News

Tax revenues in advanced economies have continued to increase, with taxes on companies and personal consumption representing an increasing share of total tax revenues, according to new OECD research. The 2018 edition of the OECD's annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2017, to 34.2%, compared to 34.0% in 2016. The OECD average is now higher than at any previous point, including its earlier peaks of 33.8% in 2000 and 33.6% in 2007. An increase in tax-to-GDP levels was seen in 19 of the 34 OECD countries that provided preliminary data for 2017, while tax-to-GDP levels fell in the remaining 15 countries. Tax-to-GDP levels are now higher than their pre-crisis levels in 21 countries, and all but eight (Canada, Estonia, Hungary, Ireland, Lithuania, Norway, Slovenia and Sweden) have experienced an increase in their tax-to-GDP ratio since 2009. Consumption Tax Trends 2018 highlights that value-added tax (VAT) revenues continue to be the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP, representing 20.2% of total tax revenue, on average in 2016. After experiencing an upward trend since the economic crisis, standard VAT rates stabilised at 19.3% on average in 2014 and have remained at this level since. Ten countries now have a standard VAT rate above 22%, against only four in 2008. Two countries (Greece and Luxembourg) increased their standard VAT rate between January 2015 and January 2018, while two countries (Iceland and Israel) reduced their standard VAT rate over this period. With less scope to raise already relatively high standard VAT rates, countries are increasingly implementing or considering base broadening measures to protect or increase VAT revenues. This includes increasing some reduced VAT rates, limiting or narrowing their scope and curbing VAT exemptions. A growing number of tax authorities have implemented or are considering implementation of measures to tackle the challenges of collecting VAT on the ever-rising volume of digital sales, including sales by offshore vendors, in line with new OECD standards. Revenue Statistics also contains a special feature that measures the convergence of tax levels and tax structures in OECD countries between 1995 and 2016. The special feature highlights ongoing convergence across the OECD toward higher tax levels, with greater reliance on corporate income tax (CIT), VAT and social security contributions, and a slight downward shift in personal income taxes. The latest data confirms this convergence, with CIT, as a share of total taxes, now reaching its highest levels since the global economic and financial crisis, increasing on average from 8.8% in 2015 to 9.0% in 2016. CIT revenues are still lower than their peak in 2007 (11.1% of total revenues), but are now higher than at any point since 2009 (8.7%). Between 2015 and 2016, personal income tax revenues decreased from 24.1% to 23.8% of total tax revenues. The increase in the average share of CIT was driven by increases in revenues from CIT in 23 countries in 2016, while the fall in personal income tax was seen in 20 countries. In 2017, the largest increases in the overall tax-to-GDP ratio relative to 2016 were seen in Israel (1.4 percentage points, due to tax reforms which increased revenues from taxes on income) and in the United States (1.3 percentage points; due to the one-off deemed repatriation tax on foreign earnings, which increased revenues from property taxes). Nineteen countries had increases but no other country had an increase of more than one percentage point. Ten OECD countries decreased their tax-to-GDP ratios in 2016, relative to 2015, with the largest decreases observed in Austria and Belgium. There were no decreases of more than one percentage point. Detailed country notes provide further data on national tax burdens and the composition of the tax mix in OECD countries. To access the report and data, click here. Source: The Organisation for Economic Co-operation and Development (OECD).

Dec 05, 2018
News

On 4 December, the European Council adopted three short legislative acts aimed at adjusting some of the EU's VAT rules in order to fix four specific issues pending the introduction of a new VAT system. These relate to:   Call-off stock. The text provides for a simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state; The VAT identification number. To benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer will become an additional condition; Chain transactions. To enhance legal certainty in determining the VAT treatment of chain transactions, the texts establish uniform criteria; and Proof of intra-EU supply. A common framework is established for the documentary evidence required to claim a VAT exemption for intra-EU supplies. These adjustments are due to apply from 1 January 2020. In parallel, discussions are ongoing on a definitive VAT system to replace the current 'transitional' VAT arrangements, applied since 1993. Pending introduction of the new system, four short-term 'quick fixes' are proposed. Visit the meeting page. Source: European Council.

Dec 05, 2018
News

The International Accounting Education Standards Board (IAESB) has released for public comment proposed changes to International Education Standards (IESs) on initial and continuing professional development to address information and communications technologies and professional skepticism skills. As the demand for improved information and communications technologies (ICT) skills and professional scepticism proficiency grows across jurisdictions, the IAESB has been focused on addressing market demand for these competencies, skills and behaviors needed by both aspiring and current professional accountants. Proposed Revisions to IESs 2, 3, 4, and 8—Information and Communications Technologies and Professional Skepticism speaks to strengthening professional scepticism to improve the quality of financial reporting and auditing and developing competence to meet ICT's disruptive potential. It also reflects significant stakeholder input, including findings from the IAESB's prior consultation on future strategy and priorities, as well as insights from surveys, academic and professional literature, roundtables, in-depth interviews, webinars and additional outreach. The IAESB is eager to hear from those providing accountancy education, such as professional accountancy organisations, public accounting firms and other employers, universities and education providers. It is also eager to hear from those who oversee professional accountant's competence, including regulatory organisations and government agencies. Comments are requested by 4 March 2019 and should be submitted via the IAESB website. Source: The International Accounting Education Standards Board.

