The Accountant - Winter 2020 by The Malta Institute of Accountants

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Contents

THE ACCOUNTANT WINTER 2020 04 PRESIDENT’S ADDRESS

THE ACCOUNTANT magazine is issued quartely.

07 UPCOMING CPE EVENTS

Published by

08 MIA NEWS 12

LOCAL NEWS

14 SOME REFLECTIONS ON THE MALTESE ECONOMY IN 2020 EDITOR Pauline Micallef pmicallef@miamalta.org

18 GDPR: AM I DOING IT RIGHT?

CREATIVE DIRECTOR & DESIGN Marian Claire Rodriguez

22 THE CODE OF ETHICS - WHAT DOES IT MEAN TO BE ETHICAL?

ADVERTISING INQUIRIES technical@miamalta.org

25 MEET THE MIA TEAM: JACQUELINE MAMO

All correspondence, articles for publication and enquiries are to be addressed to: The Editor MIA Services Limited Level 1, Tower Business Centre Tower Street, Swatar BKR 4013, Malta.

26 THE EFFECT OF THE 5TH AML DIRECTIVE ON TAX PRACTITIONERS 30 MALTA’S REAL ESTATE MARKET: UP OR DOWN? 33 THE EUROPEAN SINGLE ELECTRONIC FORMAT (ESEF) – PART 3

The Institute does not necessarily concur with the views expressed in the articles published on this journal. Articles are published without responsibility on the part of the publishers or authors for loss occasioned in any person acting or refraining from action as a result of any view expressed therein.

36 HOW WILL ARTIFICIAL INTELLIGENCE AFFECT THE ROLE OF THE MODERN DAY ACCOUNTANT? 38 VAT GROUPING IN MALTA - A PRACTICAL SCENARIO 40 SAY ‘HORSE’ AND I’LL TURN MY HEAD

The Accountant can also be found online at www.miamalta.org/the-accountant

President’s Address

PRESIDENT’S ADDRESS FABIO AXISA THE LAST FEW MONTHS HAVE BEEN QUITE EVENTFUL AND CHALLENGING FOR THE ENTIRE NATION. DURING THESE DIFFICULT AND UNPRECEDENTED TIMES, THE INSTITUTE HAS EXPRESSED ITS VIEWS PUBLICLY IN A FORCEFUL AND CLEAR MANNER. THE INSTITUTE PLANS TO CONTINUE PUTTING FORWARD ITS VIEWS ON THE APPROPRIATE STANDARDS OF GOVERNANCE, TRANSPARENCY, DISTRIBUTION OF POWER AND INDEPENDENCE OF CONTROL FUNCTIONS THAT OUR COUNTRY’S GOVERNMENT SHOULD EMBRACE AND FACTUALLY IMPLEMENT. WE WILL EXPRESS OUR VIEWS, POSSIBLY IN TANDEM WITH OTHER KEY STAKEHOLDERS, DIRECTLY TO THOSE CHARGED WITH GOVERNING OUR COUNTRY. THE INSTITUTE FIRMLY BELIEVES THAT THE REPUTATION AND STRENGTH OF OUR PROFESSION IS INEXTRICABLY LINKED TO THE REPUTATION OF OUR MARKETPLACE AS A FINANCIAL SERVICES CENTRE WITHIN INTERNATIONAL CIRCLES. We have recently implemented a few actions giving effect to important decisions made which I feel I ought to explain in detail to the members of the Institute. The Institute has ceased certain tuition operations within AIM Academy. As outlined in my previous address, the setting up of this Academy activity had served the marketplace well as the Academy was the first, and for a long period of time the only, learning provider in Malta. But times have changed and the number of learning providers which are now active in this space has increased. The Institute should, and will, work and collaborate with all learning providers to ensure that the quality of our profession is safeguarded. The Institute should act as a catalyst for enhancement of education standards and as a platform for coordinating the efforts of all learning providers to ensure that the resource needs of our members are being effectively 4

addressed. This implies that the Institute should not be managing its own learning provider. By now I am sure you have realised that the Institute has changed (once again) its member relationship management system, impacting its website, front end processes and back end functionality. One year ago, we went live with one system developed by a third-party provider. The outcome was disappointing; we feel we have been let down as the output was nowhere close to what we would have liked to achieve. The output was not a reliable and stable one; your customer experience as members wasn’t great and our experience from a back end operational perspective was problematic. So, a few weeks ago we switched off this system and went live with an off the shelf solution. This implementation process was extremely smooth, and I must admit I am

impressed by the level of resilience, capabilities and attachment to the Institute that the Institute’s employees and management have demonstrated throughout this implementation process. I would really like to thank them as this satisfactory outcome would not have been possible without them. As members of the Institute, you should be proud to have an Institute with reliable, competent, determined and dependable management and employees. You have entrusted the funds pertaining to the Institute, mainly emanating from your membership fees, into the hands of the current executive team. As President I always have this responsibility front of mind and so do my fellow Officers and Council members. This responsibility encourages us to take decisions, which although difficult as the ones I referred to above, are necessary for the long-term sustainability of the Institute.

President’s Address

There are a significant number of key initiatives which are being handled by the Institute within the domain of each of the five core pillars underlying the MIA’s strategy. I will refer to some of these below. 1. MIA as a home to all qualified professional accountants The Institute is undertaking the last steps in introducing an international affiliate programme. The objective of this programme will be to enrol and involve within the Institute expatriate professional accountants practising as accountants in Malta, who would have qualified as accountants through a route such as for instance overseas university degrees. The Institute is also focusing on developing other affiliate programmes and will be implementing a strategic initiative to develop such programmes to widen its membership base by encompassing as many professional accountants practising in Malta as possible. With respect to a matter related to the supply of professional accountants in our marketplace, a significant number of our members have raised concerns on the inefficiency of the process to register expatriate accountants for work purposes in Malta. The MIA had meetings with Identity Malta and Jobsplus to identify the reasons underlying this issue and to develop a proposed way forward aimed at rendering the process more effective. In this respect, the MIA will be organising an information session for our members focusing on the single permits online submission process and the revised procedures in this respect.

2. Elevating quality and raising standards within our profession Following the publication of the fifth-round mutual evaluation report on Malta adopted by the MONEYVAL Committee, in December we organised a high profile event, inviting regulators and bankers, to discuss the findings of the report, particularly those referring to our profession. I would like to thank the representatives from Financial Intelligence Analysis Unit, Malta Bankers’ Association, Malta Financial Services Authority and specific banks who addressed this event and interacted with our members attending the event. I had specifically asked these representatives to highlight examples and fact patterns where they believe that members of our profession should act better. From the contributions during this event it emerged quite clearly that certain members of our profession do not produce high quality work, do not attempt to understand the risks emanating from certain services provided and do not escalate matters with the appropriate authorities when they are meant to. Whilst I would like to believe that this behaviour is attributable to a minimal minority within our profession, I am sure we all can and should raise the bar and enhance standards. Of course, during the event our members contributed a lot, did challenge these representatives and highlighted areas where the profession needs more clarity from such institutions. I will repeat key messages to our members emanating from this event: understand economic rationale, focus on substance, effect rigorous onboarding, apply make sense tests. On another important note, we have engaged our legal advisors to assist us with drafting proposed amendments to the

Accountancy Profession Act which will define with absolute clarity the list of activities which can only be performed by professional accountants. The ultimate objective is a comprehensive and fair definition of what constitutes the accountancy profession, which will then allow us to ensure that only professional accountants actually call themselves professional accountants and that specific activities are only carried out by such professional accountants. This has not been possible in the past, as legislative amendments are deemed necessary to strengthen the framework. In this respect, I do encourage you to continue coming forward with complaints on the quality of work executed by members of our profession – providing me or us with all details – and I commit to investigating thoroughly all complaints. But please ensure that such information can be substantiated and evidenced. 3. Enhancing the education and qualification process We need to come up with a strategy addressing the long-term attractiveness of the accountancy profession with a view to ensuring that the best intellectual talent seeks to become part of the profession, designing the profession of the future in the process. The Institute needs to market and explain our profession more – it is a very interesting and rewarding profession – but this is not necessarily the message we manage to convey all the time. We will be taking a number of steps in this area as we work closely with the majority of significant employers of professional accountants. Strategic issues for our profession comprise >> 5

President’s Address << attracting the right (and sufficient) crop to our profession and enhancing qualification routes for these prospective accountants. 4. Fostering collegiality and comradeship among accountants The Institute organised an event for all Committee members appointed to the Institute’s committees for a 2-year term to discuss the strategic objectives for the term. I must admit it was an amazing experience to see so many important and well-known accountants in one room, all eager to contribute. The Committees are the back bone of the Institute as all key initiatives, technical or otherwise, involve the work of the Committees. We are extremely grateful to our Committee members; they do

all this work for no remuneration for the benefit of the Institute, to contribute to the activities of the Institute. Also, the Institute has organised a meeting with the management of the Malta Business Registry (MBR) to discuss the issues that our members have referred to us in the past few weeks. 5. Striving to make the Institute’s voice heard, loud and clear No doubt you will recall that the MFSA has published a Consultation Document entitled Raising the Bar for Company Service Providers proposing a number of significant changes to the manner in which CSPs are authorised and regulated. As an Institute we have reviewed and assessed these

proposals in detail, also by setting up an appropriate consultative forum with wide representation from the membership base and the profession. We have submitted the Institute’s feedback which centred around acknowledging the stature of professional accountants as warrant holders already regulated by the Accountancy Board. We have also discussed our feedback in an extensive manner with the Malta Chamber of Commerce, Enterprise and Industry. We continue to interact with the MFSA in respect of this initiative with a view to helping the development of a more robust framework for CSPs in general. We are also working and collaborating with the MFSA on a number of other matters involving our profession.

