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The accountant - winter 2020

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  • 11 Feb 2020 10:20 | Deleted user
    The last few months have been quite eventful and challenging for the entire nation.  During these difficult and unprecedented times, the Institute has expressed its views publicly in a forceful and clear manner.  The Institute plans to continue putting forward its views on the appropriate standards of governance, transparency, distribution of power and independence of control functions that our country’s government should embrace and factually implement.  We will express our views, possibly in tandem with other key stakeholders, directly to those charged with governing our country.   The Institute firmly believes that the reputation and strength of our profession is inextricably linked to the reputation of our marketplace as a financial services centre within international circles.   

    We have recently implemented a few actions giving effect to important decisions made which I feel I ought to explain in detail to the members of the Institute. 
    The Institute has ceased certain tuition operations within AIM Academy.  As outlined in my previous address, the setting up of this Academy activity had served the marketplace well as the Academy was the first, and for a long period of time the only, learning provider in Malta.  But times have changed and the number of learning providers which are now active in this space has increased.  The Institute should, and will, work and collaborate with all learning providers to ensure that the quality of our profession is safeguarded.  The Institute should act as a catalyst for enhancement of education standards and as a platform for coordinating the efforts of all learning providers to ensure that the resource needs of our members are being effectively addressed.  This implies that the Institute should not be managing its own learning provider. 
    By now I am sure you have realised that the Institute has changed (once again) its member relationship management system, impacting its website, front end processes and back end functionality.   One year ago, we went live with one system developed by a third-party provider.  The outcome was disappointing; we feel we have been let down as the output was nowhere close to what we would have liked to achieve.  The output was not a reliable and stable one; your customer experience as members wasn’t great and our experience from a back end operational perspective was problematic.  So, a few weeks ago we switched off this system and went live with an off the shelf solution.  This implementation process was extremely smooth, and I must admit I am impressed by the level of resilience, capabilities and attachment to the Institute that the Institute’s employees and management have demonstrated throughout this implementation process.  I would really like to thank them as this satisfactory outcome would not have been possible without them.  As members of the Institute, you should be proud to have an Institute with reliable, competent, determined and dependable management and employees.
    You have entrusted the funds pertaining to the Institute, mainly emanating from your membership fees, into the hands of the current executive team.  As President I always have this responsibility front of mind and so do my fellow Officers and Council members.  This responsibility encourages us to take decisions, which although difficult as the ones I referred to above, are necessary for the long-term sustainability of the Institute. 
    There are a significant number of key initiatives which are being handled by the Institute within the domain of each of the five core pillars underlying the MIA’s strategy.  I will refer to some of these below.
    1.     MIA as a home to all qualified professional accountants
    The Institute is undertaking the last steps in introducing an international affiliate programme.  The objective of this programme will be to enrol and involve within the Institute expatriate professional accountants practising as accountants in Malta, who would have qualified as accountants through a route such as for instance overseas university degrees.    The Institute is also focusing on developing other affiliate programmes and will be implementing a strategic initiative to develop such programmes to widen its membership base by encompassing as many professional accountants practising in Malta as possible.
    With respect to a matter related to the supply of professional accountants in our marketplace, a significant number of our members have raised concerns on the inefficiency of the process to register expatriate accountants for work purposes in Malta. The MIA had meetings with Identity Malta and Jobsplus to identify the reasons underlying this issue and to develop a proposed way forward aimed at rendering the process more effective.  In this respect, the MIA will be organising an information session for our members focusing on the single permits online submission process and the revised procedures in this respect.
    2.     Elevating quality and raising standards within our profession
    Following the publication of the fifth round mutual evaluation report on Malta adopted by the MONEYVAL Committee, in December we organised a high profile event, inviting regulators and bankers, to discuss the findings of the report, particularly those referring to our profession.  I would like to thank the representatives from Financial Intelligence Analysis Unit, Malta Bankers’ Association, Malta Financial Services Authority and specific banks who addressed this event and interacted with our members attending the event.  I had specifically asked these representatives to highlight examples and fact patterns where they believe that members of our profession should act better.  From the contributions during this event it emerged quite clearly that certain members of our profession do not produce high quality work, do not attempt to understand the risks emanating from certain services provided and do not escalate matters with the appropriate authorities when they are meant to.   Whilst I would like to believe that this behaviour is attributable to a minimal minority within our profession, I am sure we all can and should raise the bar and enhance standards.  Of course, during the event our members contributed a lot, did challenge these representatives and highlighted areas where the profession needs more clarity from such institutions.   I will repeat key messages to our members emanating from this event: understand economic rationale, focus on substance, effect rigorous onboarding, apply make sense tests. 
    On another important note, we have engaged our legal advisors to assist us with drafting proposed amendments to the Accountancy Profession Act which will define with absolute clarity the list of activities which can only be performed by professional accountants.  The ultimate objective is a comprehensive and fair definition of what constitutes the accountancy profession, which will then allow us to ensure that only professional accountants actually call themselves professional accountants and that specific activities are only carried out by such professional accountants.  This has not been possible in the past, as legislative amendments are deemed necessary to strengthen the framework.    
    In this respect, I do encourage you to continue coming forward with complaints on the quality of work executed by members of our profession – providing me or us with all details – and I commit to investigating thoroughly all complaints.  But please ensure that such information can be substantiated and evidenced.
    3.     Enhancing the education and qualification process
    We need to come up with a strategy addressing the long-term attractiveness of the accountancy profession with a view to ensuring that the best intellectual talent seeks to become part of the profession, designing the profession of the future in the process.  The Institute needs to market and explain our profession more – it is a very interesting and rewarding profession – but this is not necessarily the message we manage to convey all the time.  We will be taking a number of steps in this area as we work closely with the majority of significant employers of professional accountants.  Strategic issues for our profession comprise attracting the right (and sufficient) crop to our profession and enhancing qualification routes for these prospective accountants.
    4.     Fostering collegiality and comradeship among accountants 
    The Institute organised an event for all Committee members appointed to the Institute’s committees for a 2 year term to discuss the strategic objectives for the term.  I must admit it was an amazing experience to see so many important and well known accountants in one room, all eager to contribute. The Committees are the back bone of the Institute as all key initiatives, technical or otherwise, involve the work of the Committees.  We are extremely grateful to our Committee members; they do all this work for no remuneration for the benefit of the Institute, to contribute to the activities of the Institute. 
    Also, the Institute has organised a meeting with the management of the Malta Business Registry (MBR) to discuss the issues that our members have referred to us in the past few weeks. 
    5.     Striving to make the Institute’s voice heard, loud and clear
    No doubt you will recall that the MFSA has published a Consultation Document entitled Raising the Bar for Company Service Providers proposing a number of significant changes to the manner in which CSPs are authorised and regulated.   As an Institute we have reviewed and assessed these proposals in detail, also by setting up an appropriate consultative forum with wide representation from the membership base and the profession.   We have submitted the Institute’s feedback which centred around acknowledging the stature of professional accountants as warrant holders already regulated by the Accountancy Board.  We have also discussed our feedback in an extensive manner with the Malta Chamber of Commerce, Enterprise and Industry.  We continue to interact with the MFSA in respect of this initiative with a view to helping the development of a more robust framework for CSPs in general.  We are also working and collaborating with the MFSA on a number of other matters involving our profession.

