Manager Mr Panos Prodromides, has been elected to the chairmanship of the Committee
of European Auditors Oversight Bodies (CEAOB) for the next four years. This development, apart from being honorary, opens up a huge opportunity for Cyprus to promote the audit profession in the European Union and will practically contribute to the narrative for further strengthening the reputation and image that the country emits.
A second, equally important, prospect is the assumption of the
for us to win this challenge as well.
In the same wavelength, and in the effort made by all of us to turn the page and enter a new era leaving the burdens of the recent past aside, I would like to refer to my presence and participation as
a speaker at the International Anti-Corruption Conference, which took place recently in Lithuania. The conference is organized by international investigative journalistic networks and related bodies promoting transparency and my participation to discuss the way Cyprus handled the difficult subject of enablers and service providers during the last years amid the elevated sanctions regimes, following a personal invitation by the organisers, could be seen as a vote of confidence for the country and also for ICPAC. So, I guess that they must have seen something good in our actions and they want us to share our story with them.
Beyond restoring our credibility, there is much that needs to be done to achieve a resilient and sustainably growing economy. It is necessary to accelerate the pace for all ongoing or planned reform actions, to proceed with the implementation of the national long term strategic plan “Vision 2035” for structured and balanced growth, with the tax transformation project, with the real reduction of nonperforming loans and with the support and incentivization of start-ups and SMEs.
At the same time, we should accept that the future has a name and surname; namely “Technology and Sustainability”.
ICPAC and the accounting profession go hand in hand with the digital transformation and are getting ready for the application of digital tools including artificial intelligence. Moreover, the implications of the green transition and of sustainable development remain high in the profession’s agenda.
Both accounting and auditing work, along with financial reporting, will undergo significant changes from 2025 onwards, pursuant to the European CSRD Directive, which will certainly affect businesses themselves as well.
At the same time, the banking map is about to be reshaped accordingly, as climate risks become business risks. This is expected to affect more the granting of new loans, loan costing and pricing, the risk assessment and management framework, the value chain and the commercial-business relations of the banks with their clients. Therefore, we are entering new paths, which, despite the uncertainty and problems they may cause, will also give rise to significant opportunities.
ICPAC and the accounting profession also face their own challenges and must be ready to provide various answers. That is why ICPAC’s main focus has been structured into three axes of priority: (a) as a Professional body – Association of Members, serving and supporting its members, (b) as a competent supervisory authority, executing its institutional supervisory responsibilities as assigned to it by the State, and (c) a stakeholder of the economy and society.
ICPAC therefore continues to progress on the same tracks, extending the hand of friendship and cooperation to all stakeholders, the State, the Parliament and the private sector. We continue to serve our members, the business community, the economy, society and the public interest to the best possible extent, aiming at achieving the best possible outcome for Prosperity, for the People and for the Planet!
Presidency of the European Union by the Republic of Cyprus in 2026. I am sure that the government will prepare properly
The current major developments in the European profession
Hilde Blomme joined Accountancy Europe in 2003 and has been Deputy CEO since 2011. Hilde provides regulatory and technical expertise in the areas of reporting, assurance, sustainability and professional practice development and contributes to developing and implementing the Federation’s strategy. Prior to this assignment, she spent nine years with PwC as an external auditor, consecutively in Brussels, New York and London dealing with both multinational and SME audit clients. Prior to joining PwC, she spent three years with local Belgian auditing firms serving SME clients. She started her professional career at Morgan Guaranty Trust in Brussels. She is qualified as a US Certified Public Accountant, Belgian Chartered Accountant, and member of the Association of Chartered Certified Accountants (ACCA).
Interview by Hilde Blomme Deputy Chief Executive Accountancy Europewith
ICPAC President
Accountancy Europe is the federation of the professional accountancy bodies in Europe. What is its principal purpose, and which are currently its strategic objectives?
Accountancy Europe is the umbrella organisation that unites 50 professional organisations from 35 countries, represents around 1 million qualified accountants, auditors and advisors. We stand as the voice of the profession in Europe and we translate their daily experience to inform the European policy debate. Our mission is to facilitate members cooperation, dialogue with policymakers and help shape the profession’s future.
Our current priorities are shaped by pressing global challenges, such as the climate crisis and geopolitical tensions, which influence all aspects of our work. For 2023-24, we have developed a flexible and ambitious strategy to address these challenges. Our key priorities include:
• supporting a sustainable and just transition, including for small businesses and the public sector. advancing the corporate governance ecosystem, with a particular focus on the role of audit.
• shaping the future of the profession and enhancing its attractiveness.
The new huge challenge for Europe is “sustainability”. What is the professional accountant’s role in building capacity and companies’ adapting to the new CSRD requirements?
Professional accountants can and should play a determining role in the implementation of the Corporate Sustainability Reporting Directive (CSRD) requirements, as part of the EU Green Deal, in the transformation to sustainable business models in EU companies. They should invest time and effort into acquiring the necessary competences and experience on the European Sustainability Reporting Standards (ESRS) requirements which are introduced by the CSRD as from 2024. This should enable them to support companies in implementing these new sustainability reporting standards mandated in the EU as from 2024.
In addition, auditors should obtain the necessary skills and experience to provide limited sustainability assurance engagements which are also mandated on sustainability reporting in the EU as from 2024. ISAE 3000 can be used for such engagements. If all goes well, in September 2024, the new ISSA 5000 on sustainability assurance should be available. Its use will also require abiding by relevant quality management, ethical and independence requirements.
The ESRS are complex and demanding standards, so their full implementation is expected to be a journey which might last a few years. Collaboration between companies, auditors, enforcers and users on issues encountered in practice will be crucial to make this implementation as smooth as possible.
How are the new regulations transforming business? To what extent and how do they also affect businesses that are not within the scope of CSRD?
As already hinted above in the previous question, sustainability is an EU top priority. This is initiated by a variety of EU legislative initiatives, with the EU Green Deal being a key one. It aspires for the EU to be the first climate-neutral continent by 2050, to decrease the EU net greenhouse gas emissions by at least 55% by 2030 in comparison to 1990 levels and to plant 3 billion additional trees in the EU by 2030.
The CSDR is fundamental for achieving the EU Green Deal’s objectives to have companies transform to sustainable business models. As part of CSRD, the ESRS should enable companies to measure their transition and report on it.