Dec 05, 2018
Ethics and Governance

While artificial intelligence will certainly play a part, the fundamentals of board management will be familiar.   It is a brisk October morning in 2025 as Julianna, board chair of Oaktree Limited, calls the board meeting to order. Julianna reminds everyone that at 11am precisely, the meeting will commence and Theodore, the artificial intelligence-powered corporate governance assistant, will begin recording the board meeting. The board members are still getting used to the new corporate governance requirement for a virtual assistant to not only record the board meeting, but to analyse the conversation and pick out key debates, challenges and decisions before producing a draft of the meeting for formal signoff at the end of the board meeting. As Julianna looks around the board team, which consists of five women and four men with an average age of 46, she feels very happy about how quickly the two new independent non-executive directors have settled in. It was a pity to lose Padraig and Lucy, but with a new directive stating that all non-executive directors must step down after two three-year terms, she welcomes the new blood coming into the board team. Julianna reminds everyone about the quarterly board evaluation that is due to happen this week and the importance of delivering on the commitment to shareholders of improving the board’s effectiveness and performance score to 90%. Just after 11am, two of the company’s largest shareholders join the live stream of the board meeting and the meeting begins… The board’s responsibility What will the boardroom of the future look like? And what will fundamentally change from today? There is an unprecedented focus globally on boards and how they can evolve to deliver outstanding performance for shareholders and stakeholders. This is to be achieved by embracing the highest levels of ethics and transparency while balancing exceptional levels of challenge, debate and oversight with the board’s capacity to add significant strategic value. From public limited companies to small- and medium-sized enterprises, boards increasingly recognise their responsibility to guide organisations through turbulent waters. Current challenges include significant market disruption stemming from technological and business model change and increasingly unpredictable macroeconomic and geopolitical risks. Progressive board teams are now positioning themselves to thrive in the years ahead with a particular focus on diversity, independence and culture. True diversity in the board team It has been a long and frustrating journey, but we are edging closer to genuine diversity in board teams in terms of gender, age, ethnic background, professional background and thinking styles. The day will come when board chairs will only think of getting the very best talented and diverse board members with a vibrant mix of skillsets, experience and thinking styles. The days of a traditional male-dominated board, selected because of their association to the CEO or board chair, will seem a distant memory. Boards will, as a rule, look for the very best talent to strengthen the team – irrespective of gender, age and professional background. Genuinely independent non-executive directors Shareholders and institutional investors globally are placing a growing emphasis on the number of diverse and highly skilled independent non-executive directors on board teams. Such members bring a mix of deep sector expertise and overall business experience and judgement. Up to now, many boards paid lip service to the critical value that high-calibre independent non-executive directors bring to the table. This has had a negative impact on boards’ performance. Performance culture of board teams Progressive high-performing board teams focus intently on the board’s effectiveness and performance. Utilising the simple principle that if you can’t measure it, you can’t improve it, the best board teams conduct meaningful annual evaluations to ensure that the board – both individually and collectively – is bringing its A-game with every single board member making a valuable contribution. In the UK, large private companies are being encouraged to adopt the public limited company requirement to conduct external board evaluations every three years followed by two internal board evaluations. This trend will likely extend to all serious boards in the years ahead as a means of ensuring that a genuine performance culture is embedded in board teams – irrespective of scale or sector. Shareholders and stakeholders deserve this level of commitment from their board team. Conclusion Shareholders and stakeholders are entrusting their boards with a fundamental responsibility to oversee, protect and enable their organisation to prosper while embracing the highest levels of accountability, ethics and corporate governance. Excellence is not the default position of a board of directors, irrespective of the stature and CVs of board members around the table. Outstanding boards are forged from a high-calibre chair setting the bar very high for board effectiveness and performance; superb and diverse independent non-executive directors bringing outstanding work ethic, challenge, oversight and strategic thinking to the board; a CEO and executive team engaging in an open and accountable manner; and all integrated into a genuine board team with a passionate commitment to excel on behalf of shareholders and stakeholders. The board teams of the future will focus on ensuring that board teams are enabled to excel on behalf of shareholders by delivering outstanding strategic value, embracing best-in-class risk management and adhering to the highest levels of ethical stewardship. Kieran Moynihan is Managing Partner at Board Excellence, which supports boards in Ireland, the UK and mainland Europe.