UNSCRAMBLE THE BELOW 3 WORDS AND GET A CHANCE TO WIN A FREE CPE SESSION OF YOUR CHOICE

Take a photo of your answers and send it via email to technical@miamalta.org. Winner will be selected randomly and will win a 3 hour CPE session of one’s choice between the months of May to July 2020. Answers and winner will be announced on our Facebook page. Submission deadline: End of April 2020.

CONGRATULATIONS TO: MATTHEW SPITERI Who is the winner of the Autumn 2019 Issue Competition 6

MIAâ&#x20AC;&#x2122;s Upcoming CPE Events

UPCOMING CPE EVENTS MARCH - MAY 2020 HAVE YOU STARTED WORKING TOWARDS YOUR CPE HOURS? YOU HAVE PLENTY OF SESSIONS TO CHOOSE FROM. FIND OUT MORE AT WWW.MIAMALTA.ORG/EVENTS

11/03/2020

Consulting a Family Business - Challenges & Priorities - M2011

13/03/2020

Non Current assets under IFRS - M2012

17/03/2020

Taxation and prevention of Money Laundering - M2017

24/03/2020

Excel the Accounting Way - Session 1 (MORNING SESSION) - M2039

24/03/2020

The Interplay of Corporate Governance & Compliance - M2014

25/03/2020

Tax credits under the Microinvest Scheme - M2021

26/03/2020

Excel the Accounting Way - Session 2 (MORNING SESSION) - M2039.2

26/03/2020

Basic Payroll Calculation - M2018

02/04/2020

Top 5 common pitfalls in a valuation - M2013

08/04/2020

The growing importance of economic substance in International Tax Planning - M2036

15/04/2020

Tax developments with digital economy/services - M2041

16/04/2020

Nurturing an ambidexterous organisation (MORNING SESSION) - M2037

17/04/2020

Prevention of market abuse and AML- M2010

21/04/2020

GAPSME Foundation - Session 1 - M2026.1

23/04/2020

GAPSME Foundation - Session 2 - M2026.2

28/04/2020

2020 VAT Quick Fixes - M2044

29/04/2020

Introduction, requirements by law, registration of employees - Session 1 - M2029

30/04/2020

Completing the income tax return - Session 2 - M2029

05/05/2020

The Legal and Regulatory Framework in the Insurance Sector - Session 1 - M2042.1

07/05/2020

GAPSME Advanced - Session 1 - M2027.1

08/05/2020

Where to Tax? VAT Place of Supply Rules (MORNING SESSION)- M2045

12/05/2020

The Legal and Regulatory Framework in the Insurance Sector - Session 2 - M2042.2

13/05/2020

Coaching skills for Managers and team leaders (MORNING SESSION) - Session 1 - M2043.1

14/05/2020

GAPSME Advanced - Session 2 - M2027.2

20/05/2020

Coaching skills for Managers and team leaders (MORNING SESSION) - Session 2 - M2043.2

21/05/2020

GAPSME Advanced - Session 3 - M2027.3

27/05/2020

The Basics of Employment Law in terms of tax (MORNING SESSION) - M2030

28/05/2020

GAPSME Advanced - Session 4 - M2027.4

MIA News

A LOOK BACK AT THE MIA-ACCA JOINT CONFERENCE THE SIXTH EDITION OF THE MIA-ACCA JOINT CONFERENCE IN DECEMBER WAS A RESOUNDING SUCCESS AND PARTICIPANTS ARE STILL ENERGISED BY THE ENGAGING SESSIONS. THE INSTITUTE AND ACCA WORKED HARD TO DELIVER A RELEVANT PROGRAMME LED BY TWELVE SPECIALISTS IN DIFFERENT FIELDS. In his opening address, MIA President Mr Fabio Axisa reiterated his mission to

improve the quality of accountancy and said that the annual conference has grown into an unmissable event. In a highly anticipated session, an exceptional panel of experts, composed of Dr Manfred Galdes, Mr Alfred Zammit, Dr Diane Bugeja, Mr Aidan Clifford and Ms Lucienne Pace Ross, discussed the results and implications of the Moneyval Report. There is a lot going on in the background to strengthen AML mechanisms and the guests revealed how major stakeholders are working together to implement the recommendations in the report. Participants were also presented with the latest IFRS updates in a session by Mr Aidan Clifford, ACCA Advisory Services Manager. The latest information is freely available to MIA members on the ACCA website. The conference was the perfect occasion to present findings from the SME Survey conducted 8

by MIA and ACCA. A formidable panel composed of the Institute’s SMP Advisory Group chair Mr David Pace, ACCA Policy Manager Ms Lilly Aaron and business leaders Mr Dean Gera and Ms Marthese Micallef, analysed the results and offered real-life advice to entrepreneurs and practitioners on the floor. Dr Natalie Kenely introduced the concept of Emotional Intelligence (EI), an increasingly important soft skill in management today. Dr Kenely’s bright presentation inspired participants to assess and develop their own EI levels. The Institute is delighted with another rewarding edition of the MIA-ACCA Joint Conference. The event could not have been possible without the generous support of Infocredit Group and Buddy HR & Payroll Solutions.

MIA News

MONEYVAL - THE AFTERMATH THE MALTA INSTITUTE OF ACCOUNTANTS ORGANISED A FORUM TO DISCUSS THE OUTCOMES AND RECOMMENDATIONS OF THE 5TH ROUND MUTUAL EVALUATION REPORT ON MALTA PUBLISHED BY MONEYVAL.

The event, held on 12th December, was addressed by a panel of experts composed of Ms Marisa Frendo, MLRO and Compliance Manager of Bank of Valletta plc; Mr Marcel Cassar, CEO of APS Bank and Chairman of the Malta Bankers Association; Dr Michael Xuereb, Senior Advisor to the CEO’s Office at MFSA; and Dr Alex Mangion, Head of the FIAU’s legal unit. The session was moderated by MIA President Fabio Axisa who outlined the Institute’s mission to help all its members meet AML obligations. The forum discussed the root cause of the MoneyVal recommendations, and the guests highlighted the need for more awareness of suspicious activity among practitioners and supervisors. They observed that, despite an increase in the number of total yearly STRs, reporting remains relatively low. The event offered an opportunity for non-accountants to share their views on the profession. Panellists said that accountants are in a good position to flag risky clients as overseas investors often approach professionals before banks. Crucially, the panel spoke about opportunities for the improvement of the profession in view of AML responsibilities. Among other initiatives, the MIA and FIAU are drafting sectorspecific implementing procedures and will start offering specialized training to Institute members.

MIA News

MIA COMMITTEE MEMBERS 2020 ON 30TH OF JANUARY MR FABIO AXISA (MIA PRESIDENT) ASSEMBLED THE INSTITUTE’S APPOINTED MEMBERS IN ONE OF THE MIA’S TRAINING ROOMS. MR AXISA PRESENTED THE STRATEGY TO THE AROUND 100 ATTENDEES. Having been a Committee member and chairman himself, MIA President, Mr Fabio Axisa noted that Committees and Focus Groups are the backbone of the MIA, as the Institute would not be effective without them. Committees and Focus Groups contribute towards the attainment of the Institute’s objectives, by pushing forward key technical and non-technical initiatives, in line with the MIA’s strategy. Mr Axisa thanked the members for their contribution and for the work which they have offered to carry out in the next two years.

MIA’s CEO, Ms Maria Cauchi Delia, gave a brief about the Committees’ Terms of Reference and explained that although Council set the high level objectives for the respective Committees and Focus Groups, members were encouraged to proactively suggest action plans to enhance the value that the Institute provides to its members, whilst fostering increased member engagement. She emphasised that Committee members are expected to be forward looking and committed, whilst working within the overall strategy and governance structure of the Institute. Committees and

Focus Groups also give members an opportunity to network with fellow professional accountants, whilst positively supporting to the evolving needs of the profession and the public interest. Attendees were given the opportunity to share their concerns and questions, and were then invited to a networking reception.