This is first and foremost the case for companies within the direct scope of the CSRD, basically all large and listed entities in the EU as well as non-EU companies with branches or subsidiaries in the EU above the Euro 150 million net turnover threshold.
They should report on their own operations and also their value chain, including the principal actual and potential adverse impacts connected with their products and services, its business relationships and its supply chain.
Companies in the value chain are indirectly affected businesses not within the (direct) scope of the CSRD. Many of these companies in the value chain might be Small and Medium Sized Entities (SMEs).
At EU level, what are the main challenges in the preparation process? Are companies ready? Experience so far? Is there a difference between the readiness of listed entities and large entities? Are these that have used GRI in the past ‘more ready’? Where to start?
The main challenge for companies is to prepare their company’s sustainability report based on the ESRS requirements. These standards are very extensive and much more demanding than most of the sustainability reporting standards used voluntarily until now.
The practical challenges for companies are therefore the lack of time to duly prepare to implement the ESRS. In addition, the lack of skilled and experienced resources is another commonly heard challenge for companies on their journey, because it is a journey which might take several years, to high quality sustainability reporting under the CSRD.
Large listed companies started their implementation journey and many concluded that the CSRD/ESRS requires massive efforts, however most believe they will manage to have their first ESRS report ready by the end of 2024. Previous experience with GRI reporting, including the double materiality assessment, definitely helps.
However, not all large listed companies will be ready with all their ESRS reporting in the first year 2024. But there are already good examples: ABN Amro, Allianz, Orsted, Philips, UCB, etc. included in its 2023 Annual Report a sustainability statement that has been structured in preparation for compliance with the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS).
Large listed companies often start as follows to get ready for ESRS reporting:
• Get board support as this is a strategic matter
• Start with the double materiality assessment
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• Perform a gap assessment including a readiness assessment of:
• Resources and timing
• IT architecture
Data management
• Develop a roadmap to bridge the gaps
• Develop internal controls and an ESG reporting process
Implement, including training and solution building
When we turn our attention to other large companies within the CSRD scope that have to report under ESRS as from 2025, the story is quite different. Most of them have only recently raised their awareness on the requirements of the CSRD and most are not yet ESRS trained, many of them feel overwhelmed and some are still in a state of denial. Often they are:
Unfamiliar with the requirements
• Uncertain how to get started
• Need support in the form of implementation guidance, but also support for gap analysis
• Struggle to find the support they need, whether it is from government agencies, standard setters, consultants or professional accountants. Without interventions on short notice there might be many of these companies missing the boat.
How do medium-sized enterprises (SMEs) prepare for sustainability reporting under sustainability standards? Do you consider appropriate for them to start sustainable reporting, according to the standards?
SMEs are not directly within the scope of the CSRD. However, many will be within the value chain of large entities under the CSRD and will thus eventually indirectly fall within the scope of the CSRD.
However, ESRS include some phase-ins which should help SMEs. For the first 3 years that companies apply ESRS, they are not required to report any value chain metrics, with the exception of scope 3 Greenhouse Gas (GHG) Emissions. Scope 3 GHG emissions are even phased-in during the first year of reporting for companies with less than 750 employees. Afterwards, this is the only value chain metric in ESRS for years 2 and 3 as the rest of the value chain information is phased-in for the first 3 years of application. So, some SMEs within the value chain of large listed entities might be asked for their scope 1 (direct) and 2 (indirect) GHG emissions (which are the scope 3 of another company) as from 2025. Therefore, these SMEs should focus on preparing for this value chain metric, if they expect or have been requested by their value chain companies to provide such information.
In the meantime, EFRAG, the European Commission (EC) Technical Advisor for ESRS, has worked on a so called Voluntary SME (VSME) ESRS standard. The consultation on the draft VSME draft closed in May 2024. Once approved, expected by the end of 2024, this will be a nonbinding standard.
The VSME is a voluntary, modular, building-block SME standard with 3 levels:
• Basic module – 10 metrics ‘suitable for micro entities’
• Next model - Narrative Policies and Targets Module
• Business partner module – 11 Metrics largely drawn from questionnaires re sustainable finance
After the phase-in period of 3 years has passed, it is hoped that the VSME standard will be widely used by large and listed companies in their
requests for information from SMEs in their value chain, but time will tell whether this will be the case.
So many SMEs will not have a choice and will need to provide some sustainability information to their larger suppliers or customers.
More widely, sustainability is critical for SMEs. We noted 5 key sustainability challenges/expectations for SMEs:
• Importance of immediate (climate) action
• Expectations from consumers, employees, new generations
• Legislation
• Access to finance
• Value chain requirements
Which are the responsibilities of the management or of the Audit committees of companies under the new Directive?
The main responsibility for management of companies that fall under the scope of the CSRD is to make sure their company complies with the CSRD requirements, which include mainly the preparation of their company’s sustainability report based on the ESRS requirements as well as obtaining limited assurance on their ESRS reporting.
As a reminder, all large companies, so companies exceeding 2 of the 3 following criteria for 2 consecutive years (balance sheet total of Euro 25.000.000, net turnover of Euro 50.000.000 and Full Time Effectives or employees of 250) are within the scope of CSRD. More specifically, those already under the scope of the current Non-Financial Reporting Directive as from 2024 (including all listed entities), all other large companies as from 2025. The other specific requirements in the CSRD for management are included in Articles 19a (c) and (e) and require that companies’ sustainability reporting includes:
• a description of the role of the administrative, management and supervisory bodies with regard to sustainability matters, and of their expertise and skills in relation to fulfilling that role or the access such bodies have to such expertise and skills
• information about the existence of incentive schemes linked to sustainability matters which are offered to members of the administrative, management and supervisory bodies.
The responsibilities of audit committees, which should be established in all public-interest entities, are expanded and now also include the selection of the sustainability assurance provider, the obligation to inform the administrative or supervisory body of their company of the outcome of the assurance of sustainability reporting, and to explain how the audit committee contributed to the integrity of sustainability reporting and what the role of the audit committee was in that process.
How is the sustainability reporting being shaped and which would be the biggest challenges for the preparers?
In addition to the many operational challenges already described in my response to question 4, reference was already made to the biggest challenge: the lack of time to implement the ESRS. The EC adopted the ESRS in July 2023, the co-legislators (the European Parliament and Council of EU Member States) ratified them in December 2023 and they became applicable on … 1 January 2024.
