The agreement is a landmark moment for the global economy. Each country that has signed the agreement will commit to a two-pillar plan to drastically reshape the global tax system, says the Organisation for Economic Co-operation and Development (OECD) in a statement.
The announcement builds on a previous agreement between the G7 Group in London last month. It will unite all of the G20 group nations, including Russia, Brazil, China, and India. However, some countries, including Hungary, Estonia, Kenya, and Sri Lanka, are yet to commit to the reforms. A number of jurisdictions that are commonly regarded as “tax havens'' were among signatories to the agreement. This included Gibraltar and the Cayman Islands.
The reforms are currently being negotiated in talks organised by the OECD, but the basis of the agreement is that multinational companies would be forced into paying a minimum of 15% tax for each country in which they operate. The agreement also includes arrangements to prevent the moving of profits into tax havens by powerful companies by empowering signatory countries to tax such companies based on revenues generated within their borders. According to the OECD, over $100 billion is expected to be produced by controlling profit shifting, and approximately $150 billion is expected to be produced through the introduction of the global minimum tax rate.
Further talks on tax reforms will take place between finance ministers at G20 meetings next month in Venice. The goal is to reach a final global agreement by October, to then be implemented by 2023.
The Organisation for Economic Cooperation and Development published its Economic Outlook on Wednesday, which warned that the COVID-19 pandemic is likely to cause a recession greater than any seen outside of wartime for the past 100 years.
Lockdowns and travel restrictions imposed to minimise the spread of coronavirus have resulted in a severe decline in business activity. Global supply chains have halted, and many unable to work have been left in dire financial straits. “The recovery will be slow and the crisis will have long-lasting effects,” the report predicted, and it will disproportionately affect “the most vulnerable people.”
Put simply: “Economic impacts are dire everywhere” – though the impact for some countries will be greater than most.
Of developed nations, the OECD predicted that the UK is likely to be hardest hit by the economic fallout of the pandemic, with an expected 11.5% drop in GDP. “As a service-based economy, the United Kingdom is heavily affected by the crisis,” the think-tank explained, noting that the country’s trade, tourism, real estate and hospitality sectors are the most likely to face damage.
The OECD also predicted a greater economic slump for the UK in the event of a second wave of “rapid contagion”, with a 14% potential fall in GDP.
South Korea is predicted to be the most resilient of nations mentioned, with an expected economic contraction of 1.2% -- and only 2.5% in the event of a second wave.
As a whole, the world economy faces an average estimated downturn of 6% in 2020, under the OECD’s forecasts.
Finance Monthly explores corruption in East African organisations and FBW Group’s efforts towards upholding ethical standards within their offices.
According to the EY’s Europe, Middle East, India and Africa Fraud Survey 2017, companies need to work harder to encourage their staff to successfully uphold ethical standards all over the world.[1]
63% of Africans working in corporate environment believe that regulation has a positive impact on ethical behaviour. In South Africa alone 79% of the population believes that bribery and corruption remains widespread in the country.
One in four Generation Y employees (ages 25 to 35) can justify offering cash payments to win or retain a business. Since Generation Y staff are the future leaders of our businesses, if the problem is not combated now, there is bound to be an overall problem with ethical behaviour in organisations in the future.
Kenya, through the Law Society of Kenya, adopted a code of ethics and standards of professional practice and ethical conduct for its members. These standards were benchmarked against The Commonwealth. However, many professional fields in East Africa remain unregulated.
According to the organisation for Economic Co-operation and Development (OECD), the real estate, construction and associated industries are among the sectors with the highest level of corruption risk: 40% of foreign bribery cases occurred in construction, transportation, and information and communication; however the Uganda 2017 corruption report does not prioritise the construction sector as corrupt.
Organisations like FBW Group are doing their best to uphold ethical standards within their offices. Using the UK Bribery Act 2010 as their baseline, FBW holds itself to world-class standards of anti-bribery.
Their internal policy goes into details like describing what a bribe is, assuring their staff that they will not be retaliated against should they whistle blow against something, intolerance of kickbacks of any sort, and keeping of adequate financial records to evidence payments made to third parties among other things.
Many property developments are compromised because of concessions made by those in charge of putting them up. A number of criminal issues can arise in the construction industry as Architects may find themselves involved in these if they participate in a project on which violations of law take place.
The violations may take the form of giving money to owner representatives in exchange for their agreement to select a certain team’s proposal, trading information to ensure a particular team gets the job and bid rigging.
Joseph Debuni, the Director of Engineering at FBW Uganda, discusses the need for the architectural and engineering firm to adhere to a strict anti-bribery policy to retain the reputation it has developed over the past 20 years.