  • 10 Feb 2020 15:01 | Deleted user
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    Commentaries on ‘the state of the Maltese economy’ extol the success of the ‘country’s recent economic performance’. They refer to rates of growth in the 4% plus region, fiscal surpluses, reducing national debt to GDP (Gross Domestic Product) ratios, and the steady expansion of employment possibilities which registered higher female activity rates than hitherto and a strong surge of inward migration. At the same time, though, they ‘lament’ that Malta lacks a long term economic vision which ‘must focus on sustainability and respect for our resources, the environment, and the quality of life for all’ given that the number of Maltese ‘at risk of poverty’ is approaching the 90,000 mark and the built-up area stretches from Valletta to St Paul’s Bay. They also warn that the Maltese Islands are facing a credibility-and-trust challenge primarily arising from a malfunctioning regulatory institutional set up.

    Such conflicting synthesis leads one to query whether the economic success of recent years has been envisaged, policy induced and controlled, or  whether it was the outcome of a series of uncoordinated ‘ad hoc’ measures taken over time that impact society and, hence, the economy adversely in the long run. They give rise to a situation of short term success but long term instability, a scenario that is echoed in various reports submitted by the EU Commission and the International Monetary Fund. Measures include the volume and quality of basic infrastructure in public utilities, educational and health facilities, the pension and health funding system, and extensive training in relationship building for all. In the short term there has been asymmetric application of financial and fiscal tools, such as a low interest rate regime and an expansionary fiscal stand boosted by non-tax revenue sources, which contributed to produce the recorded macroeconomic indicators referred to above, and to the surge in property prices and the ensuing rise in rents.
    It has to be recalled that societies, and hence economies, are continuously ‘restructuring’ themselves. The size and composition of the population – by age, gender and nationality – impinges on the mix of consumer units – conditioning tastes, incomes and hence the demand for goods and services - and service providers – aptitudes, skills and enterprise. The multitude of decisions taken are mainly conditioned by the framework of legislation ruling international and local relations, as reflected in the movement of goods, capital and labour services, in the process affecting the respective pricing structures. Such decisions are time-framed and refer to the public and private sectors.
    As noted above, statistical data suggest that aggregate demand for goods and services has remained steadily buoyant both in terms of domestic demand and exports. This has been especially so for the services sectors, primarily the sectors engaged in leisure and finance. However, there are signs that the expansion rate is slowing down and the economy may be entering into a phase of ‘consolidation’.
    The constraints that had become apparent referred to the supply of qualified personnel ‘at the right price’. This phenomenon has been addressed by a relatively heavy inflow of labour, which by itself boosted aggregate demand further (investment in accommodation and demand for day-to-day consumer goods). It also put pressure on population-related services like law and order, health and education.
    The total population numbers 500,000 of whom around 100,000, or 20%, are non-Maltese. (For comparative purposes, the share of foreigners in the Italian population of 60 million is less than 9%). Coupled to a low birth rate, and a net outflow of Maltese, mainly the young, this means that the Maltese population hovers around the 400,000 level, of which 130,000 are aged sixty years and over. And, there are more males than females in the age brackets relevant for labour market considerations. Males outnumber females by around 6,000 up to age 65. Evidently, such demographic trends have to be deliberately considered when evaluating a social-cum-economic vision for Malta and Gozo.
    Besides, the recorded value for the Gross Domestic Product underestimates the true value of total output. Estimates vary over time but they could even range between 20% - 30%. Moreover, as the number of foreigners increase, both as employees and shareholders, it is the value of the Gross National Income (GNI) that matters as an analytical gauge. Non-Maltese workers and shareholders transfer elsewhere part of the income they earn in Malta as wages and profits. Presently, the value of Malta’s GNI is less than that of the GDP. Today’s foreign investment entering Malta, boosting the present aggregate demand, will create a stream of revenue outflows in the future.
    To identify whether economic activity in Malta is eyeing long term sustainability one has to address two sets of issues, namely, the stability of the existing set of rules conditioning the international movements of goods, capital and labour; and the projected life-span of the present net immigration model that has been supporting the recorded economic growth.