The next challenge is that the implementation of the ESRS will be a journey. The first set of 12 sector-agnostic ESRS is 284 pages, including 83 disclosure requirements which consist of 1.134 more granular datapoints. Even if reporting on most of them is subject to a double materiality assessment, the largest companies would be expected to
have to report on most of them. Gathering all the required information might become a race against the clock.
In addition, the ESRS were never field tested, so there are very few practical examples of sustainability reports based on ESRS available. There might be some trial and error before good or best practice will become apparent and a level of consistency in sustainability reporting will emerge. Therefore, it is crucial that the different stakeholders most impacted by the ESRS, preparers, auditors, enforcers and users, collaborate closely to exchange on practical issues in the implementation of ESRS and indeed also on being ready for obtaining sustainability assurance, and try to find practical solutions together.
What is your opinion on the potential risk of greenwashing in terms of sustainability reporting?
Greenwashing is not a technical issue, it is first and foremost a behavioral or ethical issue. As indicated before, the main aim is that companies transform their business model into a sustainable one. If this transition is slow or does not happen, companies might shy away from being transparent about the real progress they made. However, being transparent about your real progress - or lack of it – when reporting externally, is key to avoid greenwashing.Tone at the top in companies is crucial and that is why company boards should be at the forefront of the sustainability efforts in the company on ESG, sustainability transition planning, delivery on sustainability objectives and limiting greenwashing risks. Boards need to challenge the information that management presents. Incomplete or selective sustainability reporting risks resulting in greenwashing and loss of trust, in addition to reputational damage, litigation, fines, legal fees and loss of consumer confidence. This will ultimately also impact the company’s bottom line.
Ms Blomme, what was the purpose of your visit to Cyprus? How is the cooperation with the local professional body ICPAC?
I was invited by The Institute of Certified Public Accountants of Cyprus (ICPAC) to speak at their Sustainability Conference, organised together with ACCA. I made a presentation on the status of sustainability reporting requirements including the latest news from the European Union in Brussels. I also moderated a panel on sustainability reporting with stakeholders from the academic, preparers, audit and certification profession. I hope this will inspire and help the Cypriot accountancy profession to prepare for the implementation of the CSRD and ESRS as from 2024. For a European association like Accountancy Europe, it is very important to discuss with people ‘on the ground’. Therefore, I am very grateful that thanks to ICPAC, I was also able to meet and engage directly with a number of critically important Cypriot authorities, agencies and oversight bodies, in addition to being able to connect with the ICPAC members working in practice.
ICPAC is one of our 50 member bodies. We cherish their membership very much and I would say that our cooperation is excellent. One of the key members of the ICPAC team formerly worked at Accountancy Europe. ICPAC also has a number of Cypriot practitioners active in our expert groups where we discuss and form views on matters of importance to our profession on EU level. And ICPAC is obviously also active in our governance committees. We are looking forward to many more years of fruitful cooperation with ICPAC and the Cypriot accountancy profession and business in the future.
The multi-tasking role of a modern CFO
The role of the modern CFO moves at the same high speed as the inherent opportunities and risk of the business he / she belongs to. The modern CFO is faced with constant challenges. Many juggle responsibilities across finance, administration, and operations daily. It is not just reporting numbers but something more. Most CFOs are now expected to be versatile and charismatic business partners in addition to finance experts.
CFO is the “superman” / “superwoman” of today businesses responding to calls and requests not by using his / her superpowers but with the continuous development and regular practice of his / her skills and knowledge. Calls for budgeting, planning, risk mitigation, impact of geopolitical tensions, impact of technological advancements, microeconomic disruptions, board advising, climate risk, sustainability, data processing and health and safety, form part of his / her day-to- day agenda. CFO role is a 3-D role that should be carefully balanced and weighted.
A CFO to respond to all these “Calls of duty”, need to be able to:
(a) Understand the key business drivers, industry dynamics and value creation trends.
(b) Collaborate with all departments.
(c) Allocate resources in an efficient and effective manner.
(d) Comply with standards, laws and regulations and maintain and develop procedures (internal and external).
(e) Establish operational and commercial KPI’s to assess the organization’s vulnerabilities and opportunities.
(f) Apply basic banking and investment techniques.
(g) Prioritize tasks in such a way as to lead to an efficient and effective result.
(h) Assess the financial impact of strategies and take all reasonable steps for their implementation.
A CFO to be able to handle all the tasks, need to:
(a) Have credibility and demonstrate ability to work with each business or departments leaders.
Irene Loizidou Head of Administration & Finance
(b) Be enthusiastic and innovative.
(c) Keep himself / herself up to date through informal and formal training while keeping up with daily opportunities and changes.
(d) Enhance and develop the relationship with CEO through the understanding of
the management style of his / her CEO. At the same time, needs to be the person who can tell the CEO “No” (by justifying of course his / her respond).
(e) Enhance and develop relationships with other colleagues through the understanding of their objectives/ management style and financial needs.
(f) Ensure that he / she satisfies essential requirements for his / her role, such as (i)accounting expertise (ii) capital markets professionalism (iii) operational experience.
(g) Thoroughly understand the key drivers of the business and strategic know-how
(h) Follow AI (artificial intelligence) and where possible be in line with.
(i) Be able to standardize data and processes.
(j) Talented in making assumptions or personal judgements.
(k) Consider mentoring.
(l) Show engagement with the CEO and the Board.
Except for all the above defined qualities and
Figure 1. Trending CFO turnover: 2020-2023
requirements, a CFO should always listen to the needs of his/ her time, anticipate the expectations of tomorrow and learn from the experience of the past. He / she should also be able to change, at short notice, his / her plans, and tasks in the event of uncertainty or when an unexpected event occurs. He / she should be in a mastering position to execute the vision of a CEO and at the same time to give financial advice and ensure that all related risks are mitigated.
Someone may ask, is the position of a CFO a specialized one for a few or a wide range position for many? Is this multi-tasking role easy to handle or difficult to cope with?
As per https://www.russellreynolds.com/en/ insights/articles/the-cfo-exodus-exploringfinancial-officer-turnover-in-europe
1) CFO turnover continues to increase across the board, with a four-year high in the FTSE 350,DAX, and the Euronext 100.
