Global network news August 2017

CONTENTS:

- EU General Data Protection Regulation: overkill or overdue?

- Latest Tax Breaks from the Chinese Government

- Blockchain Technology and the Future of “Banking”

To subscribe to the i2an newsletter please contact: mathilde.mouraud@i2an.com

Global vision, local insight

- What if you polled your employees on their wellbeing at work?

- Multinationals with a closer approach: An opportunity for local development

- Dubai Compliance Updates in 2017

- New stipulations in Romania regarding automatic exchange of information

United Kingdom

With EU data protection reforms agreed at last what do you need to know?

The General Data Protection Regulation (GDPR) is the most significant development in data protection law for 20 years. Whilst seeking to establish a level playing field for businesses within the EU, there is no doubt that the extra-territorial nature of the GDPR, coupled with the on-going debate over Privacy Shield and transfers of personal data to the USA and other non-EU countries, will maintain the EU as the gold-plated standard for data protection.

When will the new rules be in force?

The GPDR is due to come into force on 25 May 2018 in the UK, despite Brexit.

What are the key points?

• TheGDPRwillapplynotonlyto organisations located within the EU but also to organisations located outside the EU if they offer goods or services to, or monitor the behaviour of, EU citizens.

• TheGDPRwillapplytobothcontrollers and processors. Controllers are those that make decisions regarding personal data, and processors are third party vendors that process personal data for controllers.

• Personaldatawillnotonlyincludenames, addresses and images but also special categories of personal data including children’s data, biometric and genetic data. Personal data includes manual data as well as digital information.

• Consentmustbeclearanddistinguishable from other matters and provided in an intelligible and easily accessible form, using clear and plain language. It must be as easy to withdraw consent, as it is to give it.

• Parentalconsentwillberequiredto process the personal data of children under the age of 16 for online services; member states may legislate for a lower age of consent but this will not be below the age of 13.

• TheGDPRwillmakeiteasierforcontrollers to rely on ‘legitimate interests’ as a lawful ground to process personal data where there is a relevant and appropriate connection between the controller and the data subject.

EU General Data Protection Regulation: overkill or overdue?Engin Zekia and Richard Kleiner, Partners, Gerald Edelman Chartered Accountants

(rkleiner@GeraldEdelman.com ezekia@GeraldEdelman.com)

2.

United Kingdom

• Therewillbeincreasedrequirementsastowhatinformation must be provided to individuals before processing their data (i.e. via a privacy notice). Such notices must be in plain language, prominent and appropriate for the data subject, particularly where the individual is a child.

• Individualswillhaveenhanceddata subject rights including the right to be forgotten (right of erasure), rights to understand profiling by controllers and processors, rights of rectification and the right of portability.

• Dataprocessingagreementsbetween controllers and processorswillberequiredtocontain extensive mandatory data protection clauses; for example the controller’s right to audit its processors, and obligations on processors to assist with subject accessrequestsanddatabreaches.

• CodesofConductandCertifications will be developed to assist controllers and processors to demonstrate their compliance with the GDPR and also as a means to legitimise international data transfers.

• Multinationalswillbenefitfroma one-stop shop, where the data protection authority in the member state where the controller or processor has their main establishment will be the lead authority in relation to data processing undertaken by that controller or processor.

• Organisationswhosecoreactivities consist of processing operationswhichrequireregularand systematic monitoring of individuals on a large scale or of special categories / criminal-related datawillberequiredtoappointaDataProtectionOfficer.TheDataProtectionOfficerwillneedtobe an expert and have sufficient resources to perform a compliance and governance role.

• Organisationswillberequiredtomaintain a record of all their data processing activities, which must be made available for inspection in the event of an investigation.

• Databreacheswhichmayposearisk to individuals must be notified to the DPA within 72 hours and to affected individuals without undue delay.

• Finesofupto4percentofannual worldwide turnover of the preceding annual year or EUR 20m may be imposed for major non-compliance.

What steps should businesses take now?

• Businessesneedtoassesstheirexposure to GDPR by carrying out a data mapping exercise to understand the extent of their “data estate”.

• Theyneedtorevisittheirprivacypolicy, their consent notices and other internal policies and procedures.

• TheyneedtodecideiftheyneedaDataProtectionOfficer.

• TheyneedtodevelopaDataProtection Impact Assessment.

• Theyneedtoputinplaceprocedures to manage use of processors.

• Theyshouldlookintosuitablecyber security insurance.

• Theyshouldreviewtheirinternational data transfer solutions.

• Theymustimplementandupdatepolicies and procedures and training to staff.

3.