ACCA TUTOR DEVELOPMENT DAY & HINTS AND TIPS FOR ACCA EXAMS

During the discussion, the MIA highlighted the fact that it was there to work with and support all ALPs in their respective roles. It was emphasised that maintaining and enhancing the quality of the profession is critical for the Institute and that it will continue taking the necessary measures to ensure that this is done. ALPs were also given the opportunity to share their opinions on how MIA and ACCA can better support them moving forward. Several valid contributions made by the participants were taken note of and the Institute, together

ON 4TH FEBRUARY, THE MIA TOGETHER WITH ACCA, HOSTED THEIR FIRST EVENT FOR ALL LOCAL ACCA APPROVED LEARNING PROVIDERS (ALPS) AND THEIR TUTORS. IT WAS A WHOLE DAY EVENT WITH WORKSHOPS RELATED TO THE ACCA QUALIFICATION, INCLUDING THE PROGRESSION OF MALTESE STUDENTS AND ISSUES ASSOCIATED TO COMPUTER BASED EXAMS.

with ACCA will be following up accordingly. Following the termination of the ALP event, some learning providers stayed on for the evening event for MIA - ACCA Joint Scheme Students. ACCA representatives: John Cunningham, ACCA Regional Head of Education, Europe and Americas and Dorothy Woods, ACCA Qualification Change Lead, Europe and Americas led a short session providing hints and tips related to examinations.

MIA CEO and technical representatives then opened a discussion whereby the ACCA students present were given the opportunity to share their perspectives on how MIA and ACCA can better support them, raising several pointers which the MIA and ACCA will be looking into. ACCA students were subsequently invited for networking drinks with MIA and ACCA representatives and learning providers.

Category

Local News

TWO NEW DIRECTORS FOR MAZARS MALTA Audit and advisory firm Mazars appointed Ruth Farrugia and Ramon Cutajar as directors. Ruth Farrugia joined Mazars Malta in 2005 as a Senior Auditor working on the statutory audits of companies involved in different industries. She joined the Tax Department in 2016 and she is currently involved in providing tax advice to local and international clients. Ruth is a University of Malta (UOM) graduate; she holds an Advanced Diploma in International Taxation by the Chartered Institute of Taxation and is a Member of the Malta Institute of Accountants (MIA) and of the Institute of Financial Services Practitioner. She also lectures taxation to ACCA students.

Ramon Cutajar joined Mazars Malta in 2009, where he holds the position of Director in the Business Advisory Department. He currently heads Mazars Maltaâ&#x20AC;&#x2122;s IT audit team. Ramon has specialist knowledge in the iGaming industry and leads systems and compliance regulatory reviews for iGaming companies based in Malta. In 2010, Ramon obtained the CISA qualification whilst in 2014, he successfully completed a training course on Ethical Hacking. Ramon is a UOM graduate and is also ACCA qualified. He is an associate of the MIA and a member of ISACA.

GRANT THORNTON ANNOUNCES THE APPOINTMENT OF THREE NEW PARTNERS Audit, tax and advisory firm Grant Thornton Malta has announced the appointment of three new partners. Oriana Abela has been appointed Partner responsible for the Capital Markets practice area, a division within the advisory practice which assists clients with the raising of debt and equity finance through the local capital market. Sharon Causon has been appointed Partner for Audit and Assurance services. Sharon joined Grant Thornton in 1995 and has worked on a portfolio of clients operating in different industries, both locally

and internationally. Sharon has been seconded on many occasions to GT offices internationally including London, Leeds and Oxford in the UK, and to the Guernsey office. Chris Farrugia has been appointed Partner for Information Technology. Chris has extensive experience in IT system audits, business requirements analysis, software implementation and project management for information systems servicing corporate customers in varying business sectors.

RSM MALTA APPOINTS DONALD SCHEMBRI AND BERTRAND SPITERI FROM DIRECTORS TO PARTNERS RSM Malta, a leading audit, tax and consulting firm focused on the middle market, is pleased to announce the appointment of Bertrand Spiteri and Donald Schembri as Partners as from 1st January 2020. Donald has a B.A. Hons Accountancy degree and he is also a member of the Malta Institute of Accountants (MIA). He has now been appointed as partner of the Outsourcing Department taking care of the accounting, payroll, VAT consultancy and liquidations.

Bertrand is a Chartered Accountant (ICAEW), a Fellow of the MIA and currently serves on the financial services committee of the MIA. He has now been appointed as partner responsible for service delivered in the business advisory service line focusing on transaction services and corporate finance engagements.

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Cover Story

SOME REFLECTIONS ON THE MALTESE ECONOMY IN 2020

Author: E.P. Delia

SELF-FULFILMENT IS A LONG-TERM PROCESS AND THE MULTIFACETED APPROACHES THAT LEAD TO IT MUST BE PERIODICALLY TUNED TO MEET THE EVER-CHANGING NEEDS OF THE INDIVIDUAL AND OF SOCIETY. Commentaries on ‘the state of the Maltese economy’ extol the success of the ‘country’s recent economic performance’. They refer to rates of growth in the 4% plus region, fiscal surpluses, reducing national debt to GDP (Gross Domestic Product) ratios, and the steady expansion of employment possibilities which registered higher female activity rates than hitherto and a strong surge of inward migration. At the same time, though, they ‘lament’ that Malta

lacks a long term economic vision which ‘must focus on sustainability and respect for our resources, the environment, and the quality of life for all’ given that the number of Maltese ‘at risk of poverty’ is approaching the 90,000 mark and the built-up area stretches from Valletta to St Paul’s Bay. They also warn that the Maltese Islands are facing a credibilityand-trust challenge primarily arising from a malfunctioning regulatory institutional set up. Such conflicting synthesis leads one to query whether the economic success of recent years has been envisaged, policy induced and controlled, or whether it was the outcome of a series of uncoordinated ‘ad 14

hoc’ measures taken over time that impact society and, hence, the economy adversely in the long run. They give rise to a situation of short term success but long term instability, a scenario that is echoed in various reports submitted by the EU Commission and the International Monetary Fund. Measures include the volume and quality of basic infrastructure in public utilities, educational and health facilities, the pension and health funding system, and extensive training in relationship building for all. In the short term there has been asymmetric application of financial and fiscal tools, such as a low interest rate regime and an expansionary fiscal stand boosted by non-tax revenue sources, which contributed to produce the recorded macroeconomic indicators referred to above, and to the surge in property prices and the ensuing rise in rents. It has to be recalled that societies, and hence economies, are continuously ‘restructuring’ themselves. The size and composition of the population – by age, gender and nationality – impinges on the mix of consumer units – conditioning tastes, incomes and hence the demand for goods and services - and service providers – aptitudes, skills and enterprise.

Cover Story

The multitude of decisions taken are mainly conditioned by the framework of legislation ruling international and local relations, as reflected in the movement of goods, capital and labour services, in the process affecting the respective pricing structures. Such decisions are time-framed and refer to the public and private sectors. As noted above, statistical data suggest that aggregate demand for goods and services has remained steadily buoyant both in terms of domestic demand and exports. This has been especially so for the services sectors, primarily the sectors engaged in leisure and finance. However,

there are signs that the expansion rate is slowing down and the economy may be entering into a phase of ‘consolidation’. The constraints that had become apparent referred to the supply of qualified personnel ‘at the right price’. This phenomenon has been addressed by a relatively heavy inflow of labour, which by itself boosted aggregate demand further (investment in accommodation and demand for day-to-day consumer goods). It also put pressure on population-related services like law and order, health and education. The total population numbers 500,000 of whom around 100,000, or 20%, are non-Maltese. (For comparative purposes, the share of foreigners in the Italian population of 60 million is less than 9%). Coupled to a low birth rate, and a net outflow of Maltese, mainly the young, this means that the Maltese population hovers around the 400,000 level, of which 130,000 are aged sixty years and over. And, there are more males than

females in the age brackets relevant for labour market considerations. Males outnumber females by around 6,000 up to age 65. Evidently, such demographic trends have to be deliberately considered when evaluating a social-cumeconomic vision for Malta and Gozo. Besides, the recorded value for the GDP underestimates the true value of total output. Estimates vary over time but they could even range between 20% - 30%. Moreover, as the number of foreigners increase, both as employees and shareholders, it is the value of the Gross National Income (GNI) that matters as an analytical gauge. Non-Maltese workers and shareholders transfer elsewhere part of the income they earn in Malta as wages and profits. Presently, the value of Malta’s GNI is less than that of the GDP. Today’s foreign investment entering Malta, boosting the present aggregate demand, will create a stream of revenue outflows in the future. To identify whether economic activity in Malta is eyeing long term sustainability one has to address two sets of issues, namely, the stability of the existing set of rules conditioning the international movements of goods, capital and labour; and the projected life-span of the present net immigration model that has been supporting the recorded economic growth. Malta is a member of the single market of the European Union, of the Euro-area and of the British Commonwealth. The United Kingdom terminated its EU membership and will be redefining its relationship with the EU in the coming months. In a sense Malta’s own relationship with the United Kingdom will therefore reflect the ultimate agreement entered into between the UK and the EU. >> 15