    Malta is a member of the single market of the European Union, of the Euro-area and of the British Commonwealth. The United Kingdom terminated its EU membership and will be redefining its relationship with the EU in the coming months. In a sense Malta’s own relationship with the United Kingdom will therefore reflect the ultimate agreement entered into between the UK and the EU. And it will also emanate from the evolutionary steps taken within the EU and the Eurozone to proceed with the ‘European project’. This latter development envisages further institutional integration of policy making and procedures regarding international relations, trade, the single market, finance, taxation and also political representation.
    ‘Europe’- whatever that term may mean – did not respond with the same degree of success as some other countries to the international challenges in financial stability and geopolitical decision making. Europe is still fragmented in thought and policy formation and implementation. This condition tends to accelerate population migratory movements within the bloc and, in turn, the rapid ageing of selected regions. It is experiencing bouts of indecision among its various member states, with some national governments finding difficulties even in their own formation and sustenance. And there does not seem to be a clearly-defined set of objectives with a related time frame for implementation on which member states totally agree. The ‘nation state’ is the base of every government’s consideration. Whatever contributes to the growth of output and welfare within a particular state is ‘fair’ even is this comes about at the expense of another state within the group.
    So the evolutionary path that the EU group finally decides to follow would represent a re-drawing of the parameters within which decision-making by both the public and the private sector in the Maltese Islands will be made. This critical consideration for future development is omitted from descriptions of future economic growth scenarios.
    Similarly missing from analysis is any reference to the demographic-economic model in place, whereby at present some 10,000 immigrants are allowed in to support further economic expansion. It is not clear what commentators mean by alluding to the attraction of new economic sectors unless they specify how such sectors are to be integrated with the present demographic realities. Vague references to educational support cannot be taken to be indicative of a sound policy framework. Quality of trained personnel matters, and it should never be sacrificed to breach the constraint of numbers.
    This same demographic-economic model conditioned for some time the costs of labour by restraining wage increases. But by expanding economic activity under a wage-constraint mechanism – which is itself ‘controlled’ by means of the Cost Of Living Adjustment (COLA) mechanism in place for almost three decades – it could well be that operators did not focus as much attention as they should have done on labour productivity in the first place and total productivity to follow. This signifies that the sectoral restructuring that was expected to take place was being undertaken at a slower pace than economically desirable. And wages remained stuck.
    Now that the demand for accommodation, that arose fast in the wake of the flow of immigrant personnel, has been gradually rendering rented accommodation beyond the means of the average Maltese worker, and the prices of accommodation itself has put purchase out of reach, the issues of housing affordability, family unit formation, life styles, and poverty have surfaced. They are interrelated. They represent the group of people, many of them young, who have to make key decisions regarding their future when faced with uncertainties regarding their ability to compete in fast-changing labour markets.  They may simply have not prepared themselves sufficiently well, through formal and informal education, to compete in areas of activity where the salaries suffice to meet the growing demands. Future technology may compound their problems as certain jobs may be even replaced by machines. Self-fulfilment is a long-term process and the multifaceted approaches that lead to it must be on-going and periodically tuned to meet the ever-changing needs of the individual, in particular, and of society as a group.
    Interpreting economic results from macroeconomic data has its validity, but reality is somewhat more complex than a few data may reveal. It demands more information which must be timely and as exhaustive as possible. Analysts have to compile such information to ensure an appraisal that approximates reality.

    E.P. Delia published studies on the demographics, macroeconomic policy and sectoral development in the Maltese Islands. Recent publications include ‘Ethical investment in a dynamic society’ (2012) and ‘Evaluating Malta’s political economy’ (2017)
  • 10 Feb 2020 15:00 | Anonymous
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    Unless you have been living under a rock for the past three years, you have surely heard of GDPR and, perhaps, suffered a few headaches because of it, too.
    Although most businesses put in some work in the weeks leading up to the 25th May 2018 and left it at that, one should ensure constant compliance with the provisions of the regulation. The main challenge for organisations is how to successfully weave compliance with data protection law into their day-to-day functions. But the secret is simpler than you might think.

