Ethics and Governance

From a governance perspective, COVID-19 will test the robustness of our legislation and our ability to take a more technological, and perhaps modern, approach, writes Claire Lord. The Irish Government recently announced additional measures to protect citizens by delaying the spread of COVID-19. One of these measures is social distancing, which requires individuals to keep a two-metre space between them and other people. This measure and the increasing restrictions on international travel is making it difficult for Irish companies to hold ‘in-person’ board meetings and to proceed with shareholder meetings, particularly annual general meetings (AGMs), in the usual way. Against this backdrop, what can companies do to allow business to proceed so as to comply with the law while protecting the health of its directors, employees and shareholders? Board meetings Generally speaking, the board of an Irish company can meet ‘virtually’. This means that board meetings can be conducted by telephone, video conference or a similar facility. For a virtual board meeting to be properly convened, all directors must be able to hear each other and speak to each other. At a virtual board meeting, the quorum is made up of those participating in the meeting. All participating directors are entitled to vote in the usual way and the location of the meeting, consequent on social distancing requirements, is likely to be the location of the chair. The board of an Irish company can also usually pass resolutions in writing. For a written resolution to be valid, it must be signed by all directors of the company at that time. A written resolution takes effect when the last signature is collected. A written resolution can be signed in counterpart and can be circulated and signed electronically. The fully signed version must be retained with the minute book of the company. The written resolution procedure can be used even if one of the directors is not permitted to vote. Where this is the case, the remaining directors sign the resolution and note the name of the director who is not entitled to vote and the reason why. It is always recommended that a directors’ meeting is held where the business to be transacted is contentious, or if it is anticipated that the business to be approved will not be supported unanimously. Directors must also meet where they are required to make a declaration of the company’s solvency as part of the summary approval procedure to approve certain restricted activities. Where these circumstances exist, meeting “virtually” is sufficient. The board of a company must also consider the location of its board meetings or decision-making where it is important from a tax residency perspective for them to be able to demonstrate that the company is managed and controlled in Ireland. Shareholder meetings Companies with AGMs due to occur in the months ahead should consider how best to proceed with their AGMs in a way that complies with the law, and affords shareholders the ability to participate, while observing the Government’s restrictions on mass gatherings. An AGM must have a physical location that is specified in the AGM notice. The quorum for an AGM is determined based on the number of shareholders present in person or by proxy, usually at the physical location of the meeting. Therefore, to avoid a large  number of shareholders attending at the physical location for the meeting, shareholders should be encouraged to appoint a proxy to attend and vote on their behalf. Ideally, shareholders should be encouraged to appoint the same proxy where possible (while always considering how a quorum will be achieved).   While an AGM must have a physical location, a company can permit participation by shareholders at an AGM via technology, once that technology permits shareholders to participate and vote electronically.   Multi-member and single-member private companies limited by shares (LTDs) and single-member companies of other types can dispense with the legal requirement to hold an AGM by opting to carry out the business of the AGM by way of a unanimous written resolution.  Similarly, all company types can pass resolutions in writing.  In the case of LTDs and designated activity companies (DACs), this right applies regardless of any provisions in the company’s constitution.  Similarly, LTDs and DACs can pass majority written resolutions where a particular process is followed. Business as usual? We face significant uncertainty in the months ahead with the spread of COVID-19. Finding ways to conduct business regardless, while protecting the health of others, will test our ingenuity. From a governance perspective, it will allow us to see if our legislation is robust enough to support a more technological and, dare I say it, modern approach.   Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.