According to Mary Rose Atubo, FBW Uganda’s Section Manager, it has come to a point where: “many of the people in the industry see our logo and tie it back to the fact that we do not hand out “wheel oilers” and in other words, do everything as the book says it should”.
“In doing so, initially we met our challenges, but we feel that others are slowly adapting to our way,” added Debuni.
“In order to change our narrative, we need to get back to our drawing board, change our attitudes towards work, enhance our productivity and polish up on the outlook of organisations in Africa. Then, we will be a stronger economy and will eventually rebuild the reputation of organisations in Africa.”
Website: http://www.fbwgroup.com
[1]http://www.ey.com/Publication/vwLUAssets/EY-EMEIA-Fraud-Survey-2017/$FILE/EY-EMEIA-Fraud-Survey-2017.pdf
Various expert Partners at Crowe Clark Whitehill, a leading audit, tax and advisory firm, share their expectations below ahead of the UK Chancellor Phillip Hammond's Spring Statement tomorrow.
Dinesh Jangra, Partner, Head of Global Mobility Solutions, calls for measures to help the UK retain and attract talent and investment: “Let there be no doubt, UK PLC will benefit immensely from the world’s best talent being here. The question is what role can the UK tax system play in encouraging this?
Regardless of what is announced in the Spring Statement, Brexit looming in the background and this is causing concerns around the UK’s attractiveness for talent and investment. With that in mind, I would like to see the UK tax system in the area of mobility (expatriate tax breaks) being reviewed to enhance UK attractiveness. The tax effectiveness of non-domicile status has been eroded over time and while we have overseas workday relief and temporary workplace relief, I question if they are enough to continue to attract the best talent to the UK. Often, employers take on the UK income taxes due in respect of employees under tax equalisation arrangements so more UK tax breaks can reduce overall employer tax costs.”
Stacy Eden, Head of Property and Construction, calls for a stamp duty cut and a freeing up of Green Belt land to reinvigorate housebuilding: “An SDLT reduction would free-up liquidity in the market, which will ultimately increase housing transactions and sales, which are currently at extremely low levels. We may even find that it raises more money. There is a broader concern that our tax system is not favourable to property investors and developers, which is not surprising given we have one of the highest property taxes amongst OECD countries.”
“I’m looking out for the Chancellor’s approach to simplifying the planning process. He could reinvigorate UK housebuilding by freeing up more areas of Green Belt land. Investing in planning departments to try and get closer to housebuilding targets is of great importance. We are currently well short of targets and this is contributing to higher house prices in certain areas.”
Rob Marchant, VAT Partner, calls for VAT reform to stimulate the residential build-to-rent market: “It may be an ambitious ask, but I would like VAT changes to encourage the residential build-to-rent market. If rental income were treated as zero-rated rather than VAT exempt, it would allow landlords to reclaim VAT on running, management and repair costs.”
Matteo Timpani, Partner, Corporate Finance, calls for Entrepreneurs Relief to be expanded: “I would like to see the government retain and even expand the reach of Entrepreneurs’ Relief (ER) and other tax reliefs, aimed at rewarding enterprise for UK entrepreneurs.
Recent soundings around restrictions to Enterprise Investment Scheme (EIS) relief and other reliefs designed to foster growth in the UK economy can cause uncertainty among a community of risk accepting entrepreneurs, the success of which, in the mid-market, drives our economy.
The government should be careful not to underestimate how much of an incentive ER is for business owners to drive growth and ultimately create wealth and jobs for the UK economy as a whole.”
Johnathan Dudley, Partner, Head of Manufacturing, calls for clarity around pensions for SMEs: “With Brexit on the horizon and the possibility of yet another general election, what businesses really need is a period of stability and for politicians to provide some certainty.
Provided this ‘certainty’ is forthcoming, I would expect to see further changes to pensions provisions, aid for businesses to strengthen their international trade capabilities and the tightening of provisions to IR35 and tax evasion rules around employment and self-employment.
Many SMEs have invested time and effort into dealing with pension auto-enrolment duties and a relief for these businesses around payroll provision would be welcomed and well deserved.”
Caroline Harwood, Partner, Head of Share Plans and Reward, calls for clarity about remuneration in light of the Rangers EBT case: “During 2017 we saw the introduction of yet more measures to tackle remuneration structures designed to avoid tax, including a charge on all outstanding ‘disguised remuneration loans’ made to employees by Employee Benefit Trusts (EBT) or other third parties, as well as the new ‘close company gateway’.
The Supreme Court decision to favour HMRC in the ‘big tax case’ against Rangers FC brought the ‘redirection principle’ into the foreground, in ruling that payments via EBTs qualified as taxable income. Initially, the interaction between this new case law, the disguised remuneration rules and arranging such salary sacrifice into a pension scheme, was unclear.