    Let’s start with the basics
    What personal data do I process?
    Personal data is any information that can directly or indirectly relate to the identification of a living individual. In most cases, the personal data generally processed by the accountancy profession is that pertaining to clients, as well as employees in the case of accountancy firms. This definition is very wide, meaning that personal data varies from one’s name and surname, to national identity documentation to photos and biometric data of an individual.
    How am I processing this personal data?
    The GDPR applies to the systematic processing (collection, storage, adaptation, destruction) of personal data. So, whether you receive information relating to an individual via email, or keep accounting information related to clients on file as per your legal obligations, you are processing personal data.
    Why am I processing this personal data?
    In the regulated accountancy profession, the processing of personal data relating to clients is usually done for compliance with a legal obligation or for the performance of a contract. In the case of employees, the lawful basis underlying the processing might also be legitimate interest or, though less likely, consent. You may be processing the data in your role as a Data Controller or a Data Processor – your role changes depending on the specific processing operation, but under the GDPR, there is a flow-down of obligations and liability from the Data Controller to the Data Processor(s).
    Tips for ongoing compliance
    A.     Record Keeping
    You are not only obliged to comply with the provisions of the GDPR, but you need to be able to demonstrate said compliance. Create a GDPR Compliance Folder and document what personal data you process and why, how you obtained it and who you share it with and ensure that you keep these records updated.  
    B.     Policies & Procedures
    Review your client-facing documentation to ensure that any privacy notices are up-to-date and provide the data subjects all the information they are entitled to. If you have employees, carry out the same exercise with any Employee Privacy Notices or Handbooks. Initiate internal procedures and policies to complement the processing and, more importantly, to address certain situations, such as (i) how to handle a request for the exercise of a data subject right; (ii) when a data breach is suffered or suspected; or (iii) when a request for access to CCTV footage is received, for example.
    C.      Retention of data
    The GDPR does not set specific limits on data retention, but the legislation regulating the accountancy profession sets out specific periods in relation to particular documents and information. There are other sources that can assist in this exercise, namely guidance issued by bodies such as the ACCA which set out minimum retention periods for certain documents, such as audit working papers. Ultimately, any retention schedule you draw up must be justifiable.
    D.     Regulating Relationships
    If you are processing personal data on someone else’s behalf or have engaged someone else to process it on your behalf, you should regulate your relationship by putting into place a written contract with any such third party. Make sure that any such Data Processing Agreements are reflective of the processing being undertaken (duration, purpose, type of personal data etc) and that such agreements are updated accordingly should the relationship change.
    E.      Maintaining Security
    A data breach is a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure, or access to, personal data transmitted, stored or otherwise processed. This event is usually characterised by (i) a loss of confidentiality; (ii) loss of integrity or (iii) loss of availability of the personal data being processed. Lay down a procedure for when a data breach is discovered, establishing tight timeframes in which reporting to the Supervisory Authority should be made. Additionally, an assessment of all factors relating to the security of the personal data is crucial.
    The biggest change you can implement, however, is to change your mindset. GDPR is not an additional burden on your daily functions, but rather an integral part of your operations. When adherence to data protection principles becomes part of your modus operandi, compliance with the GDPR is a piece of cake!

    Dr Sarah Cannataci is an Associate within the Technology, Media & Telecommunications department of Fenech & Fenech Advocates. Her work primarily involves assisting and advising clients in relation to information technology and data protection law as well as trademarks, copyright, and design rights amongst other intellectual property issues.

  • 10 Feb 2020 14:55 | Deleted user
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    The current state of the economy of the world not least of Malta is suffering a lot from lack of ethical conduct.  Money is not the only measure of economic and social progress.
    The reason for so much regulation is indicative of this problem.  The current level of regulation everywhere became necessary because man lost his sense of proportion and concern to others.  Principles are gradually being replaced by rules.
    Apart from regulation many organs in the society considered it necessary to introduce a code of ethics.  There are two reasons for such a code, namely either to genuinely return an organisation and its staff on the path of common-good practice or simply to satisfy regulatory demand or expectations.
    Indeed, man does not need codes and direction to be ethical.  Ethical behaviour should be second nature to man.  It is part of our being human and part of our upbringing and education.  But progress has been interpreted by some, as personal achievements rather than common achievement, that is achievement for all of us together.  The emphasis has been largely on personal advancement rather than societal advancement.
    Because of the lack of attention to the world around us we are seeing the return of sufferings, wars, inequality, even damage to the climate.
    A reversal is urgently required even if there is no sign of it even in the wake of so many manifestations around the world.  It can be a very discouraging exercise and it is likely that people in general will give up and continue down the same path.  Eventually nature and society will abound but not after a lot of us experience very damaging experiences.
    Lack of ethical conduct is likely to lead to business failures.  It is no use then to blame our clients and make told-you-so claims; that is not what is required of accountants.  Starting from the official code of ethics, we are expected to be competent, objective, independent, confidential, suitable and lastly but not least, accept a duty to society.  We are also expected to share our profession and not muscle colleagues for personal gain.  Charity begins at home and if we are to be a guiding light to clients, we first ought to behave ethically amongst each other as members of the same profession.
    When it comes to our interaction with clients we need to approach naturally.  In general, ethics is a matter of being natural, yourself, letting your conscience lead you.  We are lucky as human beings to have an inner voice which unfailingly tells us what is right and what is wrong.  We do not always listen to it because of the opportunity in front of us.  Opportunity may be very short lived if not well thought out and passed through the sieve of our conscience.  If only accountants all over the world work by conscience more than by opportunity.  We would not be in the dilemma that we are in now.  Look at the auditing profession, the state in which it finds itself, having lost its self-regulation because of major scandals which sadly continue to flow and which seem to have no end in sight not least because of inattention to, or insufficient focus on the good corporate governance, transparency and accountability of clients.
    If the auditors always let public interest before client interest guide them, the auditing profession today will be in a much better and respectable position.  There are many threats and government initiatives awaiting the audit profession such as the Audit Reporting and Governance Authority (ARGA) in the UK but none of this will stop the suppression of the profession as we know it, and bring about a turnaround unless we adopt basic and genuine ethical conduct as a base for the way forward.  It is not even worth the cost of setting up all these super authorities unless the accountant/auditor on the ground is innately willing to change and align more with societal needs such as environmental impact, employee well-being, safety and fair pay, quality of goods and services, safety of products, fair pricing and a host of other objectives beyond money and wealth which companies in major advanced economies are beginning to embrace as a yardstick of public recognition and therefore capital availability and demand for their business and products.  No matter how many codes are produced and harshened.
    More codes, more circumvention unless we change.  We also tend to use codes only when we hit trouble, a bit like turning to God only when we become sick.  And then we use them for the wrong reason.  Not to check what we should have done right, but to check how we can interpret the code to justify our shortcoming.  Here again comes in the conflict between morals and law.  We have abandoned morals in favour of the book.  Little do we think, when we do this, that books are man-made, whilst morals are natural, spiritual, call them what you like but supreme and higher than man can make.
    Honesty is basically what we are talking about.  When we listen to our conscience, we are being honest.  Honesty is one value of the many that we are born with and which with education and good upbringing and training we learn how to bring out and use during our lifetime.  There are many values that we can apply in our offices and in our clients’ board rooms but the value of always thriving to do the right thing without fear or favour is the best service that you can give to your client.  It is the most lasting service.
    We often find ourselves in tight situations where we need to please our client.  We would be pleasing our client more if we express our conscientious views than the effort to bend and twist standards and regulation to suit undesirable or frivolous suggestions.  As advisors we are meant to guide ethically and not to square circles whilst beautifully bound codes uselessly stare at us from the shelves of our offices.