Apr 01, 2020
Tax

Originally published on Business Post, 22 March 2020 We are all struggling to become used to social distancing, but there is no such thing as fiscal distancing. When almost nothing else works as normal, the tax system does. The additional burdens which coronavirus is placing on the exchequer, due to increased social welfare payments and emergency care measures, will not be offset by tax revenues – in fact, quite the opposite. While often it is the tax paid (or not paid) by wealthy individuals and multinationals that captures the headlines, the bread-and-butter of exchequer funding is the Vat and PAYE collected by the business community throughout the year. Last year one in every four euros of tax collected was Vat and it was the second largest source of money for the exchequer. Generally, Vat is paid over every two months and the Vat collected by businesses on sales during January and February is due tomorrow. Vat is primarily a consumer tax, and the bill could be large. We still ate in restaurants, drank in pubs, bought cars and clothes and attended events during January and February. Many businesses have a PAYE bill due this week as well, reflecting payroll deductions during the month of February on wages paid before the layoffs and closures we have seen in the past fortnight. Vat and PAYE together make for a big tax bill and a cash-flow challenge. There are two fundamental aspects to tax compliance – the payment and the tax return. While the payment is usually the main concern, it is in fact the tax return which can land a taxpayer into serious trouble. Incorrect, late or missing tax returns result in people being fined or penalised or ending up in court or being published on the list of tax defaulters. Late or missing payments on the other hand are mostly pursued using routine debt recovery methods, so the best advice for any business facing problems with tax payments is to make the tax return anyway and worry about the payments later. The Revenue has signalled this week that it will waive interest charges on late payments of Vat and PAYE for businesses with a turnover of less than €3 million. This is an unprecedented departure from its usual policy. Normally, as Donald Tusk might have observed, the Revenue reserves a special place in hell for businesses who default on Vat and PAYE, on the basis that this money has already been recovered from their customers and employees and should be paid over to the Revenue forthwith. Not even during the crash in 2008 did thebRevenue offer any succour like this for businesses. Another step in the right direction is the application of the new PAYE real time system to ensure that workers laid off due to the coronavirus crisis will get their social welfare benefit of €203 per week as quickly as possible. This column has griped in the past about the cost to employers of implementing Revenue-compatible payroll software to make the new PAYE system work, so it is good to see some return on that outlay. Participating employers will be able to pay the emergency social welfare benefit of €203 per week and expect to recover the amount from the Revenue within a matter of days. Terms and conditions apply, because we must recognise that this benefit is to facilitate the rapid payment of social welfare benefits to people who have been laid off as a result of the coronavirus epidemic. It is not an opportunity for payroll substitution, or for manipulating figures, or for taking on ghost employees. Again, to channel Donald Tusk, there should be a special place in hell reserved for anyone trying to game any system which has been established to help workers and their employers deal with this calamity. The current fall off in tax receipts is a result of the evaporation of demand – for fuel, for services, for goods. Because of this we can expect monthly exchequer receipts to fall by hundreds of millions every month over the coming months. It's another compelling argument, even if one were needed, for social distancing. The shorter the crisis, the sooner demand will return, and the less damage will be done to the economy. While the bank bailout is often blamed for the surge in the national debt following the Great Recession in 2008, most of the debt was racked up by the decision to continue paying social welfare benefits and provide services during years when the tax revenues simply weren't there to support them. This is now happening again, but our tax yield is better shielded now than it was in 2008. For one thing, we are less reliant on capital taxes. It may even work out in our favour that corporation tax receipts are derived from a relatively small number of multinationals operating in industries which might not be as badly affected by coronavirus as some others. For many businesses facing tax bills this week, though, the advice is simple. Make sure the Vat return is made to the Revenue, and that your PAYE system is accurate and up to date. If necessary, worry about the payments later. You cannot do fiscal distancing. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Mar 30, 2020
Tax