China

Latest Tax Breaks from the Chinese GovernmentStephanie Liu, Managing Partner at Azure Group China (sliu@azuregroup.com.cn / www.azuregroup.com.au/china)

Under the tight pressure of the economic reform, the Chinese government has determined to introduce more tax incentives to stimulate the market competitiveness and drive the real economy growth.

According to the latest executive meeting held by the State Council on19thApril,PremierLiKeqiangannounced a series of new tax cut incentives, which estimated will reduce businesses’ tax burdens by more than US$50 billion over the next couple of financial years.

Oppositeisasummarytableofthekey tax breaks approved at the State Council executive meeting this year.

In addition to the new tax incentives, the Chinese government has also recently set out tax plan to support the Belt and Road Initiatives. The plan covers international tax cooperation with more than 50 investee countries along the “Belt and Road” regions. Azure Group China will follow up these “going out” initiatives and update to the i2an readers in the future newsletter issues.

NO Tax affEcTEd NEW RUlEs INdUsTRIEs affEcTEd

1. Value Added Tax

The current four tiered VAT system for Normal type business taxpayers, with tax rates of 17%, 13%, 11% and 6%, will be reduced to three leveles, 17%, 11% and 6% starting on 1 July 2017. (Cai Shui 2017 No 37)

Agricultural products, natural gas and many others

2. Corporate Income Tax

The profit level test used by small businessestoqualifyforlowerenterprise income tax has been expanded from RMB 300,000 per year to RMB 500,000 per year starting on 1January201.7(CaiShui2017No43)

Small businesses

3. Corporate Income Tax

The proportion of pre-tax deductions for innovation-based tech firms will be further expanded form the present 50% of R&D prime cost to 75% valid from 2017 to 2019. (Cai Shui 2017 No34)

Technology Sector

4. Corporate Income Tax

As a supplement to the existing social health system, the government now encourages employers to purchase commercial health insurance for their staff and allows tax deductions for commercial health insurance costs withanupperllimitofRMB2,400indeductions per person per year. (Cai Shui 2017 No 39)

All Sectors

5. Corporate Income Tax and Individual Income Tax

If venture capital investment made into tech start up in either corporate form or LLP form for a 2 year holding period, 70% of the investment amount can be offset against the taxable income of the VC enterprise. The balance of any deduction, not used immediately for offset, may be carried forward to subsequenttaxyears.Effectivefrom1January for Corporate Income Tax, 1 July for Individual Income Tax. (Cai Shui 2017 No 38)

Venture Capital and Technology Start-Ups

6. Corporate Income Tax

The 50 percent reduction in tax rates on urban land use for logistics facilities that store commodities such as agricultutral and mineral products will be extended to the end of 2019. (Cai Shui 2017 No 33)

Logistics Sector

4.

USA

Bitcoin (BTC) was released in January 2009, and since then it has led to confusion, discussion, development of additional cryptocurrencies, and a revolutionary change in how many people see the future of money. Despite the attention that Bitcoin has received, the underlying “blockchain” technology is also a significant technological development. In recent years, many of the world’s major financial institutions have begun exploring the ways that blockchain technology could be utilized in modern banking. Ofcourseyoumaybewondering,“What is the blockchain, how does it work, and what does it do?”

The blockchain is a digital ledger in which transactions made in Bitcoin or another cryptocurrency are recorded chronologically and publicly. This ledger is not stored in a central location, but instead consists of multiple copies distributed across a network of users. Any potential change to the ledger cannot occur without first being verified by multiple users. Due to this design, any attempt to alter the blockchain requiresthesimultaneousalterationof the blockchain records stored in multiple locations.

This technology was originally designed to facilitate the transfer of funds between individuals without the use of a trusted intermediary such as a bank. When a user sends funds, other users above first trace the funds from their origin at the earliest point in the blockchain through to their current location. When sufficient users have verified the existence of the funds in the sender’s account, they are sent to the recipient and the blockchain is updated reflecting the movement of funds.

Blockchain technology also can be used to decrease transaction processing times and costs. This has significant implications in international business, where it can eliminate inefficiencies associated with wire transfers. The underlying computer code is also open-source, which enables entities to create similar code to complete transaction processing in their own organization. Otherorganizationsmayalsousethisavailable code to create their own currencies designed for a particular purpose. Although the early adopters of this technology were primarily individuals, today’s major banks are now taking notice.

In2014R3CEV,LLCwasfoundedas a company focused on distributed database technology. Theyquicklybeganaconsortiumwith many of the world’s largest financial companies including Bank of America, Barclays, Commonwealth Bank of Australia, Credit Suisse, Banco Santander, Toronto-Dominion Bank, Mizuho Bank, Société Générale, and many others throughout the world. This consortium has also involved IBM and Intel in exploring the possible uses of blockchain solutions.