    Mario is a long standing auditor currently entrusted with governance and oversight assignments as a member of the boards of various companies. He is also a committee member of the Malta Institute of Accountants Ethics Committee.

  • 10 Feb 2020 14:30 | Anonymous
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    I am…
    I am 31 years old and most people know me for my love of animals, especially dogs. The sea is another passion of mine and I am fortunate to live close to it. I am an outdoorsy person and enjoy spontaneous adventures like camping or off-roading whenever I find the time, but I also like shopping, makeup and photography. The most rewarding feeling for me is helping others. Our little actions, sometimes even just a friendly smile, can make a world of difference to others.

    My role at MIA is…
    I am the MIA’s PA and Office Administrator after first starting out as a Finance Assistant in 2015. I find accounts fascinating and it has always been my aspiration to become and accountant. I am rather hands-on in my approach to work and am always ready to assist others with their needs. I do not really have a typical day because requests vary from help with IT systems to general maintenance and everything in between. In fact, the running joke with my colleagues is that, for anything they need, they can call 112 – my extension number.
    I am motivated at my job…
    I find my role very interesting and I am not easily dispirited by challenges. There is an answer to every problem and, most of the time, holding your nerve is already half the solution.
    To me the Accounting profession means…
    An open career path full of opportunity.
    My life motto is…
    When life gives you lemons, make lemonade.
    In my free time…
    I like to spend time with my dog and my family. I love baking, too, and in Summer there’s nothing better than long relaxing walks by the sea.
    I contribute to MIA’s mission…
    I do my part in the Institute’s mission to raise the standards of the profession by helping members, students and staff with their day-to-day queries.

  • 10 Feb 2020 13:42 | Anonymous
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    January 2020 marked the transposition of the 5th AML Directive (Anti-money Laundering Directive). After the implementation of the 4th AML Directive, the European Union faced new challenges mostly due to the innovative trading methods such as virtual currencies and the increase in off-shore accounting for tax avoidance. Furthermore, the need to respond to the public concern with respect to terrorist financing and lack of transparency on beneficial ownership, including trusts, was recognised.
    Tax practitioners are faced with the increased need of transparency in customer`s trading and business operations. Upon the implementation of the 4th AML Directive, it was clear that the AML Directive was applicable to auditors, accountants and tax advisors. Then again, it was unclear if that directive was applicable and obligatory to be adhered to, by uncertified entities offering tax advice.
    The 5th Directive, clarifies that it is applicable to anyone offering assistance, aid or advice on any tax matters as part of their professional and principal business activity. This important clarification was aimed to target any loopholes which could have been abused by uncertified tax advisors against certified tax advisors.
    In line with Article 2 of this Directive expanding the applicability to both direct and indirect tax advisors, all Member States need to include the definition of `tax adviser` as provided in the AML Directive and reflect this definition in the national AML framework.
    Financial Intelligence Units (FIUs) have reported to the European Union that they have been encountering difficulties in the process of exchange of information due to differences in national definitions of tax crimes. Unfortunately, these definitions are not defined or harmonised by European Union (EU) law. This lack of harmonisation cuts confidence of tax practitioners who report suspicion of tax crimes to the national FIU, and  the competent authority would not be able to get back accurate or reliable information.
    Another targeted issue is the increased transparency of trusts and similar arrangements which are integrated through company structures, increasing hierarchy levels leading to the ultimate beneficial owner. The European Union has created a Central Platform through which the information of trusts ownership shall be publicly available to all interested parties including tax practitioners in the resident country of trustee within the Union. The enhanced scrutiny will aid auditors and tax practitioners to flag any misuse of legal entities and arrangements for the aim of tax avoidance. It has been established that it is necessary that information on beneficial ownership remains available for a minimum of five years after the registered, trust or legal entity has ceased to exist for referral purposes.
    Tax practitioners are responsible to report any high risk individuals or legal structures which they deem as non-compliant or any suspicion of cross-border transposition of funds. The Union has given the Member States the responsibility to report any inaccurate or outdated information found on beneficial owners within the public registers. Also, the Member States are responsible to take necessary measures towards the individuals or legal entities which are found liable to inadequate or outdated due diligence information on beneficial owners. In this light, the Union has requested Member States to strengthen their relevant authorities’ anti-corruption unit and tax authority.
    The competent authorities, including the tax authorities, shall have in place effective mechanisms allowing them to coordinate the development and implementation of policies to combat money laundering and terrorist financing. Adequate training shall also be provided on the implemented safe-guarding policies tax practitioners are expected to follow and on the process of reporting suspicions transactions.
    The Regulatory European Union Board has also taken the responsibility of an integrated system of analysing transactions and dealings with third countries with the aim to eliminate loopholes in the member state administration measures. Furthermore, Member States shall not restrict the exchange of information between competent authorities on requests involving tax matters. These newly implemented measures shall provide more reassurance that adequate customer due diligence has not just been performed upon client on-boarding, but that monitoring is ongoing..
    The 5th AML Directive has pointed out that obliged entities and practitioners have only been reporting little to no suspicious transactions to the respective FIU. This may indicate that either suspicious transactions are not being correctly and timely detected, or the tax practitioners are lacking from their obligation to report these transactions.
    In a nutshell, all certified and uncertified tax advisors giving tax advice as part of their professional activity are liable to follow the 5th AML Directive. Subsequently, should practitioners not follow, the competent authority is obliged to impose sanctions, fines or other necessary measures to non-compliant practitioners in order to protect the trading market. Practitioners are also responsible to keep an eye on the EU AML Blacklist as a central database including reported cross-border individuals.
     I’m not sure of the relation here – whether it should be an ‘and’ or ‘but’ etc.