Cover Story << And it will also emanate from the evolutionary steps taken within the EU and the Eurozone to proceed with the ‘European project’. This latter development envisages further institutional integration of policy making and procedures regarding international relations, trade, the single market, finance, taxation and also political representation. ‘Europe’- whatever that term may mean – did not respond with the same degree of success as some other countries to the international challenges in financial stability and geopolitical decision making. Europe is still fragmented in thought and policy formation and implementation. This condition tends to accelerate population migratory movements within the bloc and, in turn, the rapid ageing of selected regions. It is experiencing bouts of indecision among its various member states, with some national governments finding difficulties even in their own formation and sustenance. And there does not seem to be a clearly-defined set of objectives with a related time frame for implementation on which member states totally agree. The ‘nation state’ is the base of every government’s consideration. Whatever contributes to the growth of output and welfare within a particular state is ‘fair’ even is this comes about at the expense of another state within the group. So the evolutionary path that the EU group finally decides to follow would represent a re-drawing of the parameters within which decision-making by both the public and the private sector in the Maltese Islands will be made. This critical consideration for future development is omitted from descriptions of future economic growth scenarios.

Similarly missing from analysis is any reference to the demographic-economic model in place, whereby at present some 10,000 immigrants are allowed in to support further economic expansion. It is not clear what commentators mean by alluding to the attraction of new economic sectors unless they specify how such sectors are to be integrated with the present demographic realities. Vague references to educational support cannot be taken to be indicative of a sound policy framework.

Quality of trained personnel matters, and it should never be sacrificed to breach the constraint of numbers. This same demographiceconomic model conditioned for some time the costs of labour by restraining wage increases. But by expanding economic activity under a wage-constraint mechanism – which is itself ‘controlled’ by means of the Cost Of Living Adjustment (COLA) mechanism in place for almost three decades – it could well be that operators did not focus as much attention as they should have done on labour productivity in the first place and total productivity to follow. This signifies that the sectoral restructuring that was expected to take place was being undertaken at a slower pace than economically desirable. And wages remained stuck. Now that the demand for accommodation, that arose fast in the wake of the flow of immigrant personnel, has been gradually rendering rented accommodation beyond the means of the average Maltese worker, and the prices of accommodation itself has put purchase out of reach, the issues of housing affordability, family unit formation, life styles, and poverty have surfaced. They are interrelated. They represent the

group of people, many of them young, who have to make key decisions regarding their future when faced with uncertainties regarding their ability to compete in fast-changing labour markets. They may simply have not prepared themselves sufficiently well, through formal and informal education, to compete in areas of activity where the salaries suffice to meet the growing demands. Future technology may compound their problems as certain jobs may be even replaced by machines.

Self-fulfilment is a longterm process and the multifaceted approaches that lead to it must be on-going and periodically tuned to meet the everchanging needs of the individual, in particular, and of society as a group. Interpreting economic results from macroeconomic data has its validity, but reality is somewhat more complex than a few data may reveal. It demands more information which must be timely and as exhaustive as possible. Analysts have to compile such information to ensure an appraisal that approximates reality.

E.P. Delia published studies on the demographics, macroeconomic policy and sectoral development in the Maltese Islands. Recent publications include ‘Ethical investment in a dynamic society’ (2012) and ‘Evaluating Malta’s political economy’ (2017)

Category

GDPR

AM I DOING IT RIGHT? Author: Dr Sarah Cannataci

UNLESS YOU HAVE BEEN LIVING UNDER A ROCK FOR THE PAST THREE YEARS, YOU HAVE SURELY HEARD OF GDPR AND, PERHAPS, SUFFERED A FEW HEADACHES BECAUSE OF IT, TOO. ALTHOUGH MOST BUSINESSES PUT IN SOME WORK IN THE WEEKS LEADING UP TO THE 25TH MAY 2018 AND LEFT IT AT THAT, ONE SHOULD ENSURE CONSTANT COMPLIANCE WITH THE PROVISIONS OF THE REGULATION. THE MAIN CHALLENGE FOR ORGANISATIONS IS HOW TO SUCCESSFULLY WEAVE COMPLIANCE WITH DATA PROTECTION LAW INTO THEIR DAY-TO-DAY FUNCTIONS. BUT THE SECRET IS SIMPLER THAN YOU MIGHT THINK.

LET’S START WITH THE BASICS What personal data do I process? Personal data is any information that can directly or indirectly relate to the identification of a living individual. In most cases, the personal data generally processed by the accountancy profession is that pertaining to clients, as well as employees in the case of accountancy firms. This definition is very wide, meaning that personal data varies from one’s name and surname, to national identity documentation to photos and biometric data of an individual. How am I processing this personal data? The GDPR applies to the systematic processing (collection, storage, adaptation, destruction) of personal data. So, whether you receive 18

information relating to an individual via email, or keep accounting information related to clients on file as per your legal obligations, you are processing personal data. Why am I processing this personal data? In the regulated accountancy profession, the processing of personal data relating to clients is usually done for compliance with a legal obligation or for the performance of a contract. In the case of employees, the lawful basis underlying the processing might also be legitimate interest or, though less likely, consent. You may be processing the data in your role as a Data Controller or a Data Processor – your role changes depending on the specific processing operation, but under the GDPR, there is a flow-down of obligations and liability from the Data Controller to the Data Processor(s).

TIPS FOR ONGOING COMPLIANCE A. Record Keeping You are not only obliged to comply with the provisions of the GDPR, but you need to be able to demonstrate said compliance. Create a GDPR Compliance Folder and document what personal data you process and why, how you obtained it and why, how you obtained it and who you share it with and ensure that you keep these records updated. B. Policies & Procedures Review your client-facing documentation to ensure that any privacy notices are up-todate and provide the data subjects all the information they are entitled to. If you have employees, carry out the same exercise with any Employee Privacy Notices or Handbooks. Initiate internal procedures and

GDPR

policies to complement the processing and, more importantly, to address certain situations, such as (i) how to handle a request for the exercise of a data subject right; (ii) when a data breach is suffered or suspected; or (iii) when a request for access to CCTV footage is received, for example. C. Retention of data The GDPR does not set specific limits on data retention, but the legislation regulating the accountancy profession sets out specific periods in relation to particular documents and information. There are other sources that can assist in this exercise, namely guidance issued by bodies such as the ACCA which set out minimum retention periods for certain documents, such as audit working papers. Ultimately, any retention schedule you draw up must be justifiable. D. Regulating Relationships If you are processing personal data on someone elseâ&#x20AC;&#x2122;s behalf or have engaged someone else to process it on your behalf, you should regulate your relationship by putting into place a written contract with any such third party. Make sure that any such Data Processing Agreements are reflective of the processing being undertaken (duration, purpose, type of personal data etc) and that such agreements are updated accordingly should the relationship change.

E. Maintaining Security A data breach is a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure, or access to, personal data transmitted, stored or otherwise processed. This event is usually characterised by (i) a loss of confidentiality; (ii) loss of integrity or (iii) loss of availability of the personal data being processed. Lay down a procedure for when a data breach is discovered, establishing tight timeframes in which reporting to the Supervisory Authority should be made. Additionally, an assessment of all factors relating to the security of the personal data is crucial.

Dr Sarah Cannataci is an Associate within the Technology, Media & Telecommunications department of Fenech & Fenech Advocates. Her work primarily involves assisting and advising clients in relation to information technology and data protection law as well as trademarks, copyright, and design rights amongst other intellectual property issues.

THE BIGGEST CHANGE YOU CAN IMPLEMENT, HOWEVER, IS TO CHANGE YOUR MINDSET. GDPR IS NOT AN ADDITIONAL BURDEN ON YOUR DAILY FUNCTIONS, BUT RATHER AN INTEGRAL PART OF YOUR OPERATIONS. WHEN ADHERENCE TO DATA PROTECTION PRINCIPLES BECOMES PART OF YOUR MODUS OPERANDI, COMPLIANCE WITH THE GDPR IS A PIECE OF CAKE!

Advertorial - Trident Park

TRIDENT PARK

Author: Ian Ritchie

IAN RITCHIE, THE WORLD RENOWNED ARCHITECT, EXPLAINS THE ENVIRONMENTALLY INTELLIGENT DESIGN THINKING BEHIND TRIDENT PARK. ARCHITECTURE IS CULTURE. Through my own practice and the collaborative architecture, I seek a synthesis of art, science, technique, landscape and economy. The new design methodology must embrace social, political and philosophical criticism of design if we are to redefine design with any sense of value and meaning. When we presented our approach to our client, the Trident Group, we sought to embrace the above key strands, and thought hard about this project from its very inception. The client has always been very open to explore new ways of looking at workspaces, and how to build and run them. Who would not want low running costs and low energy bills? But, as important as energy consumption and CO2 emissions are, it is also a matter of nurturing relationships with people and being sensitive to their well-being.