Dec 03, 2018
Management

Performance reviews are often thought of as an ordeal rather than opportunity. Dr Gerard McMahon outlines the actions to take before, during and after the review to ensure its success. For many people, the performance review process is a pain in the posterior. It is up there with a visit to the dentist in the popularity stakes. However, the wide-scale application of formal performance management or appraisal systems serves to underline an employee’s central role in the pursuit of a wide range of organisational objectives. Though performance management is ultimately an ongoing, every-day process, it normally comes to a head at the periodic review meeting. If approached with due consideration, it can prove to be an uplifting and invaluable experience for all.  Before the meeting Before you step into the meeting, reflect on its purpose. Most want to increase the employee’s motivation levels, to any extent, in the desired direction. Make sure that’s clear for yourself and your employee. It’s worth considering planning a provisional interview structure and strategy to ensure all relevant matters will be dealt with in an appropriate manner.  Set a mutually convenient time – a lot of it – and encourage the employee to prepare for the meeting. It is now common for employees to submit a self-assessment form to their manager prior to the meeting. This practice has considerable merit, as it encourages the employee to reflect on all of the important aspects of their performance and development.  The decision as to what venue to use for such a sensitive meeting is also worth considering. Though the norm is to convene it in the manager’s office, it may be preferable to locate in the employee’s office (if they have one) or to avail of a neutral venue. It helps to ensure that there will be no interruptions, wherever you go. Having agreed the time and venue, the room’s setting or layout should also be prepared. The manner in which a room is laid out conveys certain messages. For example, the manager can choose to avoid placing themselves behind a desk due to its (physical and psychological) ‘barrier’ connotations. You should also avoid sitting at a confrontational angle.  Next, it is important to review the employee’s job description and consider what their job entails in practice. You should also be familiar with the review forms from previous meetings, including the objectives agreed. It will be useful to have concrete examples to support the feedback that you intend to give. When forming an assessment of the employee’s performance, other views may be relevant.  It can also help to check what training/development has or can be provided to the employee.  Finally, the manager should be aware of the objectives of the organisation, department or division objectives for the next period and the potential role of the job-holder. During the meeting Once the meeting commences, it’s important to establish rapport. This entails nothing more complex than breaking the ice with simple questions and quips. After the initial niceties, the review’s objective and proposed agenda can be outlined. The practice of inviting an agenda input gives the employee joint ownership of the process. Of course, the better prepared the manager is, the less likely it is that issues that had not been anticipated will be introduced.  It is advisable to clear the (discreet) note-taking with the employee and to invite them to take notes if they wish.  Start the review by giving appropriate, positive feedback. This is the most important part of the review meeting, so don’t rush it. It is also good to encourage the employee to talk about what positives they think they bring to the role. It is a good idea to get the employee to self-review as much as possible. A good manager should spend up to 85% of the review meeting actively listening, so take your time and don’t be afraid to use silence if and when appropriate. Clarifying and reflecting are also useful techniques for getting the employee to open up and elaborate. It is advisable to avoid arguments and judgement before you’ve heard all of the evidence.  In a similar vein, an effective manager will focus on facts relating to job performance, not personality. This entails reviewing past performance and SMART (i.e. specific, measurable, agreed, realistic and time-bound) objectives, before setting new ones for the coming period.  As with any important meeting, summarise the key points at the end. However, it may prove enlightening to ask the interviewee to summarise first and then to focus on any important omissions. If it hasn’t been done during the meeting, complete the self-assessment form – or make appropriate arrangements with the interviewee for form completion Before closing, the manager should look for feedback on him or herself. Performance management reviews should be a two-way street, and if one is big enough to give feedback, one should be big enough to take it. Conclude the meeting on a positive note. After the meeting The manager and employee should be satisfied that the completed self-assessment review form is a fair and accurate reflection of the meeting. The draft form should be forwarded to the employee for approval, signature or comment on any appropriate revisions. Afterwards, both parties should endeavour to do what they agreed in the meeting and on the form, and make sure to schedule follow-up reviews or agreed actions. Finally, ensure that the employee and other authorised parties secure copies of the signed form or that the designated online computerised facility is appropriately utilised. Dr Gerard McMahon is the Managing Director at Productive Personnel Ltd. Performance review checklist Before Reflect on the meeting’s purpose: to motivate. Agree a mutually convenient time and place. Ask the interviewee to submit the self-assessment form in advance.  Plan a provisional interview structure and strategy.  Check the meeting venue to ensure an appropriate setting and layout.  Ensure that there will be no interruptions. Review the job holder’s job description and consider what the job entails in practice.  Study forms from previous meetings, including the objectives agreed, and look for concrete examples to support your feedback. Others’ views may be relevant.  Check what training or development has and can be provided.  Revisit the department’s objectives and the potential role of the job-holder. During Establish rapport. Confirm the interview’s objective and agree the agenda. Enable note-taking.  Give appropriate, positive feedback and encourage the reviewee to talk about their strengths. Actively listen as you allow the interviewee to self-review and self-prescribe. Take your time and don’t be afraid to use silence when appropriate.  Clarify and reflect to explore key issues. Don’t engage in arguments. Focus on facts relating to job performance, review past performance and SMART (i.e. specific, measurable, agreed, realistic and time-bound) objectives. Set SMART objectives for the coming period.  Ask the interviewee to summarise the meeting and then focus on any important omissions.  Look for feedback on yourself.  After Forward the draft form to the employee for approval and signature. Follow through on what was agreed in the meeting and on the self-assessment review form.  Fill in the diary in regard to follow-up reviews and agreed actions.  Ensure that the interviewee and other authorised parties get copies of the form. 