HMRC have made statements as to how they expect these rules to interact in certain cases in the future, but formal clarification in the Spring Statement would be welcomed.”
Around one in four students in the 15 countries and economies* that took part in the latest OECD Programme for International Student Assessment (PISA) test of financial literacy are unable to make even simple decisions on everyday spending, while only one in ten can understand complex issues, such as income tax.
Some 48,000 15‑year-olds took part in the test, which evaluated the knowledge and skills of teenagers around money matters and personal finance, such as dealing with bank accounts and debit cards, or understanding interest rates on a loan or mobile payment plan. This is the second time PISA has been used to assess students’ ability to face real-life situations involving financial issues and decisions.
“Young people today face more challenging financial choices and more uncertain economic and job prospects given rapid socioeconomic transformation, digitalisation and technological change; however, they often lack the education, training and tools to make informed decisions on matters affecting their financial well-being,” said OECD Secretary-General Angel Gurría, launching the report in Paris with H.M Queen Máxima of the Netherlands, the UN Secretary‑General’s Special Advocate for Inclusive Finance for Development and Honorary Patron of the G20 Global Partnership for Financial Inclusion. “This makes it even more important that we step up our global efforts to help improve the essential life skill of financial literacy.”
Beijing-Shanghai-Jiangsu-Guangdong (China) had the highest average score, followed by the Flemish Community of Belgium, the participating Canadian provinces (British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island), the Russian Federation, the Netherlands and Australia.
Students who do well in financial literacy are also likely to perform well in the PISA reading and mathematics assessment, and students who have weak financial literacy skills are likely to do poorly in the other core PISA subjects. But on average across the 10 participating OECD countries and economies, around 38% of the financial literacy score reflects factors unique to financial skills.
The gender gap in financial literacy is much smaller than in reading or mathematics. Only in Italy do boys perform better than girls, while girls do better than boys in Australia, Lithuania, the Slovak Republic and Spain.
Socioeconomically‑advantaged students scored much higher than less-advantaged ones. Native-born students also performed better than immigrant students with similar socioeconomic status, particularly in the Flemish Community of Belgium, Italy, the Netherlands and Spain. The flip side of the strong link between socioeconomic status and performance is that parental support is not enough and there is a role for educational institutions to play in ensuring a level playing field.
On average, 64% of students across OECD countries and economies participating in the study earn money from some formal or informal activity, such as working outside school hours or doing occasional informal jobs. About 59% of students receive money from an allowance or pocket money.
The survey also revealed that, on average, 56% of students hold a bank account, but almost two out of three students do not have the skills to manage an account and cannot interpret a bank statement.
*Participating countries and economies: Australia, Belgium (Flemish Community), Brazil, Canada (British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island), Chile, China (Beijing, Shanghai, Jiangsu and Guangdong), Italy, Lithuania, the Netherlands, Peru, Poland, the Russian Federation, the Slovak Republic, Spain and the United States.
(Source: OECD)
With Donald Trump's inauguration, a new, contradictory era of the USD may have begun, points out Innovative Securities' analysis. They remind: in the past decades, presidents refrained from making clear statements about the USD but the new Administration seems to be different and that can lead to a new situation.
Trump and his colleagues expressed concerns about the strength of the dollar or complained about other currencies being undervalued, underlines the analysis, adding: they mentioned the euro, the Japanese yen, the Chinese yuan as well as the Mexican peso. The choice of these countries is not surprising: the US has a trade deficit against them.
According to Trump, these countries devaluate their currencies to be more competitive, and the US must take steps to change the situation, reminds Innovative Securities, mentioning that an OECD survey also points out that the euro is nearly 25% undervalued, the yen is 11% undervalued, while the Mexican peso is undervalued by 147%. Since Trump's inauguration though, peso is constantly strengthening.
But the USD is not only strong because of its trading partners, believes Innovative Securities. The US is still one of the most beneficiary players of globalization and we can see that since 2010 the USD strengthened constantly while trade deficits remained the same or grew. The US also has a huge import demand for its domestic consumption totalling up to 70% of its GDP. Trump's unofficially announced domestic tax cuts, deregulation and infrastructure investments can further strengthen the dollar. Even the desired stronger US economy, different monetary policy and the rising bond yields are favouring the greenback, they add.
The markets recognize the conflicts between the facts (that helps the dollar) and the words (the comments that are negative for the USD), and actions are needed for clearing the picture, says the analysis, adding: in the upcoming months markets will concentrate on the loosened fiscal policy and the evolving inflation which may lead to a lot of bullish mix that supports the dollar in the near future. In the middle term, though, the company expects a turnaround. The contradictions may stay for long, summarizes Innovative Securities, saying: a more volatile market environment may come, where old policies are eliminated while the Trump Administration continuously tries to make verbal interventions in favour of their policies.
