Dee Moran and Lilian Halpin explain entities’ existing obligations regarding beneficial ownership and look ahead to future developments, focusing on trusts in particular. Most entities have a legitimate role to play in the global economy, but they also have the potential for criminals to use the structure for money laundering, terrorist financing and other financial misconduct. To identify and increase the transparency of those that seek to hide their ownership and control of these entities, many countries have introduced a register of beneficial ownership. Having a register ensures that the ultimate owners/controllers are identified, and that accurate and up-to-date information on a beneficial owner is readily accessible to authorised officers and other competent authorities that are entitled to the information under money laundering legislation. In Ireland, entities must maintain a register to comply with obligations under the 4th EU Anti-Money Laundering Directive (4AMLD), which was passed in May 2015 and subsequently amended by the 5th EU Anti-Money Laundering Directive (5AMLD), which was passed in May 2018. Who is a beneficial owner? A beneficial owner is defined in the directives and Irish legislation by reference to the entity type (e.g. trust, corporate entity, investment limited partnership). The different pieces of legislation should be consulted depending on the entity. Common threads in the definitions are ownership and control, whether direct or indirect, and a holding of more than 25% of the entity. Are there two registers? There are two separate registers in Ireland. While companies were required since 2016 to gather information and maintain an internal register of beneficial ownership, the 2019 beneficial ownership of corporate entities regulations (one of two sets of regulations passed in 2019 relevant to beneficial ownership) required relevant entities to file information in a central register. The Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies, which falls under the remit of the registrar of the Companies Registration Office, was opened for filings in July 2019. Any companies/societies in existence on 22 June 2019 had until 22 November 2019 to file their beneficial ownership details, and the five-month timeline to register relevant entities remains. Similarly, certain other financial vehicles described below must maintain an internal beneficial ownership register. There are also legislative requirements to file information on the central register, the Beneficial Ownership Register for Certain Financial Vehicles. Under specific legislation, the Central Bank of Ireland is designated as the registrar responsible for maintaining this central register. Under EU anti-money laundering (AML) regulations that came into effect in 2020, Irish Collective Asset Management Vehicles (ICAVs), unit trusts and credit unions that were in existence when the AML regulations came into force were required to register by 25 December 2020. Under the Investment Limited Partnerships (Amendment) Act 2020, which was commenced recently, existing investment limited partnerships (ILPs) and common contractual funds (CCFs) have until 1 September 2021 to register. Under both pieces of legislation, new financial vehicles that come into existence following the legislation’s implementation have six months from the date of coming into existence to register. What details must be registered? The information that must be delivered to each registrar concerning each beneficial owner includes name, date of birth, nationality, residential address, and a statement of the nature and extent of the interest held or control exercised by each beneficial owner. For Central Bank registration, it must be stated if the person is currently a pre-approval controlled function (PCF) holder in the entity or at any other regulated financial services provider. For companies and industrial and provident societies, the 2019 regulations require a PPS number to be furnished for verification purposes. The 2020 Act also requires PPS numbers to verify the information delivered in the case of ILPs and CCFs. In the case of both registers, the registrar is not permitted to disclose PPS numbers and must store them securely. Relevant entities must keep the beneficial ownership register up-to-date, and this information must align with the information filed on the Central Register. Where change(s) occur, the entity has 14 days to deliver the information so that the relevant amendments are made to the Central Register. Who is entitled to access the information in the Central Register? There are two tiers of access to data in the Central Register: Unrestricted access to the information in the Central Register will be afforded to authorised officers within specific organisations (i.e. An Garda Síochána, the Financial Intelligence Unit of An Garda Síochána, the Revenue Commissioners, the Criminal Assets Bureau, the Central Bank of Ireland, and other Irish competent authorities engaged in the prevention, detection, or investigation of possible money laundering or terrorist financing. Restricted access to information in the Central Register will be made available to the general public and designated persons (e.g. a bank carrying out customer due diligence, save where the beneficial owner is a minor). Those with restricted access will be able to access the name, month and year of birth, nationality, country of residence, and the statement about the nature and extent of the beneficial interest held. The beneficial owner’s date of birth and address will not be available to those with restricted access. Data protection law Any information exchange and sharing mandated by the legislation must comply with data protection law. Personal data is defined in Section 69 of the Data Protection Act 2018, and information to be collected and held on the central registers can include personal data. The data protection obligations are expressly recognised in the 2019 Regulations and 2020 Act, both of which provide that the Data Protection Act 2018 shall apply to the access the registrar affords to a designated person and any member of the public in respect of the information in the central register. Sanctions Sanctions include a fine of up to €5,000 for a trustee and a fine not exceeding €500,000 or up to 12 months imprisonment in respect of corporate entities. Future developments It is expected that a separate central register in respect of the beneficial ownership of trusts will be implemented in due course, as required under the Directives. This is expected to materialise sooner rather than later – trust regulations published in 2019 already impose obligations on trustees to seek and obtain information from beneficial owners of trusts and establish internal registers of beneficial ownership. The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2020 was signed into Irish law recently, and contains provisions in relation to trusts. It defines a “beneficial owner” and lists certain trusts that would be excluded from a future requirement to register. These provisions are being introduced in anticipation of the Minister for Finance introducing further regulation in the area and to address part of the overall transposition of 5AMLD into Irish law. In Dáil discussions on the provisions, the Minister made specific reference to the requirements in 5AMLD that all member states establish a central register of beneficial ownership of express trusts. On the international front, the Financial Action Task Force (FATF), an intergovernmental organisation that promotes policies to combat money laundering and terrorist financing and of which Ireland is a member, announced in February that it would review the global rules around beneficial ownership. The European Commission recently stated that it would closely monitor the setting up of the central bank account mechanisms and the beneficial ownership registers by member states to ensure that they are populated with high-quality data. The Directives require interconnection of member state registers, and work to interconnect the beneficial ownership registers has already started. The interconnection will be operational in 2021. Meanwhile, related EU regulation dealing with the EU Central Register’s technical specifications is expected to come into force soon. The requirement to keep and maintain a register for beneficial ownership is here to stay, and a central register for trusts will soon be a legal requirement. An understanding of the requirements is important if sanctions are to be avoided. An EU central register is imminent. This will put further pressure on individual countries to maintain registers with high-quality information, so expect the spotlight to continue to shine brightly when this comes into existence. Dee Moran is Professional Accountancy Leader at Chartered Accountants Ireland. Lilian Halpin is a Consultant at Chartered Accountants Ireland.

