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The Oireachtas recently enacted the Knowledge Development Box (Certification of Inventions) Act 2017. This legislation follows on from the Knowledge Development Box introduced by Finance Act 2015, which made provision for small companies to avail of the Knowledge Development Box with respect to unpatented inventions. Once it is commenced by Ministerial Order, the 2017 Act will empower the Controller of Patents, Designs and Trade Marks to issue certification that an invention is novel, non-obvious and useful, which will ensure that the invention falls within the definition of “qualifying assets” for the purposes of the Knowledge Development Box. This form of certification will be available for small companies (referred to in the legislation as a “relevant company”), which meet the following criteria: The company has income from intellectual property not exceeding €7.5 million in a 12 month accounting period; The company is a member of a group with turnover of less than €50 million; and The company employs fewer than 250 employees. Part 2 of the 2017 Act sets out the type of inventions for which a KDB certificate may be issued and reflects the inventions patents that may be granted under the Patents Acts 1992 to 2017. It should be noted that a KDB certificate may only be issued in respect of one invention or group of inventions if the inventions are linked to form a single inventive concept. What will be of most interest to small companies and patent attorneys are the rules in relation to the application for a KDB certificate and procedure for examination by the control or patents, which are set out in Part 3 of the 2017 Act. It includes a requirement for an opinion as to novelty from a patent attorney in relation to the unpatented invention. There are requirements for the controller to keep all applications, KDB certificates and refusals to issue KDB certificates confidential subject to any order for discovery made in legal proceedings where that disclosure is desirable in the interest of justice, and any disclosure to the Revenue Commissioners for the purposes of making a determination in relation to any tax, tax refund or tax credit. Finally, Part 6 of the 2017 Act makes some amendments to the Patents Act 1992 to allow for the grant of patents by the controller of patents following a substantial examination for novelty and thus ensuring that Irish patents will fall within paragraph (a) of the definition of “Qualifying Patent” in section 769G of the Taxes Consolidation Act 1997.   Diarmaid Gavin is Partner, Corporate & Commercial Group, at Ronan Daly Jermyn and John Cuddigan is Partner, Tax Group, at the same firm.

The IFRS Foundation has published the 2017 edition of its Pocket Guide to IFRS Standards: The Global Financial Reporting Language. The guide provides an overview of the progress towards adoption of IFRS Standards in 150 jurisdictions around the world and includes information about the standards and the organisation. This year’s guide summarises key developments in standard-setting over the past year and notes a growing number of jurisdictions requiring the use of IFRS standards. Of the 150 jurisdictions studied to date, 126 (84%) require IFRS standards for all or most domestic listed companies and financial institutions. Another 13 jurisdictions (9%) permit or require the standards for at least some of those entities. For the full story, including the downloadable Pocket Guide and list of newly profiled jurisdictions, click here.

The Central Bank of Ireland last week published a Guide to Consumer Protection Risk Assessment, which represents a landmark evolution and ramp-up in its approach to ensuring that the consumers of financial services are protected. This will apply to all financial services firms in Ireland including banks, insurance companies, investment firms and payment institutions. For some time now, the Central Bank has called out that compliance with regulatory codes represent a “minimum standard” and that the firms it regulates need to go well beyond this base and deliver meaningful outcomes for their consumers. The Consumer Protection Risk Assessment outlined in the guide clearly demonstrates the Central Bank’s strong intent to ensure that unfair customer outcomes are prevented and to ensure that firms are not simply “ticking the compliance box”. Clearly, the Central Bank believes that there is a strong need for financial services firms to hold themselves accountable to a higher bar than mere compliance with codes. In fact, they call out the need for firms to undertake more meaningful and holistic self-reviews of the consumer outcomes being achieved. This need is underlined by the recent examples they reference of “significant and systemic issues” such as the mis-selling of payment protection insurance and the current examination of tracker mortgages, which are simply not being dealt with by traditional means. The Central Bank notes that failures such as these have highlighted the crucial role that a firm’s culture plays in ensuring fair outcomes for consumers. Moreover, they have clearly declared their intention to start reviewing whether a firm has a truly consumer focused culture. This means that financial services firms can now expect to be reviewed by the Central Bank, including interviewing their boards and management teams, regarding how they are ensuring the behaviours and everyday practices are "getting it right" for consumers. The guide also calls out that such reviews will be “intrusive in nature” and will likely be a difficult process for any organisation that focuses on profit maximisation at the expense of fair consumer outcomes. The examples provided in the new Guide of how this will be assessed include: how does the tone from the top drive the right outcomes for consumers and encourage a culture where issues can be disclosed and acted upon? Have performance management and promotion of staff strategies reflected how they are (or are not) contributing towards fair customer outcomes? And who within management is clearly accountable for culture and behaviours related to consumer protection? All the above is further underlined by a clear expectation regarding the robust way in which Irish financial services firms are expected to be managed (the governance and control of consumer protection risk). It appears evident that being unaware, or purely reactive, to such risks will not be sufficient. The guide also calls out a clear expectation that the products and services that a firm sells will be well managed in a consumer-centric manner. Again, these topics are covered within their own modules under the scope of the new Consumer Protection Risk Assessments. By moving to a more holistic approach which focuses on identifying the true risks that create unfair consumer outcomes rather than simply achieving compliance, it is hoped that business practices within financial services firms will improve. If this can be achieved, the well-documented systemic issues of the past will be put behind us by creating cultures and governance systems that proactively address business practices which are likely to create unfair consumer detriment. Fortunately, achieving such a truly consumer-centric organisation should also not be at the expense of long-term profit of Irish financial services firms which is clearly of significant economic importance to our country. Such sustainable profits can only be achieved with a sustainable customer base. Simply put, eliminating the systemic issues creating the unfair customer outcomes suffered by so many customers in recent years should serve to create better businesses which are focused on sustainable success rather than short-term gain. The guide states that "business practices and behaviours can and do impact on the lives of large numbers of consumers and persistent unfair outcomes for consumers can lead to adverse consequences for firms". It is this sentiment that is at the core of the drive for this step-change in how consumer protection risks are managed.    Feilim Harvey is a Financial Services Partner at PwC.