This new world of cryptocurrencies, distributed ledgers, and blockchain technology is still in its infancy. The technical intricacies cannot be fully explained in this article, but these developments certainly have the power to change banking and money as we know it today. How banks choose to adopt and implement this technology remains to be seen. Whether individuals will prefer to use a traditional bank or exchange currency directly using other technologies also remains a mystery. Amidst this confusion, it is clear that these developments deserve the continued attention of financial professionals.

Blockchain Technology and the Future of “Banking” Garrett Paolilli, Staff Accountant at PAOLILLI, JAREK & DER ANANIAN

(garrettp@pjcpa.com / www.pjcpa.com)

5.

France

a tough call…

Fortheheadofanaccountingfirm,however, the decision to roll out an internal employee satisfaction survey is not clear-cut.

Firstly,thisisbecausewehaveour doubts about the benefits of such a move. The vast majority of our structures are small or mid-sized businesses, whose leaders are personally involved in the recruitment, integration and annual assessments of their staff. If employees had reason to be dissatisfied, we think we’d be aware of it, given the seamless communication across our firm

When it comes to polling our employees on their wellbeing at work, we are also held back by fear factors: fear of bad news coming in when we survey our teams; fear of seeing our overheads skyrocket if we satisfytherequestsexpressedbyallthose involved.

… but the benefits are huge

This reluctance is understandable. But let’s give it some extra thought. In a company, communication between two people at different levels in the hierarchy is never transparent. In view of this, carrying out an anonymous satisfaction survey is the only way to obtain a true picture of the situation as it stands today.

The fear of receiving bad news from employee wellbeing polls is unfounded: either the outcome will be positive, and we will be reassured; or the “consultation” will bring to light warning signs, and we will be glad to have identified them upstream while we still have time to address them!

Finally,theriskofseeingouroverheads skyrocket after a satisfaction survey can readily be controlled. Employees of accounting firms are well-placed to know

that their employer must prioritise its spending, putting the most important items first, and that it cannotmeetalltheirrequests.

seven golden rules for a successful internal satisfaction survey

Are you convinced of the need to conduct a survey on your employees’ wellbeing at work? In order to benefit fully from this approach, the following conditions must be met: your survey must be understood well by all employees, everyone must want to participate, everyone must completeallquestionstotheend,and the results obtained must be utilisable and meaningful.

To help you to meet these conditions, here are seven tried and tested golden rules.

1. Clearly explain the survey’s objectives: you want to gain insight into employees’ actual experience in the workplace,

What if you polled your employees on their wellbeing at work? Thierry Denjean, Chairman of Denjean & Associés

In our businesses today, demand for talented professionals outweighs supply and firms are competing aggressively to attract talent. But what’s the point of investing time and money in recruitment processes if the people we recruit leave us after a few months or years? One of the key challenges we face is retaining our employees. To meet this challenge and achieve this goal, we have a simple but highly effective tool that we can implement online: the employee satisfaction survey.

6.

France

with a view to developing an action plan to improve the overall level of satisfaction.

2. Communicate on the planning and implementation of the poll: launch date, results publication date, date on which management will announce the action plan to improve wellbeing at work.

3. Reassure your employees that the survey will be completely anonymous.Forthispurpose,manageyourquestionnaireusingan online application, adopting a survey collection method which ensures that replies remain completely anonymous. Rule outanyquestionthatcould be seen as an attempt to reduce anonymity.

4. Askquestionsthatarerelevantto the largest possible number of employees.

5. Don’t make the mistake of askingquestionsthatemployeesare hard pressed to answer because none of the possible replies apply to them. Include the answer “I don’t know” or similar whenever necessary.

6. Inspire your employees to completethequestionnaire.Give careful consideration to the topics you ask them about, preferably with the help of staff from different age groups and different levels in the organisation. And, as far as possible,wordyourquestionsso that they are original, fun, unexpected, etc.

7. Every time you address a topic on which further details would be useful, include a “comments” space at the endofyourquestionwhereyour teams can express their views in their own words. When you process the survey’s results, these comments will be your most valuable assets for developing an action plan capable of securing your employees’ loyalty. You’ll be sending them your message loud and clear: “I’ve listened to you and understood!”

7.

Spain

Multinationals with a closer approach: An opportunity for local development.Patricia Aznar, PLANARTUS www.plana-artus.com

Ontheoccasionofabusinessconference recently held in Valencia, Ms Antonella Pucarelli, Deputy Retail Manager of IKEA IBERICA, emphasized the willingness of her company to get involved locally and become synergists and promoters of the territories where they are established.