    Ms. Shanice Finch graduated with a bachelor’s in accountancy and Marketing and consequently successfully completed her master’s in accountancy at the University of Malta in 2017. Ms. Finch joined Erremme Business Advisors in 2013 works as a tax advisor on several local and international assignments. She is a member of the Malta Institute of Management and an AIA of the Malta Institute of Accountants. Ms. Finch is currently majoring in taxation by furthering her studies with the Chartered Institute of Taxation (CIOT), reading an Advanced Diploma in International Taxation. Ms. Finch showed interest in the Distributed Ledger Technology (DLT) inspiring her to specialise in the VAT implications and treatment of tokens received in exchange for investment in Initial Coin Offerings. Her analysis extends to Vat treatment throughout the EU, impacting cross-border transfers and redemption of rights tied to tokens.
  • 10 Feb 2020 11:21 | Deleted user
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    Owning property is part of the Maltese culture, you could say it’s in our DNA. The rate of home ownership in the Maltese Islands has always been high, standing at 78.8% in 2018 (NSO).
    A quick look at the 2008 financial crisis is enough to highlight the robust nature of the local market. The global downturn which caused the biggest disruption to the US market since the Great Depression and resulted in a 6 year slump in the UK housing market, not to mention the collapse of the Greek market, had little effect on the Maltese property market.
    Over the past decade we have experienced a boom in property investment. The increased demand for property had a knock-on effect, resulting in more units available on the market at various price brackets. Foreign interest and investment also increased during this time.
    A constant characteristic of the Maltese property market is the limited land available for development. Over the past decade we have seen ‘the rise of the high-rise’, where new projects aim for the sky. These high-rises are a relatively new product on the market, substituting villas and houses of character to cater to the demand for luxury property with spectacular sea views.
    Now the landscape is changing. The growth of the property market has slowed down and prices, which until recently had been rising steadily, have come to a plateau, as observed in the Construction Industry and Property Market Report for 2019 prepared by KPMG. We believe that this is the industry returning to normal levels of demand following a period of strong performance, and far from a ‘bursting bubble’ as some have irresponsibly deemed it. It is important to note that demand for property is still relatively high, with buyers looking towards different localities if their budget does not accommodate properties in the Harbour region.
    The rental market
    Over the past 5 years we have seen the rental market flourish like never before, due to an influx of foreign people choosing to make Malta their home, as well as a tourist destination. This has resulted in an unprecedented rise in short and long term rentals.
    We have seen the impressive results of a national effort to bring investment to Malta. Certain industries, such as tech, iGaming, and aviation among others, have attracted foreign talent who, together with their families, make up a significant section of the long term rental market in the areas around Sliema, St Julian’s, and Gzira. This has led to an increase in rental prices, often to the detriment of the local renter who cannot afford to pay such high rates.
    Tourism, for many years a pillar of the local economy, has recently seen a sustained increase due to strategic marketing of Product Malta with very positive results - “tourism has been increasing steadily over the past years and has more than doubled since 2009” (NSO 2019). We are seeing a strong link between the tourism and property markets, stemming from the emergence of the sharing economy. The success brought about by AirBnB-style private accommodation is another factor in the rapid growth of the rental market, with a marked increase in the demand for short term rentals. Since it is relatively easy to set up a tourist rental (hosts are required to obtain a license from the Malta Tourism Authority, as well as the possibility to opt for a flat tax rate of 15%), this has really caught on in Malta.
    In view of this unprecedented situation, the government has initiated regulation of the rental market. As from January 2020, short term rentals of 6 months, long term rentals of more than 6 months, and flat-share situations are regulated by the Private Residential Leases Act. This means that all lease contracts must be registered with the authority, lease terminations have stipulated minimum notice periods relative to tenant and landlord, and failure to comply carries a penalty fee. Property sales & commercial property remain unregulated.
    The government has also embarked on a project offering affordable rentals to low income earners in Fgura. While this addresses a market gap, the number of units being proposed will go a very short way to address this issue. Hopefully, the project is a success and justifies further investment in similar endeavours.
    What are our predictions for the future of the Maltese property market?
    Due to recent political developments, the slowdown in the property market predicted in the KPMG market report will persist. What is uncertain is how far it will go and how long it will last. The local market is strong; we have yet to see how the foreign market will react. However, we are not discouraged. As demonstrated by the economic crisis, Malta can weather a storm.
    In order to mitigate this slump, we need to attract upmarket residential and commercial investment from overseas, while proactively reaching and sustaining the specialised luxury market. As a nation, we must unite and focus our efforts on rebuilding our brand, showcasing what makes our beautiful islands so special.