The exchequer figures for April continue the recent trend of slightly disappointing numbers, writes Peter Vale.   Income tax receipts continue to remain relatively flat compared with the prior year, despite strong economic growth and robust employment figures. It’s difficult to rationalise why income tax receipts aren’t stronger, with modest tax cuts in 2017 unlikely to explain the difference.   In contrast with the stagnant income tax numbers, VAT receipts for the year to date are strong, up 14.5% compared with 2016. For a long time, the increase in VAT receipts lagged behind increases in other tax heads, with favourable economic conditions not translating into greater consumer spending. The stronger VAT figures in 2017 would suggest a trend of increased spending, notwithstanding a sluggishness in certain sectors, such as new car sales.   Corporation tax receipts continue to be a cause of some concern, with the figures significantly behind both forecast figures and the 2016 equivalent, with no obvious explanation for the shortfall. So while the key months for corporation tax receipts are later in the year, the early returns remain a cause for concern.   To conclude on a positive note, the risk of fundamental tax reform in the US continues to recede. This is positive for Ireland and should help with the sustainability of future corporation tax receipts. While we believe that US tax reform of some sort is still likely, the aspects of the original proposals that had most potential to damage Ireland now look much less likely to form part of the final package. Peter Vale is a Tax Partner at Grant Thornton.

On 12 April 2017, the Central Bank announced the publication of the results of its thematic inspection of regulatory reporting by international banks. The international banks selected for the inspection were all categorised as "less significant" institutions for the purposes of the Single Supervisory Mechanism, and were in-scope based on their risk assessment ratings, the perceived importance of their regulatory returns, and any issues already identified in respect of their regulatory reporting.   The Central Bank carried out the inspection to assess the degree to which it could rely on the accuracy and integrity of the regulatory returns submitted by those banks. Not all types of regulatory return were covered by the inspection, with the Central Bank focusing on specific areas, including the reporting of large exposures and the liquidity coverage ratio (LCR).   The Central Bank uses regulatory returns as part of its assessment of a bank's risk profile, to check whether a bank is complying with its regulatory requirements, and to assess a bank's financial position. Framework The regulatory reporting obligations stem from the Capital Requirements Directive (Directive 2013/36/EU) which requires banks to have "internal control mechanisms, including sound administration and accounting procedures...that...promote sound and effective risk management". Those mechanisms and procedures must be both comprehensive and proportionate. The European Banking Authority's Guidelines on Internal Governance (currently being revised) also impose requirements in relation to staffing and internal controls, and the Capital Requirements Regulation (Regulation (EU) No 575/2013), together with related Level 2 measures, imposes requirements in respect of the calculation of LCRs and large exposures. Key areas of focus As part of the inspection, the Central Bank looked at:   The structure of each bank's regulatory reporting function; Each bank's internal processes and systems for populating and generating regulatory returns; and Whether the processes for data quality verification, reconciliation and validation used within those banks prior to the submission of regulatory returns was appropriate. Outcome The Central Bank's Head of Banking Supervision, Fiona MacMahon, commented that some of findings of the inspection indicated practices that were "...not acceptable and have resulted in regulatory breaches in certain instances."   The most significant findings related to inadequate IT, insufficient staffing, excessive levels of manual intervention, weak controls, insufficient oversight by the internal audit function, a lack of documentation, issues with data quality, significant mis-classifications and considerable misreporting. Key findings Documentation: the inspection found that there was a lack of comprehensive procedural documents, and that independent reviews of the regulatory reporting process were not being carried out within the in-scope banks to check that reporting was in line with any procedures that were in place. In light of that, the Central Bank requires that:   Banks establish comprehensive, documented, procedures for regulatory reporting which must, at a minimum, cover the items listed in Finding 1 of the results of the themed inspection; Those procedures must be approved by an appropriate management forum; and Those procedures must be reviewed at least once per year. Resources: from the perspectives of both staffing and IT, the inspection found that the regulatory reporting function is inadequately resourced, with a significant amount of manual intervention involved in the reporting process. The accuracy of regulatory returns was adversely affected by the lack of a centralised data depository in a number of banks, and the Central Bank emphasised that the scale of manual intervention needs to be reduced. Staff involved in the regulatory reporting function need to clearly understand the relevant bank's regulatory reporting obligations, the methodologies used to calculate the bank's regulatory requirements, and the bank's internal processes for managing regulatory change. Processes: varying data quality issues were identified in all of the in-scope banks, together with a lack of a formal process for data attestation between the regulatory reporting functions and other business areas, leading to inaccurate data. Audit: issues were identified with the internal audit function in certain banks. End-to-end audit reviews of the regulatory reporting process in those banks failed to cover key areas and, in several banks, periodic prescribed audits did not take place. LCR: material misreporting of the LCR was identified in certain banks. Large exposures: in several banks, the reporting process for large exposures was not documented, and reporting errors occurred due to both manual intervention and system limitations. Other: issues were also identified with the calculation of credit risk weighted assets and the operational risk capital charge. Next steps All in-scope banks have been written to by the Central Bank, and have been provided with remediation plans and timeframes within which the issues identified during the inspection must be remedied. On a positive note, the Central Bank noted that, in the course of its inspection, steps had been taken in specific cases to improve automation of the regulatory reporting process, to develop comprehensive procedural documents, to increase staffing for the regulatory reporting function and to pro-actively manage issues identified by the Central Bank's inspection team. The Central Bank has encouraged all banks operating in Ireland to examine the results of the inspection, to evaluate their own regulatory reporting in light of those results, and to consider whether any action needs to be taken. While the thematic inspection was focused only on banks, a wide range of other financial institutions have ongoing reporting obligations to the Central Bank (including, in some cases, obligations derived from the Capital Requirements Directive). Therefore, the findings of the thematic inspection should be of interest to most firms, particularly the Central Bank's focus on processes and procedures and adequate resourcing. Robert Cain is a Partner at Arthur Cox, specialising in Irish and European financial services regulation, and Maedhbh Clancy is a Professional Support Lawyer (Finance) at the same firm.