Dr Brian Keegan explains why having political deadlines isn’t always a good idea. Deadlines have always been a feature of commercial life, but the ubiquity of dates by which something must occur is a relatively recent facet of political life. Politics has always had its own cycles, from the duration of a monarch’s reign to recurring intervals by which general elections must be held. Mandatory due dates or precise intervals more often reflect an external rather than a domestic political imperative. In recent decades, commercial concerns over deadlines have spilt over into the political arena as government becomes bigger and more technocratic. Timeframes for decision-making are as much determined by foreign affairs as domestic factors. Having political deadlines isn’t always a good idea. While the obvious effect of imposing a deadline is to ensure the completion of a task, the act of establishing deadlines in itself may have a more subtle effect on the way we think about those tasks. Some years ago, researchers at the Carey Business School at John Hopkins University in the US carried out a study of how workers react to deadlines. They found that longer deadlines can lead people to believe that a particular assignment is harder than it actually is. That, in turn, can result in managers committing more resources to the work needed to meet the deadline. If this finding is correct, it suggests that the shorter the deadline, the less costly it might be to meet. The researchers also found that, when workers are faced with multiple deadlines (and few of us have the luxury to do only one thing at a time), people seem to prioritise less important assignments with immediate deadlines over more important pieces of work with more extended deadlines. There is an apparent human tendency to do what is urgent rather than what is important. While these findings have implications for management practice, they also have implications for the political system. The tendencies described by the researchers have been echoed in the handling by both the British and the European institutions of the Brexit process. The repeated extension of Brexit deadlines through 2019 created an impression that the process was more difficult than it actually was. In 2020, everything to do with the pandemic was urgent, so almost everything else received more political attention than the negotiations. Consequently, both sides allowed themselves extension after extension to negotiate the Trade and Cooperation Agreement, even though it should have been well within the capacity of Brussels and London to deal with both issues in parallel. The result was that we ended up with a barebones trade agreement between the UK and the EU, concluded on Christmas Eve. This outcome has been unnecessarily difficult for businesses to deal with. Customs and quality checks involve routine and paperwork – such processes may be unwelcome, but companies can generally cope with processes. The shortcomings are on the official side. The British Government is now repeating the same mistake by further pushing out deadlines associated with the Northern Ireland protocol and the checking of goods arriving into Great Britain from the EU. Far from relieving pressure on businesses, this will merely perpetuate the difficulties. It also makes the setting up of checks and controls by customs and trade officials and businesses alike appear more difficult. Political processes are rarely amenable to deadlines because the political process is not always about what should be done; it is also about what can be done. One of the lessons of Brexit is that we would be better served if the political process stopped trying to look like a business process.   Dr Brian Keegan is Director, Advocacy & Voice, at Chartered Accountants Ireland.

Investec Europe’s Gabriel Ramsey explains why, in a low-interest rate world, there is no such thing as a free lunch. When we look back at the past year, since the start of the COVID-19 pandemic, one of the most striking effects of the resulting economic crisis has been investors’ retrenchment back to deposits. According to data published by the Central Bank of Ireland, private deposits increased by a record €14.2 billion in 2020. The most noteworthy aspect of this revelation was the additional €950 million increase in December, a month when savings traditionally fall as high-street sales soar. On the flip side, we have experienced a significant contraction in consumer borrowing, which declined by 4.5% over the same period. Household deposits Meanwhile, as savers continue to squirrel away their excess funds, the European Central Bank (ECB) dissuades EU financial institutions from placing funds with them. For the economy to reboot, for growth to take hold and green shoots of inflation to begin to protrude, the ECB is pulling all its available levers to encourage more borrowing and spending as opposed to saving and hoarding. Herein lies the conundrum. Savers are preparing themselves for the unpalatable scenario of paying their bank for holding their deposits. Banks have passed on the ECB’s negative rates to larger corporate and institutional-type depositors for some time. However, retail depositors have generally been spared the pain until now – but the mood music is changing with banks applying negative rates to pension accounts and retail clients with large deposits. It appears inevitable that all personal deposits will be next in line, with some banks changing their terms and conditions to allow for this eventuality. Where to now for savers? While we must expect the hoarding of cash to inevitably dissipate as we continue to see downward pressure on interest rates and sentiment continues to improve, the problem remains. With interest rates and bond yields remaining below inflation for the foreseeable future, what can investors and depositors do to preserve their capital while generating returns? Investec has provided award-winning investment solutions to Irish clients for over 15 years. During periods of low interest rate returns, we provide our clients with alternatives to deposits and create individual bespoke products tailored to each client’s needs. We provide transparent and straightforward solutions linked to varying asset classes and utilise high-calibre counterparties to optimise return while delivering high levels of capital protection. Most clients will be familiar with equities or interest rates and prefer a product where performance is linked to one of these underlying asset classes. Investec’s ‘Kick-Out Plan’ is a good example of an equity-linked product (EuroStoxx 50) that does not require exponential equity market growth to perform well. In fact, the performance of this product over the past five years, when European equities have remained broadly flat, demonstrates this:  Over 1,500 investors. An average term to maturity of 1.5 years. An average return of 6.8%. No capital losses to date.* * This type of product does carry risks. In the above product example, clients’ capital is protected provided the EuroStoxx 50 does not fall 40%. Investors are aware that they may be sacrificing full capital protection in order to achieve some return in a low-growth equity market. In this type of product, the level of capital protection and the potential returns are directly correlated (i.e. if a client’s main goal is capital preservation, they may be prepared to sacrifice yield in order to achieve this).  Meanwhile, some clients are unwilling to risk their funds and require an alternative to deposit, either for their personal or pension funds or company funds. In this scenario, Investec can provide fixed income notes with a medium-term maturity that offer a small fixed return over the period (e.g. 0.10% per annum) and the return of capital on maturity. While the returns are modest in this structure, they are popular with clients who have no immediate plans for these funds and face the prospect of negative interest charges depleting their capital. These investment structures are typically medium-term notes (MTN), which are debt securities issued by banks as an alternative funding source. The principal attraction to investors of notes over deposits is the ability to customise the various components into one instrument and manipulate the capital protection levels to suit. The credit risk of the issuer is a key consideration with this type of product, and Investec works closely with highly rated investment grade financial institutions to offer peace of mind to clients. These banks are generally very familiar international names but are often not accessible to a retail client directly and, therefore, provide diversification to an investor’s portfolio. It is important to note that although most notes are senior unsecured issuances, these products are not covered by deposit compensation schemes. Advice Investec’s investment solutions are classified as MiFID (Markets in Financial Instruments Directive) products and deemed ‘complex’. It is therefore vital that clients receive professional financial advice. Investec works closely with advisors to create strong value propositions. However, the suitability and appropriateness of such investments are critical and individual to each investor. In the current climate, whether you require a solution for your funds or have clients with lump sums on deposit seeking your advice, it is important to understand and manage the risk. If you would like more information regarding the bespoke solutions available at Investec Treasury products, we would be delighted to speak to you. Gabriel Ramsey is Head of Financial Products at Investec Europe.