    Chris Grech established Dhalia with his brother Mark in 1982 as a small estate agency. Chris Grech has actively held a leadership role for 35 years, while also managing other investments locally and in Bulgaria.
  • 10 Feb 2020 11:06 | Deleted user
    The Accountant – What's Next?  –  Winter 2020 (MIA Publication)
    Reference is made to the series of articles published on the European Single Electronic Format Reporting Regime (ESEF)1.
    European listed companies (issuers of shares and bonds operating in regulated markets) will have to report their entire annual financial reports (‘AFR’) in ESEF starting with financial statements for 2020. The AFR will be prepared in XHTML format, and IFRS consolidated financial statements data included in the XHTML document will be marked up with XBRL tags. XBRL tagging will be done using iXBRL technology (InlineXBRL2).

    The European Single Electronic Format becomes European Law
    The last article, issued in Spring edition of the Accountant, referred to the publication on 21 March 2019 of the ESEF XBRL taxonomy files and related documentation to support issuers in the implementation of the requirements set out by the draft Regulatory Technical Standards (RTS) on ESEF.
    On the 29 May 2019, the European Commission introduced rules to support the digitalization of corporate reporting.
    The European Securities and Markets Authority (ESMA) has prepared an ESEF Reporting Manual and ESEF taxonomy files to help companies in their preparation, intended to be updated on a yearly basis in order to reflect possible updates to the International Financial Reporting Standards (IFRS) taxonomy.
    A copy of the endorsed Commission Delegated Regulation (EU) 2018/815 (‘Regulation’) can be found on the Malta Financial Services Authority (MFSA) website under the Capital Markets section, sub-section Continuing Obligations, Commission Regulations. This Regulation has come into force with effect from 18 June 2019. It shall apply to annual financial reports containing financial statements for financial years beginning 1 January 2020 or after as provided under Article 8 of the said Regulation.
    Preparers are encouraged to keep up with the informative updates which are being published on the ESEF reporting regime, including amongst others, a series of frequently asked questions. ESMA has issued its 3rd video tutorial addressing common questions received by NCAs and ESMA . Details of the 3rd video tutorial can be accessed through the MFSA website, under the ESEF section.
    Auditors’ involvement on financial statements in ESEF
    The European Commission services issued a “Questions and Answers” document on the European Single Electronic Format (“ESEF”). Question 7 of this document specifically refers to the requirements emanating from the ESEF Regulation, a binding legal instrument, as being “statutory requirements” within the meaning of Article 28 (2)(c)(ii) of the Audit Directive. Therefore, in addition to existing requirements, statutory auditors of those companies falling within the scope of the Transparency Directive (“Issuers”), are to provide an audit opinion stating whether the corresponding financial statements comply with the requirements set out in the ESEF Regulation.
    CEAOB guidelines
    On 28 November 2019, the Committee of European Auditing Oversight Bodies (“CEAOB”), with a mandate of ensuring consistency between national audit oversight bodies at EU level, adopted guidelines (“CEAOB guidelines”) on the auditors’ involvement on financial statements in ESEF. Although the guidelines are non-binding and do not constitute an auditing standard, they are considered by the CEAOB as relevant for the auditors’ work on ESEF.
    In addition to other guidance, the guidelines specify that the auditor shall determine whether the marking up of information in the electronic report is in compliance with the ESEF requirements. Based on the procedures performed, the auditor should reach a conclusion and express an opinion on the compliance of the marked-up information with the ESEF requirements.
    In terms of reporting, the CEAOB acknowledges that specific national legal provisions would have to be considered; however, it is recommended that the conclusion on the Issuers’ compliance with ESEF requirements is provided in the audit report, albeit separate from the audit opinion. Furthermore, the Appendix, to the CEAOB guidelines, provides a summary of the ESEF requirements relevant for the auditors’ work.
    A full copy of the non-binding guidelines issued by the CEAOB can be accessed from the MFSA website, under the ESEF section.