In 1993, a group of Irish people suffered involuntary redundancy when customs posts were abolished. Although work was to be had from diesel laundering, the introduction by Revenue of a new radioactive dye, Acutrace, has recently ended most of that activity. Brexit, with all its smuggling possibilities, couldn’t have come at a better time. Armed with capital, personnel and know-how, there are a group of people working hard, just like Theresa May, to make a success of Brexit. They are hoping for a very hard Brexit, so that there will again be a proper border to smuggle things over.   The business model for the smuggler is straightforward. Customs tariffs increase the retail price of goods in Market B. The smuggler simply buys goods in Market A, sells them in Market B and pockets the difference by way of unpaid customs duties.   The first thing a smuggler will look at is the rate of duty – proxy for the smuggler’s profit margin. The rate of duty for each type of product can be found online in a document published each year by the European Commission called the ‘Combined Nomenclature’. The smuggler will probably print this 1,000 page document and go through it with, say, a yellow highlighter, searching for suitable goods to smuggle.   An example of an unsuitable product would be pianos. At 4% duty, there simply isn’t enough return on capital available. Also, pianos are bulky and unsuitable for sneaky transport. Furthermore, the average household has no ongoing need to be supplied with the product. The same goes (for perhaps different reasons) for violins (3.2% duty), hammers (3.7% duty) and live pigeons (6.4% duty).   The average tariff rate if the UK exits the EU without a trade deal will be roughly 4%. Certain products would be zero rated, such as whiskey and pharmaceuticals.   Where the intending smuggler’s yellow highlighter will begin to wobble like a divining rod, however, is in respect of agricultural products where average tariffs are 49% for meat, 33% for processed meat and fish and 31% for dairy. This is where the smugglers will probably concentrate their effort. There are even some products on the list with effective tariff rates of around 200%.   For the honest trader, having a tariff of 4% ought not to affect cross-border trade significantly because currencies often fluctuate by the same or greater amounts on a regular basis. The effect on trade of much higher tariffs (such as agri-food trade), however, would be severe. In January 2017, officials at the Department of Finance informed the Dáil that (having regard to research the Department was undertaking with the ESRI), a hard border with tariffs would cause a 30% drop in exports from Ireland to the UK, 40,000 job losses and the addition of €20 billion to Ireland’s national debt. Last week, Lord Kerr, a member of the UK’s House of Lords and a former senior EU diplomat, estimated that there is a 45% chance that the UK will exit the EU without a full trade deal in place.   Enterprise Ireland and bodies like Chartered Accountants Ireland have urged Irish businesses to check, now, what a customs regime with tariffs might mean for their trade and to plan for a future which might involve customs tariffs between Ireland and the UK. Given that intending smugglers are planning for a hard scenario, honest business might usefully do the same.   Enterprise Ireland’s Brexit information for exporters can be found here.   Eoin O’Shea FCA is a practising barrister specialising in commercial and tax law.