A recent C-suite barometer showed a surprising level of optimism among international business leaders. Mark Kennedy deciphers the findings to explain why short-term optimism will need to be buttressed by business transformation plans and long-term investment strategies if organisations are to thrive in a post-pandemic world. A report detailing over 500 global C-suite leaders’ views on their outlook for 2021 during a worldwide pandemic always had the potential to surprise. Despite the current economic uncertainty, the most surprising finding was the consistent presence of optimism globally, with 71% of respondents assessing the outlook for growth in 2021 as positive. At the beginning of the pandemic, we witnessed resilience and consistency as some business sectors adapted reasonably quickly. For established companies, there was a kind of ‘muscle memory’ approach to the crisis that unlocked lessons learned and business continuity measures that were initially adopted following the global economic crisis of 2008. Despite the unique nature of the pandemic, businesses that previously invested in crisis management strategies appeared to exhibit more resilience. The state approach to the pandemic was also a big differentiator, as tax and legislative aid mechanisms created a profoundly different context for business. Countries in Western Europe mostly saw the benefit of this approach. In contrast, other parts of the world, such as Africa, received noticeably less business aid, which resulted in less optimism for the future. Business transformation plans Confidence in managing and mitigating risk during the pandemic was undoubtedly a factor in respondents’ forward-looking business transformation plans. Economic and technology transformation trends scored highly, with 90% expecting to respond to technology and innovation trends and 78% confident in managing upcoming economic trends. Technology transformation was the most likely focus overall for large companies ($1 billion plus), with 54% of executives indicating a more-than-50% chance of implementing technology transformation plans. While the need to digitally transform businesses has been on the agenda for some time, the crisis appears to have accelerated plans. If we take the retail sector as an example, the need to meet the demand for online shopping during lockdown has added an urgency to prioritising digital strategies. Perhaps more surprising than what was high on the list of business transformation plans was what respondents considered a low priority. While the travel ban during lockdown highlighted the vast potential to reduce carbon emissions, only 20% of respondents said they expected climate risk to have the most significant impact on their business: the lowest on the list. This figure is slightly higher among Western Europe companies (25%), suggesting it is higher on executive agendas in that region. However, it is less than 20% in Latin America, Africa, Central and Eastern Europe and the Commonwealth Independent States (CEE/CIS), and the US.  One potential reason for climate risk attracting such a low score is the current lack of bottom-line accountability. Despite the growing need to mitigate climate change risk for business sustainability, leaders often treat it as an intangible business issue. They see it as being driven by regulatory momentum rather than a tangible business goal to be approached in the same way as technology or new service transformation plans. However, climate change will become a matter of profit and loss for many companies over the next ten years, either because it will influence how capital is obtained and the cost of infrastructure, or it will become an opportunity to do more business. It is a similar story with cultural change, which scored equally low on respondents’ business transformation plans. As mandatory reporting on environmental, social, and governance (ESG) issues becomes more widespread in both cases, businesses will need to consider these developments in business transformation plans. What is driving the business agenda? While technological transformation is the overarching theme, how businesses approach plans is often driven by regional and industry factors. In financial services, a high level of regulatory and compliance demands in Western Europe and the US is the driving force for banks and insurance companies launching digital strategies to automate and manage data management and reporting costs. In manufacturing, meanwhile, technology transformation drives improvements in efficiency and productivity. These regional differences were also evident when looking at investment plan timeframes. Businesses in Africa, for example, are looking at short-term transformation plans to drive profitability. In Europe and Asia, investment plans are put in place as strategic building blocks for the next decade and beyond. While this is not surprising when looking at the maturity of business development in each region, it also reflects the lack of state aid available to prop up economies and businesses in times of crisis. A further factor driving the business agenda is confidence in a company’s ability to respond to trends. In general, the barometer shows that businesses are optimistic in their ability to tackle most trends, with 90% either ‘very’ or ‘fairly’ confident in tackling challenges involving technology and innovation. Businesses in Asia-Pacific are more positive in their ability to respond to technology trends than in Western Europe, with 92% confident there compared to 85% in Western Europe, reflecting the vibrancy of the region’s technology start-up scene. However, executives are less confident in their businesses’ ability to respond to some other trends. 28% of companies are ‘not very’ or ‘not at all’ hopeful in dealing with the impact of climate change. This lack of confidence in responding to some trends may be down to the fact that, as discussed earlier, it is positioned lower down on the business transformation priority list. A further worrying response is executives’ lack of confidence to deal with social/political changes and public health challenges. While many businesses expect both trends to impact them in the next three to five years, a quarter of respondents are not confident in their ability to address them. Western European businesses are the least confident in dealing with social/political, climate and public health trends. Less than 65% declared themselves ‘very’ or ‘fairly’ confident for each. Asia-Pacific companies were much more optimistic than their Western European counterparts in responding to public health challenges – 77% of the former looked forward with optimism. This regional difference may reflect Asia-Pacific societies’ longer experience managing epidemics, like the SARS outbreak in 2003. Longer-term investment strategies It is important to recognise that the pandemic’s impact on investment plans is critical in moving from a short-term to longer-term outlook. The change in business priorities and how business is conducted since the crisis started has given CEOs across a wide range of sectors a clearer picture of why making long-term and sustainable investments is a sensible business decision. Interestingly, female respondents were more inclined to opt for longer-term investment strategies. Female leaders represent less than one-third of respondents, but with the number of female business leaders rising, the shift to longer-term investment planning is likely to increase. It signals a much-needed focus on long-term business sustainability. This shift to longer-term sustainability was highlighted by the number of respondents who consider investing in sustainability initiatives to be a relatively long-term business activity. It was rated the fourth longest-term out of 23 activities, behind external growth opportunities, corporate strategy, and research and development (R&D). However, company size and sector had an impact. For manufacturing companies, sustainability initiatives are the longest-term activity of all. This reflects the transition away from fossil fuels and towards more sustainable business models. Sustainability is seen as a long-term activity in the financial services sector, but sourcing new talent, government engagement, R&D, and maintaining IT systems are higher long-term priorities. It is interesting to note that sourcing new talent is seen as a long-term priority, particularly as the financial services sector is in a phase of disruption driven by technology and new entrants. While this may suggest that the industry sees sourcing new talent as increasingly difficult, it may also hint that financial services companies still see themselves as people industries first and foremost. The responses from technology and telecoms companies indicate that sustainability initiatives are viewed as one of the shortest-term activities in those sectors. External growth opportunities and regulatory issues are the two longest-term categories for this group, which considers acquiring customers as a longer-term activity than maintaining customers. It paints a picture of an industry that sees high growth as the key to its long-term and short-term future and one that is less concerned about its physical footprint and managing long-term external risks when compared to other, older industries. Of course, as new EU privacy laws become even more embedded, the technology sector may see regulation as both a short-term and long-term priority. Company size is a further factor. Larger ($1 billion plus) companies are most likely to consider sustainability as a longer-term business activity, reflecting that they have the resources to build a sustainability programme and the more significant external pressure on large and recognisable businesses to address sustainability issues. Executives from small- and medium-sized enterprises (SMEs) still regard sustainability as a relatively long-term activity, but R&D, corporate strategy, and external growth are viewed as higher long-term priorities. Framing a reset strategy What can we learn from the barometer results, and does it help frame strategies as companies look to reset? Looking at differences as well as similarities can give CEOs some bell-weather trends to consider. Take the fact that the barometer portrays businesses as generally optimistic. This helps provide momentum and confidence for the growth outlook, even though executives will consider different growth strategies and action pathways. It is then a question of looking at that growth landscape in more detail, so plans are more robust. Another key takeaway from the barometer is that businesses across the spectrum are prioritising driving technological change in one form or another. This could be implementing technology to transform and improve productivity, reduce costs, capture a business advantage from, say, increased online demand for products and services, or using it to enrich and enhance marketing strategies. Again, it is about capitalising on specific trends within the business sector. One aspect of technological change to keep in focus is the need to mitigate risk. With increasing complexity in the data and privacy regulatory landscape, it is crucial that – similar to technology transformation plans – risk mitigation remains high on CEOs’ agendas.   With the barometer also highlighting a growing appetite for ESG themes, it is essential to keep track of sustainability issues – particularly when reporting. ESG reporting is still not a high enough priority for CEOs, but it will demand greater focus from a risk management perspective in the future. Also not to be overlooked is the opportunity for businesses to create strategic business advantage by becoming an early adopter of, for example, environmentally friendly solutions or applying ESG as a business differentiator. Finally, a more oblique takeaway from the barometer’s high level of business optimism was the importance of investing in resilience. As we saw from government and company reaction at the beginning of the pandemic, lessons of the last economic crisis appeared to have been learned, particularly on the importance of continuity and making businesses more resilient to shocks. There are many examples of companies achieving business continuity success, whether through the ability to add flexibility in the supply chain or rapidly adapt products to meet changing consumer and business needs. It is clear that, where CEOs take the time to fully understand business and regulatory trends and invest in forward-looking strategies such as resilience and sustainability, charting a course out of the crisis will not be driven by short-term optimism alone but a realistic long-term growth strategy. Mark Kennedy is Managing Partner at Mazars in Ireland.