Originally published on Business Post, 15 March 2020 At an Ireland Funds fundraising dinner in Washington last week, Taoiseach Leo Varadkar pointed out that while much of the time, words don't matter, the words of Nancy Pelosi, the US House of Representatives Speaker, typically do. It was a good line, but it's not just who says things, it is what is said that matters. The House Speaker’s words cited by the Taoiseach were significant because they signalled to the British that any trade deal that disrupted the Good Friday Agreement would not be a runner in the US. Less than 12 hours later, Varadkar himself was in the business of words that matter when he announced the social distancing measures taking effect this weekend to counter the spread of the coronavirus. His announcement acknowledged the disruption to working patterns and to the economy, but the threat of Covid-19 has already been having those effects for several weeks. Even the enormous PR machine of Irish/US business relations was rattled long before the Taoiseach announced that Ireland was to change gear, and before US president Donald Trump announced his nation’s clampdown on international travel. Coronavirus did not knock Brexit off as the hot topic on the Ireland/US business agenda for the week, because Brexit was not the hot topic to begin with. The burning issues for Irish trade with the US at the moment are tariffs and tax. On the tariffs front, Irish problems derive from the World Trade Organisation ruling that France had provided trade subsidies to Airbus. That in turn prompted retaliation from the US which put additional tariffs on goods of many descriptions, like butter and cream liqueurs. That's hardly fair to an exporting country like Ireland, but we are in the EU and it is the US and EU that are in dispute. Rewriting the tax rulebook The other big challenge is the old perennial of tax policy. Much is made in Ireland of the enormous lift in corporation tax receipts, triggered by the relocation of intellectual property assets – patents, knowhow and the like – into the country. This phenomenon has been flagged domestically as a problem if we become too reliant on corporation tax to fund day-to-day spending. It is no harm to be reminded that the exporters of such intellectual property, notably the US, are not delighted by the bonus tax receipts in Ireland either. Ultimately, largely thanks to the US Tax Cuts and Jobs Act of 2017, Uncle Sam is better off if the intellectual property is located here rather than in one of the traditional warm and sunny island tax havens. Yet the US remains deeply suspicious of the continuing European attempts, driven by the OECD, to re-write the tax rulebook for multinationals, particularly those in the high-tech sector. All of this creates an unwelcome drag on transatlantic trade and investment, particularly as Irish/US investment is a two-way street. State agencies in the US compete for Irish investment just as the IDA competes for US investment here. The effects of coronavirus on the Ireland/US business narrative taking place in New York and Washington last week may be short lived compared to these tax challenges. Instead its main effect could well be to change the increasingly fractious negotiating narrative on Brexit between Britain and the EU. Here's why. Expensive and cumbersome Much of the Brexit discussion so far has had to do with trade in goods rather than trade in services. It's easy to predict the impact of Brexit on the trade in goods, because tariffs are known and quantifiable and business reactions to their imposition are predictable. Tariffs do what they are designed to do, which is to make imports more expensive and exporting more cumbersome. We know what happens when tariff and quota patterns depart from the norm, because we see real-world examples. These can be major, like the US/China trade dispute, or something apparently trivial like a work-to-rule by French customs officers. In both cases, disruption of the existing norms can be measured and quantified. Compared to the trade in goods, there have been relatively few instances where trade in services becomes shifted from the norm, at least up to now. Services are provided by people and, thanks to coronavirus, people are now subject to social distancing. That disrupts the capacity of businesses to provide services both domestically and internationally with a consequent disruption to the economy as the Taoiseach acknowledged. Courtesy of the scourge of the coronavirus the Brexit negotiators are being presented with unprecedented evidence of the consequences of failing to get agreement on cross border trade in services. The next few weeks will show what happens in practice when countries restrict free movement of people, when they limit recognition of qualifications, and when they deny licences to provide services like financial services in different markets. Ireland’s trade surplus with Britain is dependent on services, not goods. We deal more with Britain than with the US. The Brexit negotiators need to get it right. As the Taoiseach pointed out, words do matter and Nancy Pelosi’s words will shape the future trade deal. The bitter experience of coronavirus should shape it as well. Dr Brian Keegan is Director of Public Policy with Chartered Accountants Ireland.