2) CFO retirement rates have sharply increased over the past four years, jumping 14 percentage points since 2022.
3) In 2023, European CFO turnover hit 17%, reaching a four-year high (Figure 1).
Furthermore, experienced financial leaders are few and far between. This creates significant risk for organizations looking to retain their CFOs in an increasingly competitive environment.
On the other hand, the multi-tasking role of a CFO, over the years, seems that is losing its enthusiasm and innovation under the weight of the daily pressure of regular or not deadlines and unexpected events. Although,
the role of the CFO has characteristics of an “artist” due to his origin – Accounting definition as per Standard XI Accountancynevertheless this side of his professional character is often lost. Even though to be a “superman” / “superwoman” provides you the opportunity to save the world, most of the time it leads to burnout, become less motivating and with less options of succession.
As per the same source / report as above, most newly appointed CFOs (57%) are in the role for the first time (Figure 2)
Having considered all the above, a CFO should ask: Am I taking all reasonable and targeted steps to prepare for my exit or for my retention?
Engagement in an on-going career development conversation, planning for retirement, investment in succession planning, mentorship, re-evaluation of his / her compensation are some of the steps that a CFO should consider and review regularly in cooperation with his / her organization, his /her organization’s strategy and with his/ her personal endeavors.
Operating a global business in a fastchanging world, you have to be grounded real-time in the external environment, have complete transparency, be fact-based and working with a great, collaborative team” –Bob Shanks, CFO at Ford.
Figure 2. Internal versus external CFO appointments
Quality management and innovation accounting
The General Manager of the Institute of Certified Public Accountants of Cyprus Kyriakos Iordanou, timely and correctly suggested the creation of a single national oversight authority for financial services in Cyprus. Such an important reform would strengthen the operational resilience and greatly enhance the agility of this crucial sector and its ability to navigate change in times of uncertainty and exponential risk.
Nicos G. Sykas Strategy, Innovation and Communication Consultant
In the era of interconnected challenges, there will be new definitions demanded by shareholders and stakeholders for what constitutes sustainable growth or acceptable investment. Value will be measured differently with social impact-weighted accounting taking its place, alongside traditional profit-and-loss balance sheets. This shift can give us the chance to measure and evaluate not just risk and rewards but results, particularly social impact.
Policy-makers must actively create and shape an economy that delivers on goals that are critical to human and planetary wellbeing. The main objective is to place domestic and global economies on the path to high inclusive and sustainable prosperity. Simultaneous movement on all three results in multiplicative gains that quickly compound.
The International Standard on Quality Management (ISQM) deals with a firm’s
responsibilities to design, implement and operate a system of quality management for audits or reviews of financial statements, or other assurance or related services engagements. A system of quality management operates in a continual and iterative manner and is responsive to changes in the nature and circumstances of the firm and its engagements. It also does not operate in a linear manner.
ISQM addresses the following eight components: a) The firm’s risk assessment process; b) Governance and leadership; c) Relevant ethical requirements; d) Acceptance and continuance of client relationships and specific engagements; e) Engagement performance; f) Resources; g) Information and communication; and h) The monitoring and remediation process.
Furthermore, the firm may establish additional quality objectives beyond the eight mentioned above. Audit firms must perform risk assessment procedures to establish quality objectives, identify and assess quality risks that may adversely impact the achievement of the quality objectives, and implement responses to address the identified risks. The new quality management standards move the emphasis away from quality control to a more proactive quality management system (proactively identifying and responding to risks to quality).
Great impact
Given that innovations have a great impact on gaining competitive advantage and long-term growth of the company’s value, it is important to find ways to fully and correctly reflect them in the accounting and reporting system to provide users with the necessary information to make effective decisions.
Innovation Accounting is an organized system of principles and Key Performance Indicators established to gather, analyse and present data about a company’s breakthrough and disruptive innovation efforts – working to complement the existing financial accounting system. Innovations are able to provide higher indicators of competitiveness, profitability and, consequently, the value of the business.
To make informed investment decisions on corporate startups and ventures, managers need accounting metrics that are factbased, and that reflect the entire process of innovation rather than just the financial outcome. Managers need an accounting system that is designed to complement the shortcomings of a financial accounting system when it comes to measuring innovation.
To start doing so, we can use a combination of the innovation thesis, strategic goals, and the need to create a balanced portfolio. Innovation Accounting can then be used to measure and manage the progress of these corporate ventures from great idea to validated business model. Management wants to know how the innovation efforts are being translated into their portfolio strategy, so specific metrics are needed for that.
Innovation Accounting focusses on managing the following three innovation activities:
1. Making investment decisions on different ventures at different points in their innovation journey.
2. Tracking and measuring the success of specific innovation projects.
3. Assessing the impact that innovation is having on the business as a whole.
Innovation strategy fit for a nonlinear future
One of the main barriers to the implementation of Quality Management and Innovation is that nonlinear, multidimensional problems are approached in a linear manner. In today’s nonlinear world, the focus should be on the detection and exploitation of exponential opportunities and the avoidance of catastrophic dangers.
The new innovation model I created provides a solution to this challenge. This new approach to the innovation process takes into account asymmetries, nonlinearities and exponential change. It is described in detail in a step-by-step Guide I have prepared which, among other includes:
2. Application examples of this novel nonlinear innovation framework in 60 different areas / sectors combined with: a) Strategy canvas and templates, b) creativity (nonlinear thinking) workshop, c) innovation resilience test, d) strategies for branding and differentiation and e) guidelines for risk and uncertainty analysis.
This novel cross-cutting tool can contribute to:
a) Maximizing returns of public and private investments.
b) Building economic, social and environmental resilience.
c) Accelerating research to find solutions to complex multisource, multilayer problems (financial crises, supply chain disruptions, climate crisis, natural disasters, biodiversity loss, pandemics, cancer etc.) characterized by nonlinear interactions and emergent properties. This can be achieved by integrating Artificial Intelligence and Graph Theory into the new nonlinear innovation framework.
This unique approach to complex problems is presented analytically in a practical Toolkit I have developed titled ‘A new Innovation Model for a Nonlinear world’.