Although significant challenges remain, the north-west region can look forward to better days ahead, writes Dawn McLaughlin. After one of the most challenging years in business, 2021 provides some cause for optimism in the north-west city region. The vaccination rollout across the globe gives us the best chance to get back to normal and truly get our recovery efforts underway. As a Chartered Accountant in practice and in my new role as President of the Londonderry Chamber of Commerce, I have seen first-hand the extreme pressures on businesses. Cash reserves are depleted, cash flow is becoming a major concern, and confidence is gone. After a year of COVID-19, the strains on entrepreneurs and businesses of all shapes and sizes are only increasing. The need for a government-led recovery strategy, developed in collaboration with business, is greater than ever. However, I also see reasons for positivity on the horizon. While the double blow of the pandemic and Brexit seriously affected local businesses, I believe we can recover and rebuild better in 2021 and beyond, given the opportunity and support to do so. One of the rare highlights of 2020 was the announcement of the Graduate Entry Medical School at Ulster University’s Magee Campus in Derry. Representing the culmination of years of hard work and campaigning, the new medical school, which will welcome its first students in September 2021, illustrates the strength of the north-west’s higher education offerings. In the new post-Brexit world, cross-border cooperation and collaboration will be as important as ever. In collaborating with our neighbours in Donegal and beyond, we are working to make the north-west city region a more robust economy and the best place on the island to set-up a business. An Taoiseach’s new Shared Island Initiative provides the opportunity to maximise the tangible benefits of all-island cooperation. Committing €500 million over five years for cross-border projects, we are making a strong case for investment to fund infrastructure projects like the A5 Western Transport Corridor, funding to expand Ulster University’s Magee Campus and other cross-border research projects. Along with the full rollout of the City Deal project, the Shared Island Initiative can unlock our city region’s full potential and drive the post-pandemic recovery. By giving our leaders and businesses the tools to rebuild and create a more thriving and bustling regional economy, we can attract new investment and create new, secure jobs. But, in the short- and medium-term, this will require serious commitment and courage from the Northern Ireland Executive, the UK Government, and the Irish Government to get our struggling businesses on the whole island through this rocky period and ensure that they survive and thrive. With institutions like Ulster University Business School, North-West Regional College and Letterkenny Institute of Technology, the north-west is fertile ground for world-leading research and development, attracting more students to our region. Chartered Accountants in the north-west should prepare for this regional growth, and look to our local further and higher education institutions to provide a stream of high-calibre students who might well be the next generation of Chartered Accountants. Dawn McLaughlin is Founder of Dawn McLaughlin & Co. Chartered Accountants  and President of Londonderry Chamber of Commerce.

Having read the 1,246-page Trade and Cooperation Agreement, which was agreed to “in principle” by the EU and UK on Christmas Eve, Cróna Clohisey shares her thoughts on the critical elements causing concern and highlights areas that warrant further work. In recent weeks, there has been as much discussion about what the Trade and Cooperation Agreement (TCA) reached between the EU and UK on Christmas Eve doesn’t cover as what it does. The deal, spanning some 1,246 pages, threw up some surprises and certainly left a lot for discussion between the two sides in the months ahead. The main areas covered in the document include trade in goods and certain services, energy, aviation and road transport, fisheries, social security coordination, law enforcement, digital trade and intellectual property. Certain big-ticket items, including decisions relating to equivalence for financial services, the adequacy of the UK’s data protection regime, or an assessment of the UK’s sanitary and phytosanitary regime were excluded, however. These three areas, in particular, are unilateral decisions of the EU and were never subject to negotiation. The TCA does not govern trade in goods between Northern Ireland and the EU where the Protocol on Ireland and Northern Ireland will apply, bringing a whole other set of rules – not least in customs and VAT. Implementing, applying, and interpreting the TCA falls to the newly created Partnership Council. This political body will be co-chaired by a European Commission member and a UK government minister, and decisions will be made by mutual consent. Several specialised committees, including a trade partnership committee, will assist the Partnership Council. Therefore, it seems that negotiations between the EU and the UK on their future relationship are set to continue long into the future.  In this article, I will look at the TCA elements that are causing concern or require further work. Trade in goods and customs The real test for cross-border trade between the UK and EU is really just beginning, given that traffic at ports and borders is generally quieter in the weeks after Christmas. Still, problems with paperwork (which could never be removed by a free-trade agreement), health checks and systems were reported by many companies in the first few weeks of the year. We have heard reports of large retailers reporting shortages on their shelves with retailers in Northern Ireland significantly affected given the customs declarations required for goods brought into Northern Ireland from Great Britain – a requirement that seems to have taken some by surprise.   The TCA’s chapter on rules of origin is particularly cumbersome and has already hampered, and is expected to continue to hamper, existing supply chains. The ‘zero tariffs, zero quotas’ headline celebrating free trade is not all it seems, particularly when only eligible goods qualify for this approach. Rules of origin determine a product’s economic nationality and where products ‘originate’ is the fundamental basis for determining if tariffs apply. The TCA says that for products to benefit from zero tariffs and zero quotas, goods must be wholly obtained from, or manufactured, in the EU or UK or be substantially transformed or processed in the EU or UK in line with the specific origin rules that apply to the product being exported. Minor handling, unpacking and repacking won’t qualify as sufficiently processed. There could be issues for goods not wholly grown, farmed, fished or mined in either the UK or EU.  The amount of non-originating materials (i.e. materials not originating in either the EU or UK) that a product can have in order to still benefit from the TCA differs depending on the product. The annexes to the TCA set out the product-specific rules, and you will need to identify the commodity code as a starting point. Some products allow a maximum level of non-originating content (e.g. 50% of the ex-works selling price), but again this varies from product to product. If, for example, products are processed in the UK, the TCA states that EU origin materials and processing can be counted when considering whether UK exports to the EU meet rules of origin requirements. There is a qualifying production level, for example, called ‘cumulation’. Another nuance is that some rules of origin require that non-originating inputs used in the production of a good must have a different tariff heading, while some rules require a specific operation to take place in the UK for the goods to be classed as being of UK origin. For certain chemicals, for example, a chemical reaction must occur in the UK. It’s also important to remember that when goods are exported from a customs territory, origin status is lost (preferential origin status can only apply once). Take leather shoes originating in Spain as an example. When the shoes move from Spain to Great Britain and are then shipped to Ireland, they lose their EU preferential origin status when they leave Great Britain. Because they haven’t been processed or altered in Great Britain, they don’t have UK origin. Therefore, unless the goods move under a special and complicated customs procedure, duties arise on the goods entering Ireland. The now infamous case of Marks & Spencer’s Percy Pig confectionery is an example of this issue. These issues add to supply chain headaches and give rise to hidden costs. The rules are undoubtedly complex and don’t suit the UK’s significant role as a distribution hub. Business travel Free movement of people between the EU and UK ended on 1 January 2021. Of course, Irish and UK citizens are still free to live, travel and work in either country under the rules of the Common Travel Area (CTA). Beyond this category of people, immigration requirements – including securing permission to work and restrictions on the activities that can be performed as business travellers – are now a key consideration for UK nationals moving throughout the rest of the EU, including UK citizens residing in Ireland. Similar policies are in place for EU nationals seeking to travel to, and work in, the UK. The CTA allows short-term business visitors to enter either jurisdiction visa-free for 90 days in any given six-month period, but there are restrictions on the activities that can be performed. Activities such