Dec 03, 2018
Tax

This year’s budget was much like the budgets in years past. Reading this article, the Budget probably seems a long time ago. However, the proposed changes are still a work in progress, with further changes included in the Finance Bill, prior to enactment in late December. Last year, the President signed the Bill on Christmas Day. Most of what was included in the Budget was well flagged in advance. Like in previous years, the main beneficiaries from a tax perspective were low to middle income earners. What is interesting is what was not said in the Budget speech about personal tax. There was no mention of our high marginal tax rates and no indication that these would be lowered in the future. Given the current political environment, it is difficult to see much movement in the near future on this front, with entrepreneurs also a victim of this atmosphere, with no increase in the €1 million cap on gains subject to the lower 10% capital gains tax (CGT) rate. Exit tax As expected, the 9% VAT rate for the hospitality sector was increased to 13.5%. The lower rate was seen to have served its purpose and a proposal to confine the increase in the rate to large cities was ruled out. On the corporate tax side, the biggest surprise was the introduction, at midnight on Budget Day, of tighter exit tax provisions. The exit tax seeks to prevent Irish companies from migrating tax residence and removing certain assets permanently from the Irish tax net. Prior to the amendment, it was relatively easy to escape the existing exit tax provisions. Going forward, Irish companies that migrate tax residence will suffer a 12.5% tax charge on unrealised gains at the date of migration, payable in six instalments in certain cases. The 12.5% rate increases to the standard 33% CGT rate if the migration is part of an arrangement whereby there is also a disposal of assets by the company.  The new exit provisions will principally impact companies with valuable intellectual property (IP) in Ireland. Going forward, it will not be possible to remove this IP from the Irish tax net without incurring a tax cost. The exit tax comes at a time when many groups are looking at moving IP currently housed offshore to onshore locations such as Ireland.  While the introduction of a revised exit tax regime was mandatory under an EU Directive, its introduction could have been delayed until 2020, so its implementation on Budget Day was surprising.  Controlled Foreign Company regime The Budget also saw the expected introduction of our Controlled Foreign Company (CFC) regime. Broadly, this affects Irish companies with subsidiaries in low-tax jurisdictions where the profits of the low-tax country are essentially driven by activities undertaken in the Irish company. The expectation is that the CFC rules, effective 1 January 2019, will not generate significant tax revenues but will require consideration by some groups. KEEP scheme There was a positive change to the KEEP scheme with an increase to 100% of salary on share value that can qualify for CGT treatment. KEEP is a tax-efficient share option scheme, granting CGT treatment rather than more penal income tax treatment, subject to certain conditions. Unfortunately, the scheme is still difficult to access and uptake has been slow. Many of the hoped for changes did not come to pass and this is likely to mean that no significant additional take-up in the scheme will be seen. EIIS The Budget, and subsequent Finance Bill, also saw fundamental changes made to the EIIS (old BES) relief, which incentivises investors with a tax deduction for qualifying investments. With EU rules making it difficult in many cases to establish whether a particular investment is eligible for relief, the existing EIIS regime has proved difficult to access for many investors. Combined with a resourcing issue in Revenue, this has caused significant delays in the certification process. The Finance Bill has completely rewritten the EIIS rules. The rules are now clearer and less complex, and introduce a new relief for investments in start-up ventures. While some issues remain within the new regime, there is hope that the improvements made will encourage more take-up of the scheme in 2019 and beyond.  Housing In a positive move, full interest relief for landlords in respect of interest charges on residential properties has been fast-forwarded to 1 January 2019.  In a further move to improve supply in the rental market, short-term lettings (less than 28 days) will no longer qualify as tax-exempt rental income under the “rent-a-room” scheme. The objective here is to discourage short-term lettings in favour of longer-term tenancies. Overall, the Budget produced nothing earth-shattering from a tax perspective. However, there were some missed opportunities to do more for Irish entrepreneurs and small businesses in general.  Peter Vale is Tax Partner at Grant Thornton.

Dec 03, 2018