1. A pioneering ‘Resilience Toolbox’ that describes a total of 153 strategic tools, frameworks, mechanisms, creativity techniques, methods and standards that can help public and private companies and organizations, communities and all products and services modify their exposure accordingly in order to exploit positive asymmetries (be open to opportunities) and avoid 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 potential damage and eliminates the risk of ruin.
Labour Inspectorate
Labour Inspectorate was established in 2017 with main objective to tackle undeclared and illegal work which are among the main issues of Labour exploitation. The Inspectorate safeguards the enforcement of provisions of 30 different Labour Laws for which the Ministry of Labour and Social Insurance is the competent authority. An important role of Labour Inspectorate is also to monitor whether the general terms of employment such as remuneration, working hours, weekly offs, annual leaves, etc, are as prescribed by appropriate Law and procedures.
Andis Apostolou Acting Director of the Department of Labour Relations Supervisor of Labour Inspectorate Trade Union Registrar
It operates under the direct control / authority of the Permanent Secretary of the Ministry of Labour and Social Insurance. The operation of Labour Inspectorate is financed by the European Social Fund. Its Central offices are located in Nicosia and there are also three (3) District offices situated in Limassol, Paphos and Larnaca. Labour Inspectorate carries out inspections both during public hours as well as outside public hours to all unoccupied areas of the Republic of Cyprus.
The inspections are carried out either (a) on the basis of a complaint filled, or (b) based on the annual program, or (c) according to risk assessment.
Labour Inspectorate handles complaints that are received either:
• Through the telephone line: +357 77778577 (toll-free), that receives also among other information.
• By e-mail: info@li.mlsi.gov.cy
• Via Fax: 22-806209
Through a written letter to the headquarters of Labour Inspectorate: 77, Kallipoleos Avenue, 2100 Nicosia, PO Box 20540, 1660 Nicosia
For the year 2023, 748 complaints have been received for undeclared work as well as for violations of the terms of employment.
During 2023, 604 administrative fines have been issued for undeclared work according to the Social Insurance Law (N.59(I) of 2010) amounted to €1.657.500. Moreover, 161 administrative fines have been issued according to the Labour Inspectorate Law (Ν. 88(I)/2020) for violation of basic Labour Laws and fines of €197.000 have been issued.
The efforts of Labour Inspectorate have positive effect since according to the available statistics, there has been a reduction of undeclared work in Cyprus, from 14,22% in 2017 to 6,45% in 2023. In 2023, the percentage of undeclared work for EU
citizens was at 16,89% while for Cypriots the percentage was 16,44% and for people from third countries 65,66% (the remaining 1,01% relates to Turkish-Cypriots citizens).
The Supervisor of Labour Inspectorate represents the Republic of Cyprus in the European Platform for Undeclared Work (European Labour Authority).
Continuous training of staff is amongst the priorities of Labour Inspectorate. Therefore, 3-4 specialized seminars are conducted every year having to do with main provisions of Labour Laws, as well as of subjects such as risk analysis, inspectors’ behaviour, inspection procedures.
Labour Inspectorate has ongoing communication, co-operation and collaboration with other departments of the Ministry as well as other Ministries and Authorities in order to coordinate efforts and joint inspections are performed.
The Ministry of Labour and Social Insurance signed in February 2023 a “Memorandum of Cooperation” with the Ministry of Justice, aiming to prevent and combat human trafficking as well as support the victims. Based on this Memorandum, Labour Inspectorate proceeds with joint inspections with the office of Combatting Trafficking in Human Beings of the Cyprus Police. It is also noted that a Memorandum of Cooperation is under finalization level between Labour Inspectorate with the Cyprus Police as well as with the Department of Labour.
Moreover, Labour Inspectorate has established on a permanent basis cooperation with social partners regarding information seminars and campaigns. Also, Labour Inspectorate has excellent cooperation with Trade Unions and Employers' Organizations. Furthermore, Labour Inspectorate provides information and clarifications to employers and employees regarding the provisions of the laws.
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European Labour Authority and fairness in the European Union
The European Labour Authority (ELA) was established on 31 July 2019 (Regulation (EU) 2019/1149) as a European Union body in order to strengthen the fairness and the trust in the internal market.
The mission of ELA is to ensure fair and effective labour mobility across the EU as well as to assist the Member States and the European Commission in the coordination of the social security systems in the EU.
In a Union of equals, there shall be no second-class workers. This is why the Commission proposed new rules on posting of workers.
The free movement of workers and services is one of the key pillars of the European Union and seen as one of the main achievements of EU integration. Millions of EU citizens live or work in another Member State. The freedom of movement of workers and the freedom to provide services are fundamental principles of the internal market of the Union, enshrined in the Treaty on the Functioning of the European Union (TFEU). Remarkably, 1.2 million workers are active in two or more Member States, highlighting the extensive nature of labour mobility in the European Union.
The European Labour Authority:
• Supports the effective enforcement of labour mobility rules through structured cooperation and exchange of information between the Member States.
• Coordinates common activities, such as joint labour inspections and training of national staff
Niki Christofi Member of the Corporate Social Responsibility Committee of ICPAC Business Mentor
on cross-border mobility rules. Mediates cross-border disputes and facilitates solutions.
• Supports Member States in tackling undeclared work.
• Provides information and employment support services to workers and employers, through the coordination of European employment services (EURES). EURES provides information and employment support services for jobseekers, workers, and employers, and facilitates cooperation and exchange of information.
• Serves as a platform for the exchange of information and good practices, promoting consistency and cooperation among diverse national social security systems. ELA’s activities aim to facilitate
1 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32019R1149
2 https://www.ela.europa.eu/en/topics/posting-workers
3 https://www.ela.europa.eu/en/activities/eures
4 https://www.ela.europa.eu/en/about/who-we-are
collaboration among Member States' authorities, ensuring the effective implementation of EU social security regulations. The ELA also improves access to information on rights and obligations on social security coordination for individuals and employers. In addition, ELA supports the enforcement of social security legislation in Member States through the organization of joint and concerted inspections and carries out analysis and risk assessment.
To end with, it is crucial to emphasize that ELA facilitates concrete and cooperative solutions, benefiting workers and employers and adds value for stakeholders at Member State and EU levels. ELA is ready for future challenges in addressing modern labour mobility across the EU.