as meetings, conferences, trade exhibitions, and consultations are allowed. However, anything that involves selling goods or services directly to the public requires a work visa. The specific business situations where a visa is required are set out in the annexes to the TCA. The environment In a first for the EU, the fight against climate change has been included as an “essential element” in a bilateral agreement with a third country. This effectively means that if the EU or the UK were to withdraw from the Paris Agreement or take measures defeating its purpose, the other side would have the right to suspend or even terminate all or part of the TCA. The TCA paves the way for a joint framework for cooperation on renewable energy and other sustainable practices, as well as the creation of a new model for energy trading. However, it allows both sides to set their own climate and environmental policies in areas such as carbon emissions/carbon pricing, air quality, and biodiversity conservation. Divergence from respective environmental and climate laws will be monitored, but this area is not subject to the TCA’s main dispute resolution mechanism. It will instead be governed by a ‘Panel of Experts’ procedure. Time will tell how effective this will be. Data transfers Many businesses rely on the ability to transfer personal data about their customers or employees to offer goods and services across borders. A company based in Belfast, for example, might outsource its payroll processing to a company based in Galway. In this case, any restriction on this data’s ability to flow freely would act as a trade barrier. The EU and UK haven’t concluded a deal yet to allow data to continue to flow freely across borders, but the EU has committed to a decision on the adequacy of the UK’s system (UK GDPR) by 30 June 2021. Until then, the UK will be treated as if it is still part of the EU on data protection grounds, and data can continue to flow freely between jurisdictions. If the EU doesn’t reach an adequacy agreement (although reports suggest that a deal is close), provisions such as standard contractual clauses may be needed in future transfers of data between the UK and EU. Financial services Currently, the UK has identical rules to the EU in terms of the regulation of financial services. Supplementary documentation published with the TCA states that the UK Treasury and European Commission aim to sign a cooperation agreement covering financial services regulation by March 2021. The EU has already deemed the UK equivalent for a time-limited basis in clearing and transaction settlement, while the UK has provided the EU with specific findings that would enable EU member states to conduct such business in the UK. Many other areas of the TCA will be digested and interpreted in the weeks and months ahead. Trade deals are predominantly about trade. Only time will tell if they go far enough in other areas such as environment, security and intelligence, or healthcare, for example. Let’s hope that in the long run, a deal is better than no-deal. POINT OF VIEW:  Barry Cullen, Silver Hill Duck Silver Hill Duck is a perfect example of a cross-border business and the various challenges posed by the new trading relationship between the EU and the UK. Silver Hill Duck is a duck manufacturing company based in Emyvale, Co. Monaghan, with operations in Northern Ireland and the Republic of Ireland. The company controls all aspects of the breeding, farming, production and packaging of its famous Silver Hill Duck breed. Established in 1962, it has supplied the best Chinese restaurants in the UK for the past 40 years. During this time, the company has expanded its customer base to include retail and foodservice, including a range of raw and cooked products. Barry Cullen, Head of Sales at Silver Hill Duck and President of the Irish Exporters Association, shares the background to his company’s commercial decisions. “The UK was historically our largest market, and we took some steps before 1 January 2021 to avoid the expected delays that were predicted at the ports. This involved setting up a Northern Ireland company with the appropriate VAT and EORI numbers, and a customs clearance agent to handle the paperwork. Silver Hill also had to source a warehousing partner in the UK that could hold frozen stock for our UK customers. Trading with our fresh retail customers was suspended for the first few weeks in January due to the uncertainty around delays at ports and the documentation required. The first few weeks of 2021 has shown that this was a prudent decision, as it has become apparent that the UK is nowhere near ready for the new trading requirements. There are major delays at Holyhead with hauliers unable to access the Irish market due to incorrect paperwork and a COVID-19 testing regime that has exacerbated the problem. It’s a case of learning on the job as our sales team feels its way through the many documentation requirements to send a pallet of product to the UK. For example, despite having done due diligence for over three years, we were not aware of the REX system and the need to be registered to self-certify our goods. Even though there are no actual tariffs, the customs clearance costs are high at approximately €120 per order, regardless of size, if you act as exporter and importer for the UK customer. This will make much retail business commercially unviable and will have a significant knock-on effect on small- and medium-sized enterprises in the coming months. There will undoubtedly be a settling-in period for the new trading requirements, but the cost for traders, hauliers and suppliers is as yet uncertain.”   Cróna Clohisey is Public Policy Lead at Chartered Accountants Ireland.

Do ultra-low interest rates justify ultra-high stock market values? Cormac Lucey shares his thoughts as US tech stocks continue their astonishing rise. Are we experiencing a stock market bubble? The question arises because of the startling rebound in global stock market indices since last March and, in particular, because of the astonishing rise in value experienced by US tech companies. Since their March lows, the Nasdaq has nearly doubled, the NYSE FANG+ Index has risen by 150%, and Tesla has risen to an astounding 12.2 times its starting position. The other factor that suggests we are in the middle of an equity bubble is valuations. The best measure of underlying long-term valuation is the Cyclically Adjusted Price Earnings (CAPE) ratio. It overcomes the weakness of the traditional Price Earnings (PE) ratio, that cyclically inflated earnings can make a cyclically inflated price look reasonable, by replacing one year’s earnings with average earnings over the previous 10 years, adjusted for inflation. The US CAPE is currently 35. That level has only ever been seen before as the Nasdaq bubble peaked in 2000. After that, the US tech index fell by three quarters before eventually bottoming in early 2002. On one hand, Jeremy Grantham, founder of the GMO fund management group in Boston, reckons that US stock markets are in the final stages of a speculative bubble worthy of comparison with the dot-com bubble, the Great Crash of 1929, and the South Sea Bubble. On the other, Martin Wolf, a Financial Times columnist, doesn’t believe that we are currently experiencing a stock market bubble. He contends that equity prospects depend on the future course of corporate earnings and interest rates. He concludes that, provided the former are strong and the latter ultra-low, stock prices look reasonable. There’s the rub. Do ultra-low interest rates justify ultra-high stock market values? And how long will interest rates remain ultra-low? On the face of it, the value of equity assets should rise as interest rates fall. Interest rates are a vital component of valuation models in general, and the Capital Asset Pricing Model in particular. When interest rates fall, the discount rate used in these models decreases and the price of the equity asset should appreciate, assuming all other things remain equal. Today’s interest rate cuts by central banks may therefore be used to justify higher equity prices and CAPE ratios. But John Hussman, a fund manager and former professor of finance, argues that when people say extreme stock market valuations are “justified” by interest rates, they’re actually saying that it’s “reasonable” for investors to price the stock market for long-term returns of nearly zero because bonds are also priced for long-term returns of nearly zero. “What’s actually happening today,” he argues, “is that investors are so uncomfortable with near-zero bond market valuations that they’ve priced nearly every other asset class at levels that can be expected to produce near-zero, or negative, 10-12 year returns as well.” I agree with Hussman: US stocks are in a bubble. While equities may appear reasonably valued relative to bonds, in absolute terms their ultra-high valuations today suggest ultra-low investment returns over the coming 10-12 years for those who buy them now and hold onto them for several years. However, just because stocks are in a bubble doesn’t mean that they are about to fall. As the then-Taoiseach, Bertie Ahern, said in 2006: the boom can get boomier. What should investors do? First, expect significant growth in short-term stock market volatility. The recent one-day 25% drop in the price of Bitcoin may be a straw in the wind. Second, the final market top may coincide with central banks allowing long-term interest rates to rise in the face of rising inflation expectations, perhaps in 2022. Until then, enjoy the boom getting boomier. Cormac Lucey is an economic commentator and lecturer at Chartered Accountants Ireland.