The reasons for this new strategy

Oneofthekeystothisnewwayof doing business is the integration of the “space - time” factor in the calculation of a company’s costs. The need to reach customers and suppliersquicklyandefficiently,at the lowest cost, and with the minimum environmental impact is driving multinationals to build up a new business philosophy which consists of getting closer to local markets.

WhentheFrenchGroupSICAMEsetupSUPERSAFE,aproductionsubsidiary in Catalonia, its Director stated that they are convinced of the need for sustainable industrial activity, and that the benefits of havinglocalequipmentsuppliersgo well beyond simple price considerations.

Opportunity for local company’s growth

Because of their high standards, supplying or developing close cooperation with multinationals is not an easy task. Still, companies which embark on this venture find that it is a great opportunity to boost their growth, increase their turnover, add employees, and improve their processes.

The role of IKEA has been essential in the process of transformation of theSpanishcompanyCOTOBLAU,located in Valencia, which increased its turnover from €1.3 million in 2002 to€24.5millionin2016,andthenumberofemployeesfrom4to160.

Beyond these figures, what really makes a difference is the degree of competitiveness and the high levels of excellence that the local companies achieve. In fact, the local market focus proves to be a real gateway to gain access to new customers and markets, to develop new products, services or technology, and to become de facto international.

ThetwoCatalanequipmentmanufacturers that collaborated

in the design and installation ofSUPERSAFE’spilotglovesmanufacturing plant are undergoing international expansion as part of the internationalization process of the Frenchcompany.

local assets at the front sight of multinationals

In this new scenario, local technical expertise and an updated industrial tradition are key factors for multinational companies to develop new production activity in a particular geographical area.

When SICAME decided to set up a pilot plant in Catalonia for the manufacture of a product not included in its traditional line of businessies (i.e., electrical insulating gloves), it took advantage of the expertise of former employees of a local factory that had recently closed down.

As a part of the strategy of IKEA of having the suppliers close to their distribution centre in the Industrial Park of Valls (Catalonia), they reached a cooperation agreement in 2012withFLUVITEX,SL(acompanyoftheCatalanMASIASGROUP)toproduce stuffed pillow and duvet to

Global Companies are increasingly operating worldwide with a local market focus. This strategic approach represents a great opportunity for local development.

8.

Spain

Multinationals with a closer approach: An opportunity for local development.

be distributed through IKEA’s stores inSpain,France,andPortugal.Theagreement was reached largely due to MASIAS MAQUINARIA’s 75 plus years of experience and highest standards in the textile industry, particularly in developing technologies for the treatment of fibers.

How can local authorities capture the impact on their territories

Companies are a major source of wealth and jobs creation, and that is one of the main reasons why local authorities should provide theadequateframeworktoassistand facilitate the installation of companies in their territories. The real challenge for local authorities,

however, is to make sure that the development of the private sector maybringaboutabetterqualityoflife among the population.

In 2012, VALLSGENERA, the EconomicDevelopmentOfficeofValls(whereIKEA-FLUVITEXis located) channeled financial and technical support from the EmploymentOfficeofCatalonia(SOC)inordertoprovide5technicaltextile training courses in Valls. These courses were designed to prepare unemployed people from their Job Bank to meet the technical expertiserequiredbythecompany.Asaconsequence,65%oftheparticipantswerehiredbyFLUVITEX.Today the company has 130

employees from Valls and its surrounding area.

New challenges, new opportunities to embrace

The “getting closer” strategy of multinationals is a new challenge for companies, authorities, and individuals as new opportunities will no doubt arise.

9.

Dubai Compliance Updates in 2017 Mashal Alzarooni is the founder and Managing Partner of MASHAL ALZAROONI CHARTERED ACCOUNTANTS providing advice to foreign investors in Dubai (mashal.alzarooni@mazca.ae)

Dubai is dynamic and several things happening at one time in terms of real estate, tourism, infrastructure, and the economy in general. There areseveralregulatoryrequirementsthat firms need to comply with in Dubai. This article highlights the updates on new regulatory requirementsinDubaiwhichareapplicable in 2017. These are:

• CorporateTax

• AmendmentofMemorandum/Articles of Association

• RestructuringandBankruptcy

• MergeofFreeZones

corporate Tax

Corporate tax in Dubai are coming into effect from 1 Jan 2018. Companies with revenue more than $100,000 per annum are requiredtoregisterwiththeTaxBureau Authority from 1 July 2017. Failuretoregisterandcomplywiththerequirementswillbeliableforcriminal offence. Corporate tax will be set at 5%, while there are products that will be set at 100% tax such as tobacco and energy drinks, and there are products and

services that will be exempted from the corporate tax such as food, education and health etc.

amendment of Memorandum/ articles of association (MOa)

Firmsshouldstartamendingtheirarticles/memorandum of association tocomplywitharticle374ofthenew Commercial Companies Law. Extensions of deadline have occurred several times, and the last deadline is30June2017.Failingtocomplywith the deadline set by Ministry of Economy, meant firms will face fine of 2,000 AED per day.