Trademark Transfers & Transfer Pricing: Recharacterization & licensing
Christos A. Theophilou Taxand Cyprus | Partner | International Tax – Transfer Pricing
Eleni Ashioti Head of Technical and Professional Matters of ICPAC
Christos A. Theophilou of STI Taxand analyzes a Polish legal dispute over cross-border licensing and its transfer pricing implications amid evolving laws
P
oland vs. K.P., adjudicated on October 3, 2023, scrutinized the legitimacy of license fee expenses and the application of transfer pricing provisions. On December 2013, K.P., a Polish company (the Parent or Licensee or Taxpayer) engaged in retail sales of computers, peripheral equipment, and software, transferred valuable trademarks (the IP Asset) with its subsidiary (the Subsidiary or Licensor) in exchange for shares (i.e., contribution in kind). Subsequently, the Parent incurred license fees for using these trademarks. In the view of the tax authorities, the Parent reported a lower income than what would have been expected in the absence of such a relationship and therefore considered that the Parent had overstated its cost (i.e., by incurring excessive license fees). Consequently, they deemed this arrangement commercially irrational and recharacterized it. Dissatisfied with the assessment, the Parent filed an appeal.
OVERVIEW
The Polish tax authorities relied on the 2017 OECD Guidelines (the latest version is the 2022 OECD Guidelines where Chapter VI remains largely the same) and, more specifically, argued that the case at hand resembles example 1 of the Annex to Chapter VI,– Examples to Illustrate the Guidance on Intangibles, and characterised the Parent in line with point 4 of that example. In brief, example 1 provides that under the agreement, Premiere (parent entity and licensee) performs all functions related to the development, enhancement, maintenance, protection and exploitation of the intangibles except for patent administration services. Premiere contributes and uses all assets associated with the development and exploitation of the intangible and assumes all, or substantially all, of the risks associated with the intangibles. Premiere should be entitled to the bulk of the returns derived from exploitation of the intangibles. Company S’s (subsidiary, owner of the intangible and licensor) granting of full exploitation rights back to Premiere reflect, in substance, a patent administration service arrangement between Premiere and Company S. An arm’s length price would be determined for the patent administration services and Premiere would retain or be allocated the balance of the returns derived by the MNE group from the exploitation of the patents. With respect to the Polish case the license agreement was, in substance, a contract for the provision of trademark administration services and therefore priced the controlled transaction using a mark-up on the total operating costs of the Licensee (median value of 6.91%) and rejected the taxpayer approach from using the comparable uncontrolled price method in pricing the license agreement in calculating the arm’s length intra-group royalties. As a result, in the view of the Polish tax authorities, the Parent overstated its costs as the difference between the license fee paid to the Licensee and the remuneration for the provision of services.
It is worth mentioning that although the price when the IP Asset was transferred was not questioned, the Polish tax authorities argued that the facts of the case, viewed in their totality, differ from those which would have been adopted by independent enterprises behaving in a commercially rational manner in comparable circumstances. This is because, in December 2013, the Parent effectively sold its internally developed and most important business and valuable IP asset, and on the same day, it incurs significant license fees to continue using the IP asset for its business. Considering the DEMPE concept, the Parent, after transferring the function of administering the legal ownership of the IP Asset to its Subsidiary, continued to carry out marketing and advertising activities related to the promotion of the IP Asset. As a result, the business case lacks economic rationality as an independent entity would not enter into transactions leading to the disposal of valuable assets essential to its business, additionally financing its acquisition by another company, taking up shares in exchange with a nominal value significantly lower than the value of the lost assets (without subsequently receiving any compensation for this), and additionally having to incur additional costs due to the need to pay license fees for the use of the trademarks previously held. Further, the Parent did not achieve the expected economic effect as an entrepreneur, that is to strive not only to maximize revenue but also to minimize losses.
On the other hand, the Taxpayer successfully (the court decided in favor of the Taxpayer) argued, among other points, that the Polish tax authorities applied the mechanism of the so-called recharacterization, which was introduced into the legal system on January 1, 2019, yet the tax year under review began on April 1, 2016, and ended on March 31, 2017. Therefore, an anti-avoidance clause was not in force at that time. Further, the OECD Guidelines are not a binding law and should be treated as a “set of good practices” and an instrument supporting the interpretation of transfer pricing regulations. In this context, as of the date of the license agreement, the 2010 version of these OECD Guidelines was in force, and further, the DEMPE concept was introduced in the OECD Guidelines in July 2017, and therefore the Taxpayer was unable to take into account the substantially amended OECD Guidelines for the tax year from April 1, 2016, to March 31, 2017.
CONCLUSION AND PLANNING POINTS
In conclusion, although the court ruled in favor of the Taxpayer and dismissed the Polish tax authority’s assessment, arguably if the transactions had taken place after the introduction of the antiavoidance provision in 2019 and the significant amendments to the 2017 OECD Guidelines, the Taxpayer might have faced a different outcome, as the Polish tax authorities would have more grounds to challenge the economic substance and the valuation of the transaction. A further argument that the tax authorities could use to challenge the transaction is if the legislative proposal for transfer pricing Council Directives announced by the European Commission on September 12, 2023, were in force. The TP proposal should be transposed into the national laws by December 31, 2025, at the latest, and the rules will come into effect as of January 1, 2026. The proposal stipulates that the arm’s length principle should be construed in accordance with the OECD Guidelines under article 14, paragraph 1. The aim is to: (1) incorporate the arm’s length principle into Union law; (2) harmonize the key transfer pricing rules; (3) clarify the role and status of the OECD Transfer Pricing Guidelines; and (4) create the possibility to establish, within the Union, common binding rules on specific transfer pricing subjects within the framework of the OECD Transfer Pricing Guidelines.