Dr Brian Keegan explains why one of Donald J. Trump’s lasting legacies could be tighter regulation for Europe’s digital sector. The early weeks of January were dominated by attempts to handle emergent Brexit problems, resurgent COVID-19 problems, and the Trump presidency’s last days. No sooner does one issue get resolved than another pops up to take its place. In times past, wealth was defined in terms of real assets. The defining asset of the 21st century is data. In late 2020, the EU Commission fired a dual salvo of legislative proposals almost lost amid the Brexit and COVID-19 noise. The proposed new Digital Market Act will deal with cartels, and the proposed new Digital Services Act will deal with content. Along with the Digital Tax Proposals, they complete a triad of initiatives to deal with information industries. The EU’s messaging for the Digital Market and Digital Services acts is a simple one. The idea is that what is illegal offline should also be illegal online. That sounds compelling in theory, but the practice could be very different. The Digital Markets Act addresses the businesses that the EU call “gatekeepers” – perhaps including social media platforms like Facebook and LinkedIn, search engines such as Google, Bing and Yahoo, and business intermediary platforms, including Amazon, eBay and Alibaba. The Digital Market Act’s likely targets are not European, but rather headquartered in the US or Asia. Europe is already finding that when it attempts to tax digital enterprises by reference to market presence, the home country jibs at the prospect of losing tax revenue. Regulation, however, is a different matter. If the Digital Market Act is successful in outlawing anti-competitive practices and is applied consistently, a properly regulated environment can attract reputable business while enhancing choice for businesses and consumers alike. The Digital Services Act, on the other hand, is aimed at consumer protection. It contains rules that would enforce the removal of illegal goods, services or content being promoted or sold online. What is considered “illegal” is anything that may be illegal in any EU member country. This is an unusually broad definition, which appears to work on the assumption that legal, cultural and consumption norms are the same right across Europe. As such, the proposals are a multi-bladed weapon directed at a Hydra-headed creature and have a particular focus on platforms that reach more than 10% of the European consumer base. In early January, the world saw just how powerful such a weapon might be when Twitter permanently suspended the account of the then President of the US, Donald Trump. From the point of view of the major social media platforms, that may have unforeseen consequences. Governments become irritated when the private sector wields power that they themselves do not possess, and the exclusion of Trump was an extreme example. Thierry Breton, one of the EU Commissioners sponsoring the proposed digital legislation, commented that “it is not only confirmation of the power of these platforms, but it also displays deep weaknesses in the way our society is organised in the digital space”. Twitter’s action also prompted critical comment from MEPs and German and French leaders. This political reaction could well ensure that the Digital Market Act and the Digital Services Act move more speedily through the EU’s often labyrinthine acceptance and ratification processes. The proposals were drowned out by Brexit and COVID-19, but will endure long after both crises have passed. The ultimate result of a US president’s actions and the well-intentioned response of Twitter could be earlier and tighter regulation of the digital space in Europe. Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.

In a letter to the Chancellor of the Exchequer Rishi Sunak, Institute President Paul Henry has set out the necessity for HMRC to extend the 2019/20 self-assessment deadline given the recently announced further restrictions in all regions of the UK due to rampant change in the nature of the Coronavirus pandemic. Chartered Accountants Ireland has called on the UK Government to introduce a short once-off and one month extension to the 31 January 2021 filing deadline to ensure businesses and their accountants are given sufficient time to prepare and file returns in adherence with public health requirements. Although Chartered Accountants will make every effort to ensure that as many tax returns as possible are filed on time, due to the extraordinary circumstances of the pandemic, there will be instances where it is just not humanly possible to make the deadline. A short extension to the filing deadline is essential for our members in business and practice who are doing all possible to meet their tax obligations in the most difficult of circumstances. Since the Institute published its position paper the Next Financial Year last summer, the Institute has been lobbying HMRC for automatic suspension of late filing penalties for a period of three months in addition to enhanced Time to Pay (“TTP”) for 2019/20 self-assessment tax debt. We have discussed this with HMRC at various forum meetings including meetings of the Representative Body Steering Group (the highest level forum meeting of stakeholders), the Virtual Communications Group monthly meetings and at bespoke meetings over the course of 2020. Although our recommendation for enhanced TTP was endorsed  by the Chancellor in the September Winter Economy Plan, HMRC has to date resisted any change to the forthcoming filing deadline. HMRC’s most recent communication indicated that its position in respect of the forthcoming self-assessment deadline is unchanged. The full message from HMRC is as follows:- “I am grateful for the evidence you have provided and the constructive engagement you have had with my policy teams. We have carefully considered your request. Many of you were on the Representative Bodies Steering Group call on 16 December, when Angela MacDonald discussed with you that we do not currently plan to waive late filing penalties. Let me explain our reasons. Our SA message this year is a simple one: We want to encourage as many customers as possible to complete their returns by 31 January 2021, even if they can’t pay in full, because filing their return is key to crystallising their SA liability and being able to get our support, if they need it, to pay their tax. But no-one will have to pay a penalty if they cannot file on time because of the impact of the COVID-19 pandemic. We do not want to complicate this message by sending a blanket signal that it’s OK to file late. That could have some serious disadvantages for our customers; de-coupling the payment and filing dates might confuse customers, and even lead to non-payment, interest accruing, and late payment penalties being triggered. It would also encourage some customers to file late who really don’t need to. We know that some customers will not be able to file on time because of the impact of the pandemic on them or their tax agent. These customers should get their returns in as soon as they can. We will not penalise people who need more time. We will accept pandemic-related personal or business disruption as a reasonable excuse. If their return is late due to pandemic-related delay on the part of an agent, this will also be a valid reasonable excuse. In the event that someone who has been unable to file on time receives a penalty notice, they or their agent will be able to get this cancelled easily by contacting HMRC. We are giving customers and agents more time by extending the penalty appeal period to 3 months. I know you will be disappointed that our decision is not what you and many of your members wanted. I understand and sympathise with the extreme pressures your members have been under in this exceptional year: they have helped deliver the economic response to the pandemic, helping UK businesses get the support they need while at the same time suffering the effects of the pandemic on their own firms. I am very grateful to them for their valuable and vital work. At present, filing rates are holding up well, but we will continue to monitor the situation during January and keep matters under review.” Our members survey last month indicated a preference for automatic suspension of late filing penalties.   However, the announcement of enhanced restrictions earlier this week due to the rampant change in the nature of the Coronavirus mean that businesses and their accountants face extreme difficulties, and the Government must extend the 31 January 2021 deadline and lift late filing penalties to ensure tax obligations can be fulfilled safely. Members will be kept abreast of developments on this issue in eNews and Chartered Accountants Tax News.

Revenue announced the extension of the 2019 Pay and File deadline until 6pm today, 11 December 2020. Chartered Accountants Ireland made representations to Revenue on technical difficulties members were experiencing with ROS throughout the week, particularly on Monday.  Revenue acknowledges the efforts of taxpayers and agents in working towards the deadline on its announcement of the extension. Revenue confirmed the extension yesterday afternoon in a press release. The total number of 2019 income tax returns filed as of yesterday afternoon was in excess of 500,000.