Restructuring & Bankruptcy

The new bankruptcy and restructuring law came into effect from Jan 2017, companies started to file cases in courts for bankruptcy. Courts will form committees and appoint experts in restructuring and bankruptcy. The restructuring and bankruptcy are 3 types:

a) protective composition: debtor tries to the rescue the company from financial issues with court protection.

b) insolvent and restructuring: company is insolvent, but court determines that the debtor can be rescued.

c)insolventandliquidation:companyis insolvent, but can’t survive requiringwindingupthecompany.

Merge of free zones

RAKFreeTradeZoneandRAKInvestment Authority which are two free zones in Ras Al Khaima- UAE have merged together under Ras Al KhaimaEconomicZones(RAKEZ).RAKEZnowaccommodatesmorethan 13,000 companies according toRAKEZstatistics.Itmigratedtheircustomer service and other systems to be one of the strong robust freezonesintheregion.RAKEZpartnered with Dubai International FinancialCentre(DIFC)sothatinvestors can choose which court they can deal with whether:

a) Ras Al Khaima Courts: applying UAE law, and the court hearings in Arabic.

b)DIFCCourts:applyingtheEnglishCommon Law, and the court hearings in English.

10. Dubai

Romania

InJune2017theFiscalProcedureCode of Romania was amended by introducing of new stipulations regarding International Aspects, FiscalAdministrativeCooperation.

In this purpose it was introduced a new article regarding: Scope and conditions of mandatory automatic exchange of information on the report for each country. According to this article:

1. An ultimate mother company of a group of multinational companies, who is resident in Romania or another reporting entity,arerequiredtosubmitareport for each country, for each fiscal year under review, within 12 months from the last day of the tax reporting group of the multinational companies.

2. The competent authority of Romania which is receiving the above mentioned report for each country , will transmit, through the automatic exchange of information , within the deadline specifiedinparagraph(4),thereport for each country to any other Member State in which, based on the information from the report for each country, one or more constituting entities of the group of multinationals entity have the fiscal residence, or,are taxed for economic activity through a permanent establishment.

3. The report for each country will contain the following information on the group of multinationals:

a) aggregate information on the amount of income, profit / loss before tax income, income tax paid , accumulated income tax,equitydeclared,retainedearnings, number of employees and tangible assets other than cashorcashequivalents,foreachjurisdiction in which operates the multinational group;

b) identification of each entity constituting the group of multinationals, specifying the jurisdiction of the fiscal residence of the entity and,in case of difference between jurisdiction and fiscal residence location, jurisdiction according to the legislation based on which that entity is organised and the nature of Its main economic activities.

4.Thetransmittionoftheinformation will be done within 15 months from the last day of the tax year of the multinational group to which the report reffers. The first report for each country will be submitted for the fiscal year group of multinationals which begins on January 1, 2016 or thereafter, within 18 months from the last day of the fiscal year.

General Reporting Requirements

A constitutive entity resident in Romania, which is not ultimate mother company of a multinational group, submit a report for each country regarding the fiscal year of reporting of a group of multinationals , from which belongs, if the following criteria are fulfilled:

a) The entity is resident in Romania;

b) The entity meets one of the following conditions:

(I) the ultimate mother company of the multinational group is notrequiredtosubmitareportfor each country in jurisdiction where its residence for tax purposes is;

(II) the jurisdiction in which mother company is tax resident, is part of an international agreement in force, to which Romania is part, but is not a part to an agreement regarding the establishment of the competent authority in force to be part of Romania , to present the report for each country reporting for the fiscal year;

(III) in the jurisdiction in which the mother company is resident for tax there was a systemic failure that has been notified by the competent authority of Romania to the constituent entity who is resident in Romania.

New stipulations in Romania regarding automatic exchange of informationDaniela Gavrilescu, Partner, S.C. Quark Consulting s.r.l. dana.gavrilecu@quarkconsulting.ro / www.quarkconsulting.ro

11.

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Information contained in this publication cannot be interpreted as legal or tax advice.

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mathilde.mouraud@i2an.com and Deb Mathews deb@pjcpa.com

OUR 2017 aNNUal MEETING

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BOsTON, OcTOBER 19th & 20th 2017