Consequently, taxpayers should ensure that their transfer pricing documentation is up to date and accurately reflects the economic reality of their transactions. This includes ensuring that the functional analysis accurately reflects the functions performed, assets used, and risks assumed by each party to the transaction. In a different case, tax authorities could, for example, contend that the license agreement did not reflect the actual contribution of each party to the development, enhancement, maintenance, protection, and exploitation of an intangible asset, and that the royalty paid by the licensee was not aligned witch reflects the economic reality and the value creation of the licensor. Further, taxpayers need to address the complexities of transfer pricing in crossborder transactions, emphasizing the need for careful planning and coordination to navigate differing tax laws, regulations, and interpretations across jurisdictions. Finally, taxpayers should also consider engaging with tax authorities in advance of undertaking significant transactions, in order to obtain certainty on the tax treatment of the transactions and to minimize the risk of disputes.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
OECD transfer pricing guidance with respect to financial guarantees
Financial transactions are one of the most debated topics within the transfer pricing framework. In this context, financial guarantee fees remain one of the most contentious transfer pricing areas. Furthermore, guarantee fees may be a source of profit shifting since guarantees may be attached to significant borrowings and, if priced at non arm’s length, may result in misallocation of profits among an MNE group and thus base erosion. Thus, the aim of this article is to summarise the main transfer pricing aspects of financial guarantees in the light of Chapter X of the OECD Transfer Pricing Guidelines (OECD TPG).
Efthymios Kanaris
I) What is a financial guarantee?
In essence, a guarantee is an undertaking on the part of the guarantor to assume a specified obligation of the guaranteed debtor if the latter defaults on that obligation. The situation likely to be encountered most frequently in a transfer pricing context is when an associated enterprise (guarantor) provides a guarantee on a loan taken out by another associated enterprise from an unrelated lender.
consequence of an explicit guarantee is that the guarantor is legally committed; thus, the lender’s risk is expected to be reduced by having access to the assets of the guarantor in the event of the borrower’s default. Effectively, this may mean that the guarantee allows the borrower to borrow on the terms that would be applicable if it had the credit rating of the guarantor rather than the terms it could obtain based on its own, non-guaranteed, rating.
Eleni Ashioti Head of Technical and Professional Matters of ICPAC
Director | Head of Compliance & Tax Kanaris, Demetriades & Associates
As per the OECD TPG, there are various terms used for different types of credit support from one member of an MNE group to another. At one end of the spectrum is the formal written guarantee and at the other is the implied support attributable solely to membership in the MNE group.
Paragraph 10.163 of the OECD TPG specifies that anything less than a legally binding commitment, such as a “letter of comfort” or other lesser form of credit support, involves no explicit assumption of risk, generally lacks legal enforceability and is not considered to require payment at arm’s length.
II) Accurately delineating a financial guarantee
Chapter X of the OECD TPG clearly provides that the accurate delineation of financial guarantees requires initial consideration of the economic benefit arising to the borrower beyond the one that derives from passive association.
II. a.) Enhancement of borrowing terms
From the borrower’s perspective, a financial guarantee may affect the terms of the borrowing (i.e. may allow the guaranteed party to obtain more favourable interest rate) or the amount of the borrowing, enabling the borrower to access a larger amount of funds. From the perspective of the lender, the
Where the effect of an intra-group guarantee is to reduce the cost of debt for the borrower, the latter might be prepared to pay for that guarantee, provided he is in no worse a position overall i.e. the borrower’s cost of borrowing with the guarantee (including the cost of the guarantee and any associated costs of arranging the guarantee) would be measured against its non-guaranteed cost of borrowing, taking into account any implicit support.
Accurately delineating the financial guarantee may alternatively indicate that the purported financial guarantee is not providing any benefit to the borrower but merely recognising the benefit that the guaranteed party would have obtained in any case by being part of the MNE group. In such situations, based on facts and circumstances, an unrelated enterprise in comparable circumstances would be unwilling to pay for the provision of a financial guarantee, and the guarantor would be found as providing no more than an administrative service to the borrower.
More specifically, a borrower would not generally be prepared to pay for a guarantee if it did not expect to obtain an appropriate benefit in return. Even an explicit guarantee will not necessarily confer a benefit on the borrower; the reason may be that legal, financial or operational ties may mean that
it would not be possible to abandon the borrower if it encounters financial difficulty without the MNE group suffering a credit rating downgrade. In essence, such circumstances may result in MNE group members being financially interdependent quite apart from any formal guarantee arrangement, so that the economic risk of the guarantor may not change materially on it giving an explicit guarantee. In such circumstances the guaranteed borrower is not benefitting beyond the level of credit enhancement attributable to the implicit support of other MNE group members and no guarantee fee would be payable.
II. b.)
Access to a larger amount of borrowing
In case where the guarantee permits the borrower to borrow a greater amount of debt than it could in the absence of the guarantee, the guarantee is not simply supporting the credit rating of the borrower but could be acting both to (1) increase the borrowing capacity and (2) to reduce the interest rate on any existing borrowing capacity of the borrower.
In such a situation, two issues need to be considered: (1) whether a portion of the loan
from the lender to the borrower is accurately delineated as a loan from the lender to the guarantor (followed by an equity contribution from the guarantor to the borrower), and (2) whether the guarantee fee paid with respect to the portion of the loan that is respected as a loan from the lender to the borrower is at arm’s length.
The conclusion may be that the guarantee fee should be limited to a fee on the portion that has been accurately delineated as a loan, and the remainder of the loan granted should be regarded as effectively a loan to the guarantor followed by an equity contribution by the guarantor to the borrower.=
III) Implicit support
On the other end, implicit support can be taken to be a benefit assumed to be derived by a group company by virtue of being part of the group of companies. Hence, it is akin to a guarantee, but without an explicit guarantee/legally binding obliga¬tion on any other company within the MNE group. Alternatively, it may be thought of an expectation that MNE group members or the parent will support the associated enterprise in the case of financial difficulties.
IV) Effect of group affiliation
In the absence of an explicit guarantee, any expectation by any of the parties that other members of the MNE group will provide support to an associated enterprise in respect of its borrowings will be derived from the borrower’s status as a member of the MNE group.
S&P notably provides guidance on the credit rating of subsidiaries, depending on whether they are considered key (“core”) subsidiaries and hence should be considered as having the same credit rating as the parent company, or “strategic” and hence should be considered as having a rating between one and two notches below the parent company credit rating.
Other principles apply for more isolated or smaller subsidiaries of the group, for which the starting point is not the parent company credit rating, but rather a standalone credit rating, which is then further enhanced by one or two notches to account for the support (both financial and operational) that the group may provide to help the subsidiary’s operations and allow it to meet its financial obligations.
THE TABLE BELOW SUMMARISES S&P’S GROUP RATING METHODOLOGY.
Category of subsidiary Features
Rating
Core Integral to the group’s current identity and future strategy. The rest of the group is likely Group rating to support these entities under any foreseeable circumstances.