WHAT ARE THE EFFECTIVE DESIGN CONCEPTS DEPLOYED INTO TRIDENT PARK? The 200m long listed façade structure presents a human scale to the street, and this is

sufficient to guide the scale of new buildings, and to be in sympathy with historic buildings of Malta. Spending time in lifts is not sensible, increases tension and increases running costs. It is difficult to communicate between floors, so the more floors of separation, the poorer the communication. Building tall has one agenda – to maximise financial profit with duty of care to not much else. It eradicates culture, sense of place and identity. It is uncivilised and devoid of human dignity. The ‘floor’ of Trident Park is its gardens and its outside spaces – shared, naturally perfumed and colourful places to meet, to rest and to work - promoting a sense of social interaction. Within these gardens are the shared stairs and lifts. The series of seven buildings are organised north-south. Between each building is a themed garden that adds colour and enables both oxygen generation and carbon sequestration. This orientation means that: • individual buildings help to provide shading to its neighbouring building

• the south facing façades are not large thus reducing solar gain and overheating of the interior • east / west façades control morning and afternoon solar gain while offering views • the opening of windows allow for fresh air from the gardens • buildings step back to respect the listed façade, and create shaded outdoor landscaped terraces • cooling loads are significantly reduced, with little or no requirement for space heating We have introduced into Malta chilled slabs to cool the space – embedded pipes circulating chilled water. Thus, visually there is no ducted air, promoting a sense of calm within as no mechanical elements are visible. We have also designed the interiors to benefit from daylight. The above undertakings reflect our concern to achieve better buildings and environments for people. Trident Park is a truly unique development in Malta which will deliver a prestigious setting and an unparalleled experience for tenant employees and visitors alike. This article is a paid advertorial by Trident Estates Plc for the Winter 2020 issue.

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20 ING

Redefining Office Lifestyle, in a Unique Green Office Campus. Located in Notabile Gardens, Mrieħel, at the heart of the Central Business District, Trident Park offers a truly unique office concept. • Character & Heritage – fronted by a 250-metre-long colonnaded façade, for many years an iconic national landmark synonymous with Farsons Brewery, which has been given a new lease of life combining awardwinning international architectural standards within a Maltese context.

• Central Location, Distinguished Neighbourhood – within easy reach of major road networks, airport and Malta’s capital city and adjacent to Farsons Brewhouse, currently being rehabilitated into a major mixed-use development.

• Ample & Flexible Workspaces – with over 15,000 square meters of internal office space, spread over seven detached, low-rise, recessed buildings with terraces spanning 1,300 square meters on either side.

• Sustainable & Welcoming – an eco-friendly design, with a focus on sustainability offers a highly welcoming office campus, with ample natural light, fresh air, inviting open spaces and surrounded by a series of six landscaped Mediterraneanthemed gardens.

Trident Park... setting new standards for office life!

Trident Park is a project of Trident Park Limited, a fully owned subsidiary of Trident Estates plc. For more information: Trident Park, Notabile Gardens, Mdina Road, Zone 2, Central Business District CBD 2010. T. +356 2381 4496 • +356 7957 1571 • +356 9942 8282 info@tridentparkmalta.com www.tridentparkmalta.com

Ethics

THE CODE OF ETHICS - WHAT DOES IT MEAN TO BE ETHICAL? Author: Mario Galea

THE CURRENT STATE OF THE WORLD ECONOMY, INCLUDING MALTA, IS SUFFERING FROM LACK OF ETHICAL CONDUCT. MONEY IS NOT THE ONLY MEASURE OF ECONOMIC AND SOCIAL PROGRESS. The increase in regulation is indicative of this problem: regulations became more important as people lost their sense of proportion and concern for others. Principles are gradually being replaced by rules. Many organs in the society considered it necessary to introduce a code of ethics. There are two reasons for such a code: either to genuinely return an organisation and its staff onto the path of commongood practice, or simply to satisfy regulatory demand or expectations.

People do not need codes and direction to be ethical and ethical behaviour should be second nature to us. It is part of our being human and of our upbringing and education. But progress has been interpreted by some as personal achievements rather than common achievement, and emphasis has been largely placed on personal advancement, instead of societal advancement.

Because of the lack of attention to the world around us we are seeing the return of suffering, wars, inequality, even damage to the climate. A reversal is urgently required even if there is no sign of it despite so many manifestations around the world. Unless something is done people will give up and continue down the same path. Eventually nature and society will overcome the situation, but not before many go through damaging experiences. Lack of ethical conduct is likely to lead to business failures. It is useless to blame our clients; that is not what is required of accountants. Starting from the >>

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Ethics

<< official code of ethics, we are expected to be competent, objective, independent, confidential, suitable and accept a duty towards society. We are also expected to share our profession and not muscle colleagues for personal gain.

products, and fair pricing. Companies in advanced economies are beginning to embrace objectives beyond money and wealth, shifting the availability and demand of capital for their business and products.

Charity begins at home and if we are to guide clients, we first ought to behave ethically with each other as members of the same profession.

There will be more codes and more circumvention unless things change. We also tend to use codes only when we hit trouble, and then we use them for the wrong reason. Instead of checking what we should have done right, we try to interpret the code to justify our shortcomings. Here, again, the conflict between morals and law is exposed. We have abandoned morals in favour of the book. Little do we think, when we do this, that books are made by humans, whilst morals are natural, spiritual, if you will, and supreme.

When it comes to our interaction with clients, we need to take a natural approach. In general, ethics is a matter of being yourself, letting your conscience lead you. We do not always listen to our conscience because of the opportunity in front of us. If only accountants all over the world are guided by their conscience not opportunity, we would not be in the situation we find ourselves in now. The auditing profession, for instance, lost its self-regulation because of major scandals which sadly continue to flow because of insufficient focus on the good corporate governance, transparency and accountability of clients. There are many government initiatives awaiting the audit profession, such as the Audit Reporting and Governance Authority (ARGA) in the UK, but none of this will stop the suppression of the profession unless we adopt basic and genuine ethical conduct as a base for the way forward. These super authorities are worthless unless accountants and auditors on the ground are willing to change and serve societal needs such as environmental impact, employee well-being, safety and fair pay quality of

We are basically talking about honesty. When we listen to our conscience, we are being honest. People are born with the value of honesty and education, good upbringing and training helps us to develop over our lifetime. There are many values that we can apply in our offices and in our clientsâ&#x20AC;&#x2122; boardrooms but

doing the right thing without fear or favour is the best service that you can give to your client. It is the most lasting service.

We often find ourselves in tight situations where we need to please clients. We would be pleasing our client more if we express our conscientious views rather than making an effort to bend and twist standards and regulation to suit undesirable or frivolous suggestions. As advisors we are meant to guide ethically and not to square circles and let codes sit uselessly on the shelves in our offices.

Mario is a long standing auditor currently entrusted with governance and oversight assignments as a member of the boards of various companies. He is also a committee member of the Malta Institute of Accountants Ethics Committee.

Meet the Team

MEET THE MIA TEAM JACQUELINE MAMO

I AM an animal lover, and as most people know

me, I am a dog fanatic. The sea is another passion of mine and I am fortunate to live close to it. I am an outdoorsy person and enjoy spontaneous adventures like camping or off-roading when I have an opportunity, but I also like shopping, makeup and photography. The most rewarding feeling for me is helping others. Our little actions, sometimes even just a friendly smile, can make a world of difference to others.

Anti-money Laundering

THE EFFECT OF THE 5TH AML DIRECTIVE ON TAX PRACTITIONERS

Author: Shanice Finch

THE COMPETENT AUTHORITIES, INCLUDING THE TAX AUTHORITIES, SHALL HAVE IN PLACE EFFECTIVE MECHANISMS ALLOWING THEM TO COORDINATE THE DEVELOPMENT AND IMPLEMENTATION OF POLICIES TO COMBAT MONEY LAUNDERING AND TERRORIST FINANCING. January 2020 marked the transposition of the 5th AML Directive (Anti-money Laundering Directive). After the implementation of the 4th AML Directive, the European Union faced new challenges mostly due to the innovative trading methods such as virtual currencies and the increase in off-shore accounting for tax avoidance.

Furthermore, the need to respond to the public concern with respect to terrorist financing and lack of transparency on beneficial ownership, including trusts, was recognised.