Mar 30, 2020
Tax

Originally published on Business Post, 1 March 2020 Ten billion dollars is a staggering amount of money. It’s the amount that Amazon’s Jeff Bezos, one of the world’s most prominent business people, promised last week to contribute to fight climate change. It's rare that business imitates politics yet this is what seems to be happening in the growing debate over sustainability. Bezos’s commitment is only an outlier by virtue of the scale of the money involved. A survey last year by environmental consultancy EcoAct found that 99 per cent of FTSE companies measured or reported on their carbon emissions. This kind of behavioural change seems not to be just confined to larger industry. It is being adopted by businesses of every size. At a business panel discussion on sustainable finance held earlier this month in the Irish Embassy in London, a straw poll was taken of more than 100 attendees from all walks of business life. They were asked whether or not their organisations were taking any steps, however small, to protect the environment. Not a single person in the room admitted to their organisation being indifferent or not changing behaviour or policies. Some of the changes identified were obvious, like reducing the use of single-use plastics. More significant approaches also featured, like changing the company's investment strategy in favour of greener industry. Some companies tended towards less obvious tactics, like sourcing supplies for the staff canteen nearer to home to reduce food air miles. If the commitment evident in the business community towards sustainability could be transposed into the political sphere, the likes of the Green Party would have no difficulty whatever forming governments. Yet for all the business commitment, the topic of sustainability itself remains vague and somewhat elusive. Part of the problem is how to define sustainability. When industry speaks of sustainable finance, the underlying assumption is often that it has to do with environmental conservation – the reduction of carbon emissions, the conservation of scarce natural resources, and a general reduction in the generation of pollutants. Other important topics, like reducing the exploitation of labour in developing countries or ensuring diversity and equality of opportunity in the workforce closer to home, feature less. Surely they have as good a claim to being sustainable goals as not setting the planet on fire? Such goals feature less regularly in the debate despite having been identified by the UN as legitimate goals towards sustainability. Lack of transparency Given that omission, it's reasonable to ask whether the business drive towards sustainability is as much about marketing as environmental management. Greenwashing, the practice of businesses advertising their green credentials primarily to secure greater market share, is a widely known phenomenon. It smacks of a lack of transparency. Nevertheless, it makes forming an independent assessment of the green credentials of a business more difficult. The difficulty is more accentuated when investment decisions are being made on the back of sustainability claims. Only slow progress is being made on resolving this problem of transparency. Individual agencies and regulators do set standards to help determine the green credentials of particular types of fuels, equipment and machinery and so on. But regulators and standard setters are still pretty much at sea when it comes to establishing widely accepted norms for reporting credible sustainability behaviours in the annual reports and accounts of companies. There are at least eight different governmental organisations, quangos and professional associations with multinational reach which are currently attempting to formulate or contribute to acceptable industry wide standards. Nothing coherent has yet to emerge from these efforts. It is tricky to put hard numbers on any company's observance of environmental sustainability, human rights, diversity or workplace inclusiveness. Without hard numbers, subjective judgements can raise as many questions as they resolve. The drive for ethical investment, only buying shares in businesses which in some way are believed to be doing the right thing, has impacted many industries such as tobacco and mining. The drive towards corporate social responsibility has permeated all the way up to the American Business Roundtable, a leading US corporate think tank. Last year it posited that the purpose of a corporation should include delivering customer value, employee investment, fair dealings with suppliers and community support as well as the more traditional purpose of creating long term value for shareholders. All this is very worthwhile, but any claims to progress on sustainability should be based on a robust framework of standards, and not merely subjective value judgements. Bezos says his contribution should be applied to “scientists, activists, NGOs — any effort that offers a real possibility to help preserve and protect the natural world”. Included in such efforts should be the development of objective and transparent sustainability reporting standards for business. After all, what gets measured gets done. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland.