(Source: Innovative Securities Web)
As corporate accounting undergoes even tighter scrutiny, how can CFOs ensure transparency and accountability? Finance Monthly here benefits from special insight by Nigel Youell, EPM specialist at Oracle.
Tax reporting is rapidly climbing up the corporate agenda, with one quarter of C-suite executives saying that the issue comes up at board-level discussions more than once a month, up from just 5% five years ago.
Thanks to the globalisation of world trade and an increasingly complex array of national and cross-border regulations, companies have understandably put tax affairs under the spotlight. Complicating things even further is the public’s growing interest in corporate tax, which has led to a call for greater transparency into businesses’ tax reporting.
This shift has led to initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aims to bring consistency to international tax practices. When BEPS comes into effect in early 2018, organisations will have to publically report in detail on their earnings in every jurisdiction in which they operate.
Finance leaders have always faced the challenge of balancing their fiduciary responsibilities to shareholders with regulatory compliance. In order to stay on top of changing regulations and stand up to increased scrutiny on corporate tax however, businesses need a new approach to reporting that is faster, more accurate and more transparent.
This will take a change in strategic priorities. Much of the money spent on enterprise technology in recent years has gone towards flagship systems such as ERP, yet many organisations still rely on manual data entry and spreadsheets for tax reporting. This approach is no longer suitable for the type of granular tax reporting that is now mandated by so many jurisdictions and cross-border authorities.
Businesses need accounting and reporting systems that can measure contributions in each country they operate in, and be clear about how they allocate costs across their organisation. They also need to be scrupulously accurate and transparent in their reporting. The risk of error is too high to work with spreadsheets quickly, and audit trails have become too hard to follow in many cases.
A technical fix for the exigencies of modern reporting
Automation is the key to helping businesses meet regulatory compliance obligations and satisfy shareholder demand for greater accuracy and transparency in their reporting. This is because automated processes provide a clear audit trail.
Also, because this added level of rigour makes it easier to keep track of what is going on, the entire reporting process is faster and businesses can keep stakeholders informed up to date on their activity.
A modern, automated reporting system consists of three core functions:
- Profitability and Cost Management: While traditionally used to track whether a particular product is profitable, Profitability and Cost Management applications are now being used to calculate and justify transfer pricing policies. This is less about tracking all the different components of a product supply chain, which is straightforward, and more about attributing less direct costs.
Consider a car factory in Sunderland that manufactures vehicles for the global export market. A breakdown of costs per car also needs to include the cost of keeping the lights on in the factory, of employees on the assembly line, and of the executive staff who run the operation locally.
- Tax Reporting in the cloud: Tax reporting systems enable businesses to achieve greater alignment between tax and finance teams, which is essential to delivering on the country-by-country reporting requirements set out by legislation like BEPS. For more on this, check out this interview with Richard Scammell of PwC on how the cloud can help businesses modernise their reporting approach.
- Narrative Reporting: Governments, stakeholders and the public expect companies to share transparent and accurate results with a clear narrative. Data without context has little value, and for companies to continue being transparent about their tax approach they’ll need to rationalise their decisions with more detail than ever.
We are undergoing one of the biggest overhauls to corporate taxation in years, and companies need a reporting infrastructure that is fit for purpose – not just to meet regulatory requirements, but also to ensure that businesses have the insight they need to run their operations efficiently.
The shift to cloud-based reporting has already begun to gain traction in the finance department, and as businesses look to adapt to a more transparent, regulated environment this shift will increasingly extend to tax processes as well.
The Organisation for Economic Co-operation and Development (OECD) Working Group on Bribery has said it doubts Argentina’s commitment to fighting foreign bribery after completing a report on the country’s implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments.
Argentina still has no law to punish companies for foreign bribery or prosecute its citizens who commit this crime abroad. Widespread delays continue to plague complex economic crime investigations. The organisation says that urgent action is needed to address these grave concerns. As a result, the OECD will evaluate the country again at the end of 2016, while a high-level mission will also visit Argentina in early 2016.
The Working Group report made several recommendations to improve Argentina’s fight against foreign bribery. These included the implementation of a new Criminal Procedure Code; reduction in the high number of judicial vacancies and the use of surrogate judges; and investigations and prosecutions for foreign bribery cases as appropriate. The OECD also called for Argentina to encourage companies to adopt measures to prevent and detect foreign bribery and better protect whistleblowers from retaliation.