The fifth annual Good Governance Awards concluded on 19 November 2020 with the announcement of the winners of the annual report awards across six categories. These categories are based on turnover including a new category this year for very small non-profits with an annual turnover of less than €50,000. One of the main aims of the Governance Awards is to improve the overall standard of annual reporting in the charity and non-profit sector and to provide specific feedback to all entrants alongside guidance on how to improve their annual reports, including their financial statements and disclosures.   Each of the annual reports goes through a very rigorous assessment but underpinning the many assessments and checklists there are some key elements or features which are essential in the eyes of the assessors and judges. In the spirit of improving standards, we have compiled a summary of the top ten judges’ recommendations arising from their assessment of this year’s shortlisted annual reports. We have also included the top ten comments from our assessors in relation to annual reports that were not shortlisted. Top ten judges’ recommendations Ensure the annual report tells a story, in a way which is easy to follow and easy to navigate. Make the link between the charity’s purpose, objectives, and expenditure apparent throughout the report. Focus on clarity and conciseness. The length of some annual reports raised questions concerning the additional value being added with very detailed accounts of activity. Use metrics and key performance indicators (KPIs) to describe achievements. Provide context by disclosing the targets against which KPIs are measured and, where applicable, disclose the prior year’s KPIs. Including a trend analysis of KPI performance over, say, a three-to-five-year period, was highlighted by the judges as good practice. Report on the organisation’s governance structures and processes and describe how adherence to good governance is embedded throughout the board and the organisation. This should include disclosing board members tenure and the approach to board succession planning. Avoid generic risk reporting and emphasise the key and specific risks the organisation faces, how these are being managed and expand into detail on what the board consider to be the current fundamental areas of risk. Include a clear explanation of what reserves are held by the organisation, including an indication of whether these are high, low or within expectations of the board. Material movements between reserves should be explained. Provide clear explanation for a deficit, if it arises, including whether this position is likely to persist and what actions or measures are being taken to address the underlying cause(s). For charities and other non-profits organisations that work with vulnerable adults and children, ensure that safeguarding (measures to protect the health, well-being and human rights of individuals, which allow people to live free from abuse, harm and neglect) is addressed in the annual report.There were some excellent disclosures on safeguarding included in some of the shortlisted organisations this year. Disclose how the charity or non-profit organisation is addressing matters relating to sustainability, cyber security, data protection, diversity and inclusion. These matters are of increasing interest to the readers of these reports. Top ten assessor comments on annual reports that were not shortlisted Ensure that there is a link between the non-financial narrative and the financial statements in the annual report. They should not read as two standalone documents. Review the report for consistency. There were notable instances where the financial statements reported a deficit but there is either no mention of this in the narrative of the annual report or a deficit of a different magnitude is referred to in the narrative. Some reports included a very upbeat and positive narrative describing the organisation’s many achievements, with little or no mention of the challenges, but the financial statements presented a different story. Ensure basic governance disclosures are included, such as providing an explanation of the operation of committees and the recruitment, induction and qualifications of board members and their tenure on the board. In addition to describing the organisation’s activities, describe the key risks and challenges faced by the organisation during the financial period. Disclose the organisation’s mission, vision and values and link these with disclosure of the organisations objectives for the financial period, key performance indicators, etc. Ensure the annual report includes transparency in relation to the various sources of funding accessed by the organisation during the financial period. Ensure the income and expenditure account, or statement of financial activities (for those apply the Charities SORP (FRS 102)) is presented showing restricted and unrestricted funds separately. Review, before submission, the financial statement disclosures to ensure they are complete (required disclosures are included), consistent with the information presented in the financial statements and elsewhere in the annual report and provide any additional information necessary to assist the readers understanding of the organisations successes and challenges faced during the financial period. Prepare an annual report that includes both the non-financial narrative and the financial statements to facilitate readers getting a better understanding of the financial position and key drivers for financial performance. Opt-out of the right to prepare financial statements in accordance with Section 1A of FRS 102 or to file abridged or abbreviated financial statements. This is sub-standard to good governance practice for charities and non-profit organisations reliant on government grants, fundraising from the public or other sources of charitable or voluntary donations (e.g. philanthropy or people volunteering their time to help others). We hope that the above observations and feedback comments will help in improving the standard of annual reports, including financial statements next year. Diarmaid Ó Corrbuí, CEO Carmichael. Email diarmaid@carmichaelireland.ie    

With international tax reform progressing at unprecedented speed, Susan Kilty explains why Irish businesses must continue to participate actively in the discussion. With all the global uncertainty that Ireland is facing due to COVID-19 and Brexit, there is a risk that the OECD global tax reforms – the other major threat to Irish business and the economy – will be pushed further down the corporate agenda. But to do so would be very risky. Ireland must engage with this process now, at both the political and corporate level. The world of international tax is in a state of extreme flux as governments grapple with changes in the way multinationals do business. It is worth reiterating that Ireland has attracted healthy levels of foreign direct investment (FDI) over the past 30 years, and the multinational community has contributed significantly to our economic success. According to the OECD, Ireland received more foreign direct investment in the first half of this year than any other country. Along with Ireland’s near-iconic 12.5% tax rate, a crucial element in our continuing ability to attract international investment is the stability and transparency of the corporate tax regime here. Investors from abroad who establish activities in Ireland tend to be quite sensitive to changes in the taxation system. They like certainty and stability in a tax code, which is why Ireland presents such an attractive proposition. Ireland cannot afford to lose FDI as a result of turbulence in the global tax landscape at this time. As corporation tax accounts for almost 18% of Ireland’s total tax take, any change to the regime threatens to seriously undermine the attractiveness of our FDI model and negatively impact our revenue-raising ability. The crux of the matter is that we, and many other countries, apply 20th century tax systems to 21st century e-commerce business models. Businesses have an increasingly digital presence, and many no longer trade out of brick and mortar locations. This is not limited to so-called technology companies, but can be seen across industries and in businesses of all sizes. Businesses sell freely across borders without ever needing to set up operations abroad. This new digital way of trading is not always captured in our analogue tax rules, and the rules must be realigned with the reality of modern e-commerce. However, to tax a multinational business, you need a multinational set of rules. This is where the OECD comes in, but the uncertain shape that the new rules might take brings more uncertainty for businesses at a time when it is least needed. Many clients cite the changing international tax environment as one of the top threats to potential revenue growth. And although countries now face enormous bills for COVID-19, one sure thing is that BEPS, OECD and tax reform will not go away. International corporate tax reform is happening, and it will impact many businesses and our economy. Companies need to stay on top of these changes and prioritise the issues that will affect them. OECD proposals The OECD proposals offer a two-pillar solution: one pillar to re-allocate taxing rights and ensure that profits are recorded where sales take place, and a second pillar to ensure that a minimum tax rate is paid. At the time of writing, a public consultation is open for stakeholders to share their views with the OECD on the proposals that were recently summarised by way of two “blueprint” documents, one for each pillar. Pillar One seeks to give market jurisdictions increased taxing rights (and, therefore, increased taxable income and revenues). It aims to attribute a portion of the profits of certain multinational groups to the jurisdictions in which their customers are based. It does this by introducing a new formulaic allocation mechanism for profits while ensuring that limited risk distributors take a fair share of profits. Several questions remain as to how the Pillar One proposals, which constitute a significant change from the current rules, will be applied. Pillar Two, on