Highly strategic Almost integral to the group’s current identity and future strategy. The rest of the group One notch lower is likely to support these group members under almost all foreseeable circumstances. than group rating
Strategically important Less integral to the group than “highly strategic” group members. The rest of the group Up to three notches is likely to provide support in most foreseeable circumstances. However, some factors above the stand-alone raise doubts about the extent of group support rating
Moderately strategic Not important enough to warrant support from the rest of the group in some foreseeable One notch above circumstances. Nevertheless, there is potential for some support from the group. the stand-alone rating
Non-strategic No strategic importance to the group.
The benefit of any such support attributable to the borrower’s MNE group member status would arise from passive association and not from the provision of a service for which a fee would be payable. Specifically, paragraph 7.13 of the OECD TPG provides that an associated enterprise should not be considered to receive an intra-group service when it obtains incidental benefits attributable solely to its being part of a larger concern, and not to any specific activity being performed.
Furthermore, paragraph 1.178 of the OECD TPG specifies that an associated entity is not considered to receive an intra-group service or be required to make any payment when it
obtains incidental benefits attributable solely to its being part of a larger MNE group (the term incidental refers to benefits arising solely by virtue of group affiliation and in the absence of deliberate concerted actions or transactions leading to that benefit). It is also provided that when synergistic benefits or burdens of group membership arise purely as a result of membership in an MNE group and without the deliberate concerted action of group members or the performance of any service or other function by group members, such synergistic benefits of group membership need not be separately compensated or specifically allocated among members of the MNE group.
Stand-alone
Similarly, paragraph 10.77 provides that the effect of potential group support on the credit rating of an entity and any effect on that entity’s ability to borrow or the interest rate paid on those borrowings would not require any payment or comparability adjustment.
Thus, the OECD TPG effectively provide that the impact of implicit support does not give rise to compensation under the arm’s length principle.
V) Financial capacity of the guarantor to assume risk
Relevant to this analysis is that the fact that the OECD TPG provide that risk (and thus return/remuneration) in relation to a controlled
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transaction should be allocated to the party that controls the risk and has the financial capacity to assume the risk if the risk occurs.
Thus, in order to allocate risk and thus return to the guarantor with respect to the guarantee provided, his financial capacity will need to be examined as to whether he has the ability to fulfil his obligations in case of default of the borrower.
Thus, the general principles for assumption and allocation of risk applicable equally to all controlled transactions as per section D.1.2.1 of Chapter I of the OECD TPG will have to be considered to assess the guarantor’s financial capacity to assume risk (as well as his control over risk).
VI) Determining the arm’s length price of guarantees
In the case where, the guaranteed borrower is benefitting beyond the level of credit enhancement attributable to the implicit support of other MNE group members, the OECD TPG put forward several methods for determining the arm’s length price of the accurately delineated guarantee (e.g. CUP method, yield approach, cost approach, valuation of expected loss approach and capital support method).
The yield method represents one of the most commonly used approaches for valuing financial guarantees. This method begins with determining the interest rate that would have been payable by the borrower on its own merits, taking into account the impact of implicit support as a result of its group membership. Then, the interest rate payable with the benefit of the explicit guarantee is determined. The interest spread identified can be used in quantifying the benefit gained by the borrower as a result of the guarantee.
It should be stressed that in order to determine the extent of the benefit provided by the guarantee, it is important to distinguish the impact of an explicit guarantee from the effects of any implicit support as a result of group membership. The benefit to be priced is not the difference between the cost to the unguaranteed borrower on a stand-alone basis and the cost with the explicit guarantee but the difference between the cost to the borrower after taking into account the benefit of any implicit support and the cost with the benefit of the explicit guarantee.
Note also that the benefit of implicit support will be the difference between the borrowing terms attainable by the borrowing entity based on its credit rating as a member of the MNE group and those attainable on the basis of the stand-alone credit rating it would have had if it
were an entirely unaffiliated enterprise.
The result of this analysis sets a maximum fee for the guarantee (the maximum amount that the recipient of the guarantee will be willing to pay), namely, the difference between the interest rate with the guarantee and the interest rate without the guarantee but with the benefit of implicit support (and taking into account any costs). The borrower would have no incentive to enter into the guarantee arrangement if, in total, it pays the same to the bank in interest and to the guarantor in fees as it would have paid to the bank in interest without the guarantee. Therefore, this maximum fee does not of itself necessarily reflect the outcome of a bargain made at arm’s length but represents the maximum that the borrower would be prepared to pay.
The following example elabo¬rates on the value of the implicit support, with and without an explicit guarantee:
Facts:
P Co is the parent company of PSY group and has a credit rating of AAA.
S Co is a member of PSY group, with a stand-alone credit rating of BBB.
• S Co wants to finance its new project with funding from third-party lenders.
• An independent lender charges bor¬rowers with BBB ratings interest at the rate of 6%.
VII) Conclusion
• Owing to S Co’s membership in PSY group, however, the independent lender is willing to lend to S Co at a 4% interest rate, which is usually charged to borrowers with an A credit rating.
Further, PCo is willing to provide an explicit guarantee to S Co so that the independent lender will charge S Co interest at the rate of 1.5%, which the lender would have charged a borrower with a AAA credit rating.
Analysis:
• As per the analysis above, S Co should pay an arm’s length guarantee fee to PCo for such explicit guarantee, being the difference between the interest rate obtained with the explicit guarantee and implicit support i.e. 2.5% of the interest base, calculated as 4% minus 1.5%;
• However, if upon the accurate delineation of the explicit guarantee, the purported explicit guarantee is consid¬ered no more than a mere expression of implicit support, then no guarantee would be chargeable. In effect, S Co will pay a 1.5% interest charge and will not pay a guarantee fee, although it obtains a 4.5% interest discount because of the explicit guaran¬tee (and 2% out of the 4.5% is due to implicit support).
Section D. of Chapter X of the OECD TPG attempts to clarify issues with respect to financial guarantees. This new guidance, apart from endorsing the application of the general principles as per Chapter I of the OECD TPG to financial guarantees, provides for different approaches to estimate a guarantee fee e.g. using the yield approach, the latter being a practical way towards such an exercise. However, such approaches require considerable effort to be implemented towards determining the arm’s length price for a guarantee.
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