Tax practitioners are faced with the increased need of transparency in customer`s trading and business operations. Upon the implementation of the 4th AML Directive, it was clear that the AML Directive was applicable to auditors, accountants and tax advisors. Then again, it was unclear if that directive was applicable and obligatory to be adhered to, by uncertified entities offering tax advice. The 5th Directive, clarifies that it is applicable to anyone offering assistance, aid or advice on any tax matters as part of their professional and principal business activity. This important clarification was aimed to target any loopholes which could have been abused by uncertified tax advisors against certified tax advisors. In line with Article 2 of this Directive expanding the applicability to both direct and indirect tax advisors, all Member States need to include the definition of â&#x20AC;&#x2DC;tax adviserâ&#x20AC;&#x2122; as provided in the AML Directive and reflect this definition in the national AML framework.

Financial Intelligence Units (FIUs) have reported to the European Union that they have been encountering difficulties in the process of exchange of information due to differences in national definitions of tax crimes. Unfortunately, these definitions are not defined or harmonised by European Union (EU) law. This lack of harmonisation cuts confidence of tax practitioners who report suspicion of tax crimes to the national FIU, and the competent authority would not be able to get back accurate or reliable information. Another targeted issue is the increased transparency of trusts and similar arrangements which are integrated through company structures, increasing hierarchy levels leading to the ultimate beneficial owner. The European Union has created a Central Platform through which the information of trusts ownership shall be publicly available to all interested parties including tax practitioners in the resident country of trustee within the Union. >>

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Anti-money Laundering

<< The enhanced scrutiny will aid auditors and tax practitioners to flag any misuse of legal entities and arrangements for the aim of tax avoidance. It has been established that it is necessary that information on beneficial ownership remains available for a minimum of five years after the registered, trust or legal entity has ceased to exist for referral purposes. Tax practitioners are responsible to report any high risk individuals or legal structures which they deem as non-compliant or any suspicion of cross-border transposition of funds.

The Union has given the Member States the responsibility to report any inaccurate or outdated information found on beneficial owners within the public registers. Also, the Member States are responsible to take necessary measures towards the individuals or legal entities which are found liable to inadequate or outdated due diligence information on beneficial owners. In this light, the Union has requested Member States to strengthen their relevant authoritiesâ&#x20AC;&#x2122; anti-corruption unit and tax authority. The competent authorities, including the tax authorities, shall have in place effective mechanisms allowing them to coordinate the development and implementation of policies to combat money laundering and terrorist financing. Adequate training shall also be provided on the implemented safe-guarding policies tax practitioners are expected to follow, and on the process of reporting suspicions transactions. 28

The Regulatory European Union Board has also taken the responsibility of an integrated system of analysing transactions and dealings with third countries with the aim to eliminate loopholes in the member state administration measures. Furthermore, Member States shall not restrict the exchange of information between competent authorities on requests involving tax matters. These newly implemented measures shall provide more reassurance that adequate customer due diligence has not just been performed upon client on-boarding, but that monitoring is ongoing. The 5th AML Directive has pointed out that obliged entities and practitioners have only been reporting little to no suspicious transactions to the respective FIU. This may indicate that either suspicious transactions are not being correctly and timely detected, or the tax practitioners are lacking from their obligation to report these transactions. In a nutshell, all certified and uncertified tax advisors giving tax advice as part of their professional activity are liable to follow the 5th AML Directive. Subsequently, should practitioners not follow, the competent authority is obliged to impose sanctions, fines or other necessary measures to non-compliant practitioners in order to protect the trading market. Practitioners are also responsible to keep an eye on the EU AML Blacklist as a central database including reported cross-border individuals.

Ms. Shanice Finch graduated with a bachelorâ&#x20AC;&#x2122;s in accountancy and Marketing and consequently successfully completed her masterâ&#x20AC;&#x2122;s in accountancy at the University of Malta in 2017. Ms. Finch joined Erremme Business Advisors in 2013 works as a tax advisor on several local and international assignments. She is a member of the Malta Institute of Management and an AIA of the Malta Institute of Accountants. Ms. Finch is currently majoring in taxation by furthering her studies with the Chartered Institute of Taxation (CIOT), reading an Advanced Diploma in International Taxation. Ms. Finch showed interest in the Distributed Ledger Technology (DLT) inspiring her to specialise in the VAT implications and treatment of tokens received in exchange for investment in Initial Coin Offerings. Her analysis extends to Vat treatment throughout the EU, impacting cross-border transfers and redemption of rights tied to tokens.

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Real Estate

MALTA’S REAL ESTATE MARKET: UP OR DOWN? Author: Chris Grech

OWNING PROPERTY IS PART OF THE MALTESE CULTURE, YOU COULD SAY IT’S IN OUR DNA. THE RATE OF HOME OWNERSHIP IN THE MALTESE ISLANDS HAS ALWAYS BEEN HIGH, STANDING AT 78.8% IN 2018 (NSO). A quick look at the 2008 financial crisis is enough to highlight the robust nature of the local market. The global downturn which caused the biggest disruption to the US market since the Great Depression and resulted in a 6 year slump in the UK housing market, not to mention the collapse of the Greek market, had little effect on the Maltese property market. Over the past decade we have experienced a boom in property investment. The increased demand for property had a knock-on effect, resulting in more units available on the market at various price brackets. Foreign interest and investment also increased during this time. A constant characteristic of the Maltese property market is the limited land available for development.

Over the past decade we have seen ‘the rise of the high-rise’, where new projects aim for the sky. These high-rises are a relatively new product on the market, substituting villas and houses of character to cater to the demand for luxury property with spectacular sea views.

Now the landscape is changing. The growth of the property market has slowed down and prices, which until recently had been rising steadily, have come to a plateau, as observed in the Construction Industry and Property Market Report for 2019 prepared by KPMG. We believe that this is the industry returning to normal levels of demand following a period of strong performance, and far from a ‘bursting bubble’ as some have irresponsibly deemed it. It is important to note that demand for property is still relatively high, with buyers looking towards different localities if their budget does not accommodate properties in the Harbour region.

THE RENTAL MARKET Over the past 5 years we have seen the rental market flourish like never before, due to an influx of foreign people choosing to make Malta their home, as well as a tourist destination. This has resulted in an unprecedented rise in short and long term rentals. We have seen the impressive results of a national effort to bring investment to Malta. Certain industries, such as

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Real Estate

<< tech, iGaming, and aviation among others, have attracted foreign talent who, together with their families, make up a significant section of the long term rental market in the areas around Sliema, St Julianâ&#x20AC;&#x2122;s, and Gzira. This has led to an increase in rental prices, often to the detriment of the local renter who cannot afford to pay such high rates. Tourism, for many years a pillar of the local economy, has recently seen a sustained increase due to strategic marketing of Product Malta with very positive results

â&#x20AC;&#x153;tourism has been increasing steadily over the past years and has more than doubled since 2009â&#x20AC;? (NSO 2019). We are seeing a strong link between the tourism and property markets, stemming from the emergence of the sharing economy. The success brought about by AirBnB-style private accommodation is another factor in the rapid growth of the rental market, with a marked increase in the demand for short term rentals. Since it is relatively easy to set up a tourist rental (hosts are required to obtain a license from the Malta Tourism Authority, as well as the possibility to opt for a flat tax rate of 15%), this has really caught on in Malta. In view of this unprecedented situation, the government has initiated regulation of the rental market. As from January 2020, short term rentals of 6 months, long term rentals of more than 6 months, and flat-share situations are regulated by the Private Residential Leases Act. This means that all lease contracts must be registered with the authority, lease terminations have stipulated minimum notice periods relative to tenant and landlord, and failure to comply carries a penalty fee. Property sales & commercial property remain unregulated. The government has also embarked on a project offering affordable rentals to low income earners in Fgura. While this

addresses a market gap, the number of units being proposed will go a very short way to address this issue. Hopefully, the project is a success and justifies further investment in similar endeavours.

WHAT ARE OUR PREDICTIONS FOR THE FUTURE OF THE MALTESE PROPERTY MARKET? Due to recent political developments, the slowdown in the property market predicted in the KPMG market report will persist. What is uncertain is how far it will go and how long it will last. The local market is strong; we have yet to see how the foreign market will react. However, we are not discouraged. As demonstrated by the economic crisis, Malta can weather a storm. In order to mitigate this slump, we need to attract upmarket residential and commercial investment from overseas, while proactively reaching and sustaining the specialised luxury market. As a nation, we must unite and focus our efforts on rebuilding our brand, showcasing what makes our beautiful islands so special.

Chris Grech established Dhalia with his brother Mark in 1982 as a small estate agency. He has actively held a leadership role for 35 years, while also managing other investments locally and in Bulgaria.

ESEF

THE EUROPEAN SINGLE ELECTRONIC FORMAT (ESEF) – PART 3 Author: Stephanie Buhagiar Camilleri

REFERENCE IS MADE TO THE SERIES OF ARTICLES PUBLISHED ON THE EUROPEAN SINGLE ELECTRONIC FORMAT REPORTING REGIME (ESEF)1. European listed companies (issuers of shares and bonds operating in regulated markets) will have to report their entire annual financial reports (‘AFR’) in ESEF starting with financial statements for 2020. The AFR will be prepared in XHTML format, and IFRS consolidated financial statements data included in the XHTML document will be marked up with XBRL tags. XBRL tagging will be done using iXBRL technology (InlineXBRL 2).