the other hand, seeks to impose a floor for minimum tax rates across the globe. This proposal is very complicated. It is much more than a case of setting a minimum rate of tax. It is made up partially of a system that requires shareholders of companies that pay low or no tax to “tax back” the profits to ensure that they are subject to a minimum rate. At the same time, rules will apply to ensure that payments made to related parties in low-tax-paying or no-tax-paying countries are subject to a withholding tax. Finally, it can alter the application of double tax treaty relief for companies in low-tax-paying or no-tax-paying countries. Agreeing on the application and implementation of this pillar will be incredibly difficult from a global consensus point of view. Several supposed “safety nets” in Pillar Two are also likely to be of limited application. For example, assuming that the minimum tax rate is set at 12.5%, this does not mean that businesses subject to tax in Ireland will escape further tax. Similarly, assuming that the US GILTI (global intangible low-taxed income) rules are grandfathered in the OECD’s proposal, this does not mean that the US GILTI tax applies as a tax-in-kind tax for Pillar Two purposes. Pillar Two poses a significant threat to Ireland, as it reduces the competitiveness of our 12.5% rate to attract FDI and, coupled with the Pillar One profit re-allocations, could reduce our corporate tax take. The OECD estimates that once one or both of the pillars are introduced, companies will pay more tax overall at a global level, but where this tax falls is up for negotiation – and this is why early engagement by all stakeholders is critical. While the new proposals will undoubtedly have an impact, it is not certain that Ireland’s corporation tax receipts will fall off a cliff. Ireland has already gained significantly in terms of investment from the first phase of OECD tax reform, and this has helped to drive a significant increase in corporate tax revenue. But the risks must nevertheless be addressed. There is, of course, the risk that the redistribution of tax under the rules directly under Pillar One and indirectly via Pillar Two will impact our corporate tax take. But even if the rules have no impact on a company’s tax bill, they could still impose a considerable burden from an administrative perspective, and the complexity of the rules cannot be overestimated. At a time when businesses are grappling with other tax changes, led by the EU and domestic policy changes, this would be a substantial additional burden on the business community. The OECD is progressing the rules at unprecedented speed in terms of international tax reform. The momentum behind the process comes from a political desire for a fair tax system that works for modern business. However, does this rapidity risk the international political process marching ahead of the technical tax work? This is where Ireland, both government and corporate, needs to play a vital role. While the consultation period on both pillars is open, the focus for stakeholders should be on consulting with the OECD on the technical elements of its plan. Considering the OECD’s stated objective to have a political consensus by mid-2021, this could be one of the last opportunities for stakeholders to have a say in writing the rules. The interplay between the OECD and the US Treasury cannot be ignored when considering the OECD’s ability to get the proposals over the line. The US Treasury decided to step away from the consultation process with the OECD for a period in mid-2020. This, of course, raised questions around whether the OECD proposals could generate a solution that countries would be willing to implement. Added to this, the OECD has always positioned Pillar One and Pillar Two as an overall package of measures and has stressed that one pillar would not be able to move forward without the other. The “nothing is decided until everything is decided” basis of moving forward is a risky move, but the OECD recently rowed back on this stance. If the OECD fails to reach a political consensus by 2021, we could very well see the EU act ‘en bloc’ to introduce a tax on companies with “digital” activities. This could result in differing rules within, and outside of, the EU. It would also increase global trade tensions, all of which would not be good for our competitiveness. As a small open economy, Ireland will always be susceptible to any barriers to global trade. A multilateral deal brokered by the OECD therefore remains the best option – the last thing we want to see is the EU accelerating its own tax reform or, worse still, countries taking unilateral action. For the Irish Government, providing certainty where possible about the future direction of tax is critical. Where we have a lead is in how we provide that stability and guidance where we can. The upcoming Corporate Tax Roadmap from the Department of Finance will be an opportunity to give assurances in these uncertain times. Next steps for business The public consultation will be critical for businesses to have their say in shaping the rules. Ireland Inc. must continue to engage constructively with the OECD to try to shape the outcome so that we maintain a corporate tax system that is fit for purpose, is at the forefront of global standards, and works for businesses located here. Doing so would ensure that we articulate the position of small open economies like our own. Each impacted business must take the opportunity to comment on the proposals, as this may be the last chance to have a say. Indeed, what comes out of the consultation period may be the architecture of the rules for the future. We know that difficult decisions must be made at home and abroad in terms of the new tax landscape, and made with additional pressures we could not have foreseen 12 months ago. Although it may seem that much is out of our control, Irish businesses must continue to participate actively in the discussions and ensure that their concerns are heard. The game may be in the final quarter, but the ball is in our hands. Susan Kilty is a Partner at PwC Ireland and leads the firm’s tax practice. Point of view: Fergal O'Brien Since the start of the BEPS process in 2013, Irish business has recognised the importance of the work to our business model and the country’s future prosperity. At its core, BEPS has seen a further alignment of business substance and tax structures at a global level. This has resulted in an often under-appreciated surge in business investment, quality job creation and, ultimately, higher tax revenue for the Irish State. With its strong history as a successful location for foreign direct investment, and substance in world-class manufacturing and international services, Ireland was well-placed to benefit from the new global order. The boom in business investment, which last year reached over €3 billion every week, and increase in the corporate tax yield from €4 billion in 2013 to €11 billion in 2019, are evidence of the further embedding of business substance in the Irish economy. The current round of BEPS negotiations will have further significant implications for the Irish economy, and particularly for the rapidly growing digital economy. Ibec is working directly with the OECD to ensure that any further changes to corporation tax recognise the central role of business substance and locations of real value creation. Fergal O’Brien is Director of Policy and Public Affairs at Ibec.  Point of view: Norah Collender The OECD’s proposals to address the challenges of the digitalised economy will have a disproportionate negative impact on small, open exporter economies like Ireland. Earlier consultation papers issued by the OECD on taxing the digitalised economy suggested that smaller economies could benefit from international tax reform emanating from the OECD. However, the OECD now openly admits that bigger countries stand to benefit from its proposals more than smaller countries, and the carrot has turned into the stick in terms of what will happen if smaller countries do not support the OECD. Ireland is acutely aware of the dangers ahead if countries take unilateral action to achieve their vision of international tax reform. But that does not mean that countries like Ireland should be rushed into accepting international tax rules that fundamentally hamstring Irish taxing rights. Genuine consensus must be reached to ensure that international tax reform is sustainable in the long-term. Likewise, the new tax rules must be manageable from the multinational’s perspective and from the perspective of the tax authority tasked with administrating the rules. A rushed outcome to the important work of the OECD will make for tax laws that participating countries, tax authorities, and the all-important taxpayer may not be able to withstand in the long-term. Norah Collender is Professional Tax Leader at Chartered Accountants Ireland. Point of view: Seamus Coffey How Pillar One and Pillar Two of the OECD BEPS Project will ultimately impact Ireland is uncertain. One sure thing, however, is that there will be changes to tax payments. This will be a combination of a change in the location of where taxes are paid and perhaps also an increase in tax payments in some instances. But there will likely be both winners and losers. From an Irish perspective, there might have been some comfort in that the loser could have been the residual claimant – the country at the end of the chain that gets to claim taxing rights on the profits left after other countries have made their claim. As US companies are the largest source of Irish corporation tax revenue, it might have been felt that most of the losses would fall on the US. However, significant amounts of intellectual property have been on-shored here. Ireland, therefore, has become a residual claimant for the taxing rights to some of the profits of these companies. At present, Ireland is not collecting significant taxes from these profits as capital allowances are claimed. If BEPS results in a significant reallocation of these profits, we might never collect much tax on them. Seamus Coffey is a lecturer in the Department of Economics in University College Cork and former Chair of the Irish Fiscal Advisory Council.