Mar 30, 2020
Thought leadership

Originally published on Business Post, 16 February 2020 It seems we now have the most left-leaning Dáil in decades. And although at this stage we are not yet clear on what shape the government is going to take, there is a good chance that we may also end up with the most left-leaning administration in decades too. As a result, it’s apt to ask whether Irish businesses should be concerned about the kind of economic and fiscal policies that might be introduced. Daft economic policies that are damaging to business prospects are not the exclusive preserve of left-wing politicians. The daftest economic policy anywhere, Brexit, was the brainchild of a British Tory government which could be described as many things, but certainly not left-wing. Developed economies tend to have robust governance and civil service implementation structures which ensure that the worst excesses and pipe dreams of politicians don't automatically get anywhere beyond the pages of their manifestos. Those structures at times may seem undemocratic, but just as often, they are the badge of a country which is not a failed state. Ireland has had such public governance arrangements and civil service institutions for a very long time. Some of the checks and balances, for example, the special rules to raise taxes with a finance bill, are written into the Constitution. Some tax-raising mechanisms are almost a century old – the Office of the Revenue Commissioners was founded by an order of a Sinn Féin TD you may have heard of called Michael Collins. Other controls are relatively new, such as the so-called ‘Two Pack’ EU budget rules for the eurozone countries. The result is that the tax policies of any government, be it left-wing or right-wing, must survive triage both from parliamentary and constitutional rules, and from the civil service which must implement them. At this point, there’s little value in revisiting in minute detail the manifestos of the political parties – to do so would be to re-fight the election. Suffice to say that the tax plans of Sinn Féin, the Green party, the Social Democrats and Labour reflect a change in approach to the taxation of income and capital from what we have become accustomed to over the last decade, with wealth taxes and financial transaction taxes in the mix. The degree of fiscal conservatism of the last decade has been unusual. Previously, the cornerstones of our tax policy – inheritance tax, capital gains tax, even corporation tax itself – were all introduced by coalition governments with a left-wing component provided by the Labour Party. Even the 12.5 per cent rate of corporation tax, which for over 20 years has been the effective shorthand for the policy of successive Irish governments’ approach to companies, was the brainchild of a Labour finance minister, Ruairi Quinn. But since then, fundamental changes to our tax system have been rare. USC is just income tax by another name. The local property tax collects less than 1 per cent of the total tax. Instead of reform, we have tinkered with bands and rates, narrowing the base and all the while pushing the system in a more left-wing direction. Our income tax system is based on the 80/20 rule. Roughly 80 per cent of income tax is collected from 20 per cent of individuals. Most goods and services in this country, particularly essential items such as food, healthcare and housing, are either exempt from Vat or are taxed at the lower 13.5 per cent rate. The 23 per cent Vat rate applies to a relatively small category of goods by European standards. The vast amounts of corporation tax collected means that companies pay about €2,000 in tax each year for every person in the country. In tax policy terms, this is about as left as it gets. However, the position at the macro level is different and might even be described as right-wing. Compared with many other OECD countries, Ireland takes only a modest slice of its GDP through taxation. If we aspire to provide more money for healthcare, social welfare, retirement benefits, housing, education, environment and local government, then the choices are not about simply raising the top rate of tax for higher earners. The real choice would involve a major policy decision to increase the overall levels of taxation within the economy. This could involve introducing things like a broader-based local property tax at higher rates. It could involve introducing higher Vat rates and higher PRSI contributions for employers, employees and the self-employed alike. It could mean bringing in a Swiss-style wealth tax, which currently contributes 6 per cent of total revenue in that country, while exempting many gains, gifts and inheritances so that there is some wealth to tax. It could also mean risking our successful corporation tax regime by increasing rates, or reducing incentives for research and development and capital investment. It should mean taxing everyone a little more, because while tax is about redistribution, it is not about punishment. The next government will claim to be more attentive to voters’ concerns and requests, but will it make the big fiscal choices? Will the ground truly tilt left? History suggests not. Dr Brian Keegan is director of public policy at Chartered Accountants Ireland

Mar 30, 2020
Tax

In his regular column in the Sunday Business Post, Dr Brian Keegan talks about how the next Government faces some big fiscal choices, but it remains to be seen if the public opinion will shift left as political developments emerge post General Election 2020. Additionally, Dr Keegan’s analysis of the Sinn Fein’s election manifesto was featured in the Sunday Times.

Feb 17, 2020

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