THE EUROPEAN SINGLE ELECTRONIC FORMAT BECOMES EUROPEAN LAW The last article, issued in Spring edition of the Accountant, referred to the publication on 21 March 2019 of the ESEF XBRL taxonomy files and related documentation to support issuers in the implementation of the requirements set out by the draft Regulatory Technical Standards (RTS) on ESEF. On the 29 May 2019, the European Commission introduced rules to support the digitalization of corporate reporting. The European Securities and Markets Authority (ESMA) has

prepared an ESEF Reporting Manual and ESEF taxonomy files to help companies in their preparation, intended to be updated on a yearly basis in order to reflect possible updates to the International Financial Reporting Standards (IFRS) taxonomy.

A copy of the endorsed Commission Delegated Regulation (EU) 2018/815 (‘Regulation’) can be found on the Malta Financial Services Authority (MFSA) website under the Capital Markets section, sub-section Continuing Obligations, Commission Regulations. This Regulation has come into force with effect from 18 June 2019. It shall apply to annual financial reports containing financial statements for financial years beginning 1 January 2020 or after as provided under Article 8 of the said Regulation.

Preparers are encouraged to keep up with the informative updates which are being published on the ESEF reporting regime, including amongst others, a series of frequently asked questions.

ESEF

<< ESMA has issued its 3rd video tutorial addressing common questions received by NCAs and ESMA . Details of the 3rd video tutorial can be accessed through the MFSA website, under the ESEF section.

AUDITORS’ INVOLVEMENT ON FINANCIAL STATEMENTS IN ESEF Background The European Commission services issued a “Questions and Answers” document on the European Single Electronic Format (“ESEF”). Question 7 of this document specifically refers to the requirements emanating from the ESEF Regulation, a binding legal instrument, as being “statutory requirements” within the meaning of Article 28 (2)(c)(ii) of the Audit Directive. Therefore, in addition to existing requirements, statutory auditors of those companies falling within the scope of the Transparency Directive (“Issuers”), are to provide an audit opinion stating whether the corresponding financial statements comply with the requirements set out in the ESEF Regulation. CEAOB guidelines On 28 November 2019, the Committee of European Auditing Oversight Bodies (“CEAOB”), with a mandate of ensuring consistency between national audit oversight bodies at EU level, adopted guidelines (“CEAOB guidelines”) on the auditors’ involvement on financial statements in ESEF. Although the guidelines are non-binding and do not constitute an auditing standard,

they are considered by the CEAOB as relevant for the auditors’ work on ESEF. In addition to other guidance, the guidelines specify that the auditor shall determine whether the marking up of information in the electronic report is in compliance with the ESEF requirements.

References: The European Single Electronic Format – An Introduction, first article (Part 1) published in the Winter 2019 publication of The Accountant. The second article (Part 2), titled The European Single Electronic Format (ESEF) – Part 2, published in the Spring 2019 publication of the Accountant. 1

The ESEF Reporting Manual, Preparation of Annual Financial Reports in Inline XBRL (14 December 2017 | ESMA32-60-254) defines ‘Inline XBRL’ as a mechanism for embedding XBRL tags in HTML documents. This allows the XBRL benefits of tagged data to be combined with a human-readable presentation of a report, which is under the control of the preparer. 2

Based on the procedures performed, the auditor should reach a conclusion and express an opinion on the compliance of the marked-up information with the ESEF requirements. In terms of reporting, the CEAOB acknowledges that specific national legal provisions would have to be considered; however, it is recommended that the conclusion on the Issuers’ compliance with ESEF requirements is provided in the audit report, albeit separate from the audit opinion. Furthermore, the Appendix, to the CEAOB guidelines, provides a summary of the ESEF requirements relevant for the auditors’ work. A full copy of the non-binding guidelines issued by the CEAOB can be accessed from the MFSA website, under the ESEF section.

Stephanie Buhagiar Camilleri is a Certified Public Accountant and Auditor, currently employed as a Senior Technical Expert at the Securities and Markets function within the MFSA.

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Technology

HOW WILL ARTIFICIAL INTELLIGENCE AFFECT THE ROLE OF THE MODERN-DAY ACCOUNTANT? Author: Andrew Cachia

ARTIFICIAL INTELLIGENCE (AI) HAS BEEN GAINING RAPID POPULARITY OVER THE PAST FEW YEARS, AND WITH GOOD REASON. ALTHOUGH AI HAS BEEN AROUND FOR A LONG TIME, WITH SOME OF TODAYâ&#x20AC;&#x2122;S COMMONLY USED ALGORITHMS DATING BACK TO THE 70S, RECENT ADVANCEMENTS IN COMPUTATIONAL POWER AS WELL AS THE ABUNDANCE OF DATA AVAILABLE HAVE HELPED AI TO FLOURISH AND DEMONSTRATE ITS CAPABILITIES

In order to understand how AI can provide value to accountants, we must first understand what AI is and, more importantly, what it is not. Automation and Artificial Intelligence are terms often used interchangeably and, although they go hand in hand, the concepts are distinct. Automation is the process of replacing manual tasks with systems that can perform those tasks autonomously with minimal human intervention. It streamlines a series of processes ensuring they execute in the correct order, and performs calculations, checks, as well as the generation of necessary notifications or reports. No fancy algorithms are needed. There is no limit really to what can be automated, but it usually boils down to resources

or cost. But the long-term cost benefits of automation can be huge, reducing the grunt work automation can be huge, reducing the grunt work performed by employees, allowing them to focus on the bigger picture rather than on inputting formulas into a spreadsheet or punching in numbers on a calculator. In fact, it still boggles my mind how going into 2020 so many companies still operate in an old-fashioned way, calculating payrolls and taxes, manually crunching up numbers on spreadsheets and so on. These are processes that an automated system can handle very well, in a much shorter time frame, and with minimal chances of human error. Where then, does that leave Artificial Intelligence?

Artificial Intelligence is the process of solving non-trivial problems using methods and algorithms that mimic the way in which human beings understand and learn problem-solving. To use AI, you must have a problem to solve, one which cannot be solved using traditional techniques as they would be ineffective or inefficient. An example of something Artificial Intelligence is very good at is pattern recognition, especially when dealing with complex sequences spanning huge ranges of data that involve a multitude of variables. Manually sifting through all the data would be extremely impractical and traditional

Technology

time series analysis usually has trouble determining the relationships between all the different variables. Even when this works, since many of these factors change over time, models quickly become outdated. AI, on the other hand, is not only capable of determining underlying hidden patterns and relationships between different variables, but can continuously monitor and update itself, learning on the go and remaining relevant to the most recent data. This is useful for generating predictions, allowing companies to forecast financials, based not only on the companyâ&#x20AC;&#x2122;s past and recent performance, but a whole range of other factors too, including the economic climate, industry trends, seasonality and competitor performance. Seasoned analysts can also dive through all this data and generate estimates, but AI is not only quicker and is able to pinpoint underlying correlations between the company financials and internal or external factors that analysts might not see. AI also excels at dealing with quantifying very subjective values, with risk assessment being a good example.

The days of relying on the Sharpe ratio to quantify risk are soon gone. AI algorithms analyze many factors to generate probabilities that help the companyâ&#x20AC;&#x2122;s decisions. AI is also good at conglomerating non-standardized, incoherent data from multiple sources, retrieving the desired information, and storing it in a central location. Nowadays,

data such as requests, receipts, invoices or quotes come in from multiple different streams, including emails, direct messages, handwritten notes, printouts, or specialized software systems. Why should the accountant have to go through the cumbersome process of typing details from invoices and receipts into the accounting software system, when AI can scan them and pick the correct details accordingly? Although Optical Character Recognition (OCR) systems have been around for a while, they usually require a strict, standardized format. Try feeding receipts handwritten by multiple different people to an OCR! AI can identify the required details more easily and will only get better with time.

As the adoption of automation and AI becomes more widespread, the role of the accountant will change. Instead of focusing on number crunching, accountants will focus more on value adding activities and reduce the repetitive, monotonous work . Their role will begin to shift to that of consultants and auditors. Although AI is powerful, it is not foolproof, and the output and results produced will need to be crossexamined by accountants who are knowledgeable in the domain, especially during the early days of adoption. The AI algorithms also need accountants to give them problems to solve and guide them as company objectives and policies change over time.

Andrew is an experienced software developer within the FinTech industry and is currently completing a masterâ&#x20AC;&#x2122;s degree in Artificial Intelligence.

