Corporate KRIIs Proposed for WPR 2018
Corporate regulatory scenario in the Europe has been very dynamic through SEPA’s Virtual Account Management, OECD’s BEPS, and acceleration of eBAM based on ISO 20022 messaging standards. Taxation related reforms have been one important focus area in both Europe and Asia-Pacific. E-Invoicing has been a focus area in EU as well as Singapore.
The Net Stable Funding Ratio (NSFR) that is being introduced in 2018 will require banks to hold assets with a residual maturity of more than one year to fund illiquid assets on their books. Local regulatory authorities will transpose these statutory requirements. In Europe, LCR is being implemented in a phased manner until 2019 through the Capital Requirements Directive IV (CRD IV. A few amendments have been recommended for CRD IV and the capital requirements are being implemented under the CRD V package. Banks must demonstrate how they distinguish between the operational and non-operational types of deposit, which may place an additional reporting requirement on corporate treasury practitioners.
The Organization for Economic Cooperation and Development (OECD) has released additional guidance on country by country reporting under the BEPS plan, named Action 13. The inclusive framework for BEPS also approved updates to the results for preferential tax regime reviews by the Forum on Harmful Tax Practices (FHTP) in connection with BEPS Action 5. The U.K. Government has published guidance for corporate tax evasion offences in the Criminal Finances Act, 2017. Two new offences of supporting or helping tax evasion attract criminal liability to businesses associated in facilitating tax evasion. India has recently amended treaties with countries such as Singapore, Cyprus, and Mauritius, providing for the levy of taxes in the country where income is generated, rather than the country of residence of the company. Further, India along with 67 other countries, signed a multilateral convention, an outcome of the OECD and G20 project to tackle base erosion and profit shifting.
The growing adoption of virtual accounts in Europe reflects a fundamental transformation in the current model of global cash management. While the traditional cash management model involves complex cross-border multi-currency pooling structures and sweeping techniques to physically consolidate cash, the new model uses virtual account structures to segregate balances virtually and enable real-time global cash management. Virtual accounts hold the promise of optimizing the cash conversion cycle. Moreover, VAM helps simplify the multi-currency payment on behalf of (POBO) and collection on behalf of (COBO) structure as well. Such a structure is lucrative for corporates, such as commodities producers, whose sales are exclusively in one currency while sourcing and payables are often in local currency requirements.
The Electronic Bank Account Management(eBAM) based on the exchange of standardized ISO 20022 XML messages, developed by SWIFT covers the process of opening, closing and changing bank accounts. eBAM provides complete integration with back office infrastructures such as enterprise resource planning (ERP), treasury management systems (TMS), and human resources (HR). This is expected to improve efficiency and reduce costs through automation and secure audit trails.
Like the OECD, the EC is strongly advocating multilateral tax reforms that aim to standardize tax regimes among countries. The body published the Code of Conduct on Withholding Tax in November 2017. The Code incorporates content from the Fiscal Compliance group (FISCO) and the Tax Barriers Business Advisory Group (T-BAG), positing a range of approaches to improve efficiency. It strongly advocates for relief at source, providing solutions directed to the entire custody chain—tax authorities, intermediaries, and beneficial owners.
India and Hong Kong have signed a tax agreement to avoid double taxation and tax evasion. The agreement is expected to stimulate the flow of investment, technology and personnel from India to the Hong Kong Special Administrative Region and vice versa, prevent double taxation, and provide for the exchange of information between the two contracting parties.
The Belgian Council of Ministers recently amended their country’s legal structures for trusts and companies from countries considered tax havens to bypass withholding tax. They have reclassified the trust income payments as deemed dividend distributions, which subjects these firms to a 30% withholding tax. Similarly, Taiwanese and French tax authorities both recently bolstered documentation requirements in this regard.
Following a major instance of fraud at a leading public-sector bank, RBI has banned the issuance of Letters of Comfort (LoC) and Letters of Undertaking (LoU), which are the two main instruments of trade finance. The move, which came into effect on 13 March 2018, could push up the cost of imports by half a percentage point. The ban may adversely affect corporates with long working capital cycles. However, the regulation may result in creating a level playing field for foreign banks that were earlier outpriced by Indian banks.
Under the EU Directive 2014/55/EU, technology usage is mandatory for all public procurement processes in all the member states by November 2018. This will require some system changes in major EU countries.
Spain: The SII real-time electronic VAT system came into force in the Basque Country and Navarra Regional Communities on 1 January 2018. It has been up and running in the rest of Spain since 1 July 2017 for around 62,000 companies.
France: All intermediate companies (those with 250-4999 employees, and a turnover which does not exceed EUR1.5 billion or a balance sheet total which does not exceed EUR2 billion) are required to bill the public sector electronically from 1 January 2018. However, the deadline for small and medium-sized enterprises will be in 2019.Italy: All public health sector suppliers are mandated to receive orders electronically through the Nodo Smistamento Ordini (NSO) platform by 2018.
U.K.: As part of the digitization of the National Health Service (NHS), all companies supplying medicine, laboratory, and pharmacy services must e-invoice.
Belgium: As of 1 January 2018, e-invoicing was required for companies taking part in a tender worth more than EUR135,000.
Hungary: A real-time e-VAT declaration system is scheduled to be operational from July 2018.
Norway: Plans to adopt the Standard Audit File for Tax (SAF-T), an international standard for electronic exchange of reliable accounting data from organizations to a national tax authority or external auditors, for e-VAT has been postponed from 2018 until 2019.
Poland: While larger corporates have used SAF-T for e-VAT since 2016, the standard was mandated for micro businesses from January 2018.
The variation in implementation and timeline for e-VAT, is creating significant uncertainty across Europe. Foreign corporates and firms operating in Europe have cited the variation as an operational deterrent in the pursuit of their business plans
Businesses in Singapore will soon have to adopt a nationwide, interoperable e-invoicing framework that could help them process payments.