VAT

VAT GROUPING IN MALTA - A PRACTICAL SCENARIO Author: Aida Cachia & Michael Borg

WITH THE PUBLICATION OF THE MALTESE VALUE ADDED TAX (REGISTRATION AS A SINGLE TAXABLE PERSON) REGULATIONS EFFECTIVE FROM 1 JUNE 2018, TWO OR MORE PERSONS MAY CHOOSE TO BE REGISTERED AS A SINGLE TAXABLE PERSON FOR MALTESE VAT PURPOSES (“VAT GROUPING”). WITHIN SOME MONTHS IT WAS UNDERSTOOD THAT NUMEROUS APPLICATIONS HAVE BEEN PROCESSED AND ACCEPTED BY THE COMMISSIONER FOR REVENUE, ENABLING SEVERAL BUSINESSES TO REAP THE BENEFITS OF THESE REGULATIONS. But what are the requirements for VAT Grouping and what additional matters one should be aware of? The following practical example answers both questions. Background A multinational group of companies (“the group”) operates primarily in the retail sector and has the following structure:

Does the group satisfy the necessary requirements to apply for a VAT group in Malta? 1. Prescribed licensing requirements Ins. CaptiveCo. is licensed in terms of the Insurance Business Act 2. Two or more persons established in Malta TradeCo, HoldCo and Ins. CaptiveCo should be established in Malta 3. The applicants are bound to each other by:

Non-Maltese TradeCo. Outside Malta

b. organisational links: proof of a shared management structure

Malta HoldCo. (No VAT Reg) TradeCo. (Art 10 VAT Reg)

Ins. CaptiveCo. (Art. 12 VAT Reg)

The main facts: - All holdings are 100% shareholding - TradeCo. is a taxable person that provides supplies globally including to the other 2 Maltese established companies; - HoldCo. is a non-taxable legal person; - Ins. CaptiveCo. is a taxable person acting as a captive insurance company for the group that is licensed as such with the MFSA.

a. financial links: any person/s to hold, directly/ indirectly, more than 90% of any two or more of a) voting rights; b) entitlement to profits available for distribution; c) entitlement to surplus assets on a winding up

This should be satisfied if the group companies have common directors or share a common management structure. c. economic links: exists where a) activities of the applicants are of the same nature / fall within same industry; or b) the activities of the applicants are interdependent / complementary; or c) one member of the group carries out activities which are wholly or substantially to the benefit of any one or more of the other members This should be satisfied on the basis that the activities of the Maltese entities are carried out for the benefit of the greater group

4. Submission of all due VAT / income tax compliance filings and settlement of related dues

VAT

Maltese VAT implication of forming part of a VAT group on intra-group transactions: Without a VAT group, Maltese VAT should be charged on intra-group transactions which result in unrecoverable VAT for Hold Co. and Ins. Captive Co. However, the three Maltese companies may opt to be registered as a VAT group. The group would undertake both taxable and exempt supplies and would, therefore, be obliged to register in terms of article 10 of the Maltese VAT Act. Any intra-group transactions will be outside the scope of VAT, thus, eliminating the previously unrecoverable VAT. Furthermore, since input tax deductions would need to be undertaken on a group basis, they would likely differ from the aggregated VAT position of the separate companies.

The application of VAT grouping provides several benefits ranging from a reduced VAT cost to cashflow advantages. However, one should also ensure that applying for a VAT-group does not create burdens that outweigh the benefits. The implications of a VAT group may vary drastically, depending on the fact pattern and circumstances, and should be analysed upfront on a caseby-case basis.

Other considerations - Ideally an initial analysis is carried out to assess the VAT position of the group when compared to the aggregate VAT position of the same individual entities considered on a stand-alone basis. - The members of the VAT group are required to nominate a Group Reporting Entity (â&#x20AC;&#x153;GREâ&#x20AC;?) to exercise any and all rights and discharge any and all obligations arising to the VAT group. Any supply made by / to a member of a VAT group shall be treated, as a supply made by / to the GRE. The GRE would also be obliged to undertake the VAT compliance obligations of the group. - HoldCo will need to apply for a temporary Maltese VAT number as all taxable persons included in a VAT group are required to be registered for VAT purposes in Malta prior to being allowed to join a VAT group.

Aida Cachia is a Manager in tax at PwC Malta and forms part of the PwC Malta VAT team.

Michael Borg is a Senior Manager in tax at PwC Malta and forms part of the PwC Malta VAT team

- Other non-VAT implications should also be considered including updating invoice templates, reviewing VAT controls of the entities within the VAT group, the impact to the financial statements of being jointly and severely liable for VAT of a VAT group and the VAT reporting procedure as a group since transactions will still need to be reported on a standalone level. - A VAT group cannot be voluntarily cancelled prior to the lapse of 24 months from the formation of the VAT group.

Lifestyle

SAY ‘HORSE’ AND I’LL T RN MY HEAD Author: Christian Hili

VISITING THE STABLES AFTER A LONG DAY AT THE OFFICE HELPS ME TONE DOWN MY STRESS LEVELS AND QUICKLY CHANGES MY MOOD FOR THE BETTER. CARING FOR MY HORSE LOWERS THE TENSION AND ANXIETY THAT BUILDS UP FROM A DAY FULL OF MEETINGS, EMAILS AND TIGHT TIMELINES. Owning a horse is a unique opportunity that very few people are fortunate enough to experience, and for as long as I can remember, my family has always owned one. Many animal-lovers dream of petting a horse, but these gentle creatures come with a huge responsibility, quite unlike a cat or a dog. As an accountant, my life is certainly busy with all the challenges and the constant deadlines that we face. Last year was an even more eventful year for me personally, as my wife and I got married and had our daughter, Ana. I must admit that it is not easy to balance the time evenly between family, work and the duties of a horse keeper; if I somehow manage to do it, it is only thanks to my wife who dedicates herself to our family priorities. >> 40

Lifestyle

<< Horse-keeping is distinct from horse-riding or racing, each of these is a discipline in itself and has its own traits and obligations. I personally prefer horse-keeping, but I did participate once in a race for horse owners in 2016. It was an exhilarating experience, and to my happy surprise, my horse and I came first. It is one of my best memories ever.

Racing a horse is similar to sitting for an exam. You plan, prepare and make sacrifices but, in the end, you can never really predict the result. Success is never a guarantee; but there is an important lesson to be learned in every disappointment. I dream about buying a racehorse one day and have it trained professionally to participate in bigger competitions in France. It is only a long term project for now, but I will definitely consider my options when the opportunity comes. Horses are my passion and, as someone who has grown up caring for one, I can say that horse-ownership provides many unexpected and enduring rewards.

KEEPS YOU ACTIVE AND SOCIAL Having a horse encourages physical activity, which is immensely important especially for professionals like us who spend most of their days sitting at a desk. I would dare say that walking a horse, grooming, feeding and riding it is more physical activity than most people with sedentary jobs get in their normal day. But the

benefits are more than just physical, the interaction with horses has an important calming effect on our minds, too. Visiting the stables after a long day at the office helps me tone down my stress levels and quickly changes my mood for the better. Caring for my horse lowers the tension and anxiety that builds up from a day full of meetings, emails and tight timelines. Keeping a horse has its own struggles. It is a timeconsuming activity and you need to manage your resources well to tend to its needs without neglecting other professional and family responsibilities. A horse is also quite demanding from a financial point of view and there are many expenses that have to be factored in: feed, grooming, vaccines, potential accidents or diseases. But every interest has its requirements and you know you have a passion for something when you are gladly prepared to pay the price to enjoy it. Spending time with my horse far outweighs all the sacrifice and challenges it involves. Neither is horse ownership a solitary pursuit, though. I am always surprised to discover how many people share the same passion, even if the interest is perhaps not as popular as other sports like football. I have made many new and lifelong friends through a common enthusiasm for horse keeping.

CONFIDENCE AND RESPONSIBILITY Many of the qualities that I observe in myself today have been picked up and developed by caring for horses since I was a child. Training a horse builds

character: it gives you confidence and teaches you responsibility. I learned patience, perseverance and commitment through my dedication for horses, and I hope that, when the time comes, I will be able to pass this experience on to my daughter as well.

Keeping a horse takes time and energy, but the rewards are plenty. I have days when I just want to sleep in, take a long break or go to a family event instead, but then I remind myself that my horse relies on me and I have to own up to my responsibilities as a keeper. It is crucial to find the right equilibrium between work and life commitments, particularly in our line of work which may easily take over our days. Whatever your interest and passion, it will always require will-power and perseverance to enjoy it fully. No one can expect to transform their routine overnight, but it only takes little and consistent changes to our lifestyle in order to make time for the things that leave a positive effect on us.

Christian Hili is an ACCA Qualified Accountant. He currently holds the position of a Finance Manager within Salvo Grima Group, which operates in seven countries in Europe and Africa, specialising in ship supply, travel retail, distribution and international wholesale.

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