    Stephanie Buhagiar Camilleri is a Certified Public Accountant and Auditor, currently employed as a Senior Technical Expert at the Securities and Markets function within the MFSA.
  • 10 Feb 2020 10:58 | Deleted user
    The Accountant – What's Next? – Winter 2020 (MIA Publication)
    Artificial Intelligence (AI) has been gaining rapid popularity over the past few years, and with good reason. Although AI has been around for a long time, with some of today’s commonly used algorithms dating back to the 70s, recent advancements in computational power as well as the abundance of data available have helped AI to flourish and demonstrate its capabilities.
    In order to understand how AI can provide value to accountants, we must first understand what AI is and, more importantly, what it is not. Automation and Artificial Intelligence are terms often used interchangeably and, although they go hand in hand, the concepts are distinct.
    Automation is the process of replacing manual tasks with systems that can perform those tasks autonomously with minimal human intervention. It streamlines a series of processes ensuring they execute in the correct order, and performs calculations, checks, as well as the generation of necessary notifications or reports. No fancy algorithms are needed. There is no limit really to what can be automated, but it usually boils down to resources or cost. But the long-term cost benefits of automation can be huge, reducing the grunt work performed by employees, allowing them to focus on the bigger picture rather than on inputting formulas into a spreadsheet or punching in numbers on a calculator.
    In fact, it still boggles my mind how going into 2020 so many companies still operate in an old-fashioned way, calculating payrolls and taxes, manually crunching up numbers on spreadsheets and so on. These are processes that an automated system can handle very well, in a much shorter time frame, and with minimal chances of human error.
    Where then, does that leave Artificial Intelligence? Artificial Intelligence is the process of solving non-trivial problems using methods and algorithms that mimic the way in which human beings understand and learn problem-solving. To use AI, you must have a problem to solve, one which cannot be solved using traditional techniques as they would be ineffective or inefficient.
    An example of something Artificial Intelligence is very good at is pattern recognition, especially when dealing with complex sequences spanning huge ranges of data that involve a multitude of variables. Manually sifting through all the data would be extremely impractical and traditional time series analysis usually has trouble determining the relationships between all the different variables. Even when this works, since many of these factors change over time, models quickly become outdated. AI, on the other hand, is not only capable of determining underlying hidden patterns and relationships between different variables, but can continuously monitor and update itself, learning on the go and remaining relevant to the most recent data.
    This is useful for generating predictions, allowing companies to forecast financials, based not only on the company’s past and recent performance, but a whole range of other factors too, including the economic climate, industry trends, seasonality and competitor performance. Seasoned analysts can also dive through all this data and generate estimates, but AI is not only quicker and is able to pinpoint underlying correlations between the company financials and internal or external factors that analysts might not see.
    AI also excels at dealing with quantifying very subjective values, with risk assessment being a good example. The days of relying on the Sharpe ratio to quantify risk are soon gone. AI algorithms analyze many factors to generate probabilities that  help = the company’s decisions.
    AI is also good at conglomerating non-standardized, incoherent data from multiple sources, retrieving the desired information, and storing it in a central location. Nowadays, data such as requests, receipts, invoices or quotes come in from multiple different streams, including emails, direct messages, handwritten notes, printouts, or specialized software systems.  Why should the accountant have to go through the cumbersome process of typing details from invoices and receipts into the accounting software system, when AI can scan them and pick the correct details accordingly? Although Optical Character Recognition (OCR) systems have been around for a while, they usually require a strict, standardized format. Try feeding receipts handwritten by multiple different people to an OCR! AI can identify the required details more easily and will only get better with time.
    As the adoption of automation and AI becomes more widespread, the role of the accountant will change. Instead of focusing on number crunching, accountants will focus more on value adding activities and reduce the repetitive, monotonous work . Their role will begin to shift to that of consultants and auditors. Although AI is powerful, it is not foolproof, and the output and results produced will need to be cross-examined by accountants who are knowledgeable in the domain, especially during the early days of adoption. The AI algorithms also need accountants to give them problems to solve and guide them as company objectives and policies change over time.

    Andrew is an experienced software developer within the FinTech industry and is currently completing a master’s degree in Artificial Intelligence.
  • 10 Feb 2020 10:34 | Deleted user
    The Accountant – What's Next? – Winter 2020 (MIA Publication)
    With the publication of the Maltese Value Added Tax (Registration as a Single Taxable Person) Regulations effective from 1 June 2018, two or more persons may choose to be registered as a single taxable person for Maltese VAT purposes (“VAT Grouping”). Within some months it was understood that numerous applications have been processed and accepted by the Commissioner for Revenue, enabling several businesses to reap the benefits of these Regulations. 
    But what are the requirements for VAT Grouping and what additional matters one should be aware of? The following practical example answers both questions.  
    A multinational group of companies (“the group”) operates primarily in the retail sector and has the following structure:

    The main facts:
    -        All holdings are 100% shareholding
    -        TradeCo. is a taxable person that provides supplies globally including to the other 2 Maltese established companies;
    -        HoldCo. is a non-taxable legal person;
    -        Ins. CaptiveCo. is a taxable person acting as a captive insurance company for the group that is licensed as such with the MFSA.
    Does the group satisfy the necessary requirements to apply for a VAT group in Malta?
     1. Prescribed licensing requirements
    Ins. CaptiveCo. is licensed in terms of the Insurance Business Act
     2.  Two or more persons established in Malta
    TradeCo, HoldCo and Ins. CaptiveCo should be established in Malta
     3. The applicants are bound to each other by:

    a) financial links: any person/s to hold, directly/ indirectly, more than 90% of any two or more of a) voting rights; b) entitlement to profits available for distribution; c) entitlement to surplus assets on a winding-up
    b) organisational links: proof of a shared management structure
    This should be satisfied if the group companies have common directors or share a common management structure.
    c) economic links: exists where a) activities of the applicants are of the same nature/fall within same industry; or b) the activities of the applicants are interdependent/complementary, or c) one member of the group carries out activities which are wholly or substantially to the benefit of anyone or more of the other members
    This should be satisfied on the basis that the activities of the Maltese entities are carried out for the benefit of the greater group
    4. Submission of all due VAT/income tax compliance filings and settlement of related dues
    Maltese VAT implication of forming part of a VAT group on intra-group transactions:
    Without a VAT group, Maltese VAT should be charged on intra-group transactions which result in unrecoverable VAT for Hold Co. and Ins. Captive Co. 
    However, the three Maltese companies may opt to be registered as a VAT group. The group would undertake both taxable and exempt supplies and would, therefore, be obliged to register in terms of article 10 of the Maltese VAT Act. Any intra-group transactions will be outside the scope of VAT, thus, eliminating the previously unrecoverable VAT.
    Furthermore, since input tax deductions would need to be undertaken on a group basis, they would likely differ from the aggregated VAT position of the separate companies.
    Other considerations
    • Ideally an initial analysis is carried out to assess the VAT position of the group when compared to the aggregate VAT position of the same individual entities considered on a stand-alone basis.
    • The members of the VAT group are required to nominate a Group Reporting Entity (“GRE”) to exercise any and all rights and discharge any and all obligations arising to the VAT group. Any supply made by / to a member of a VAT group shall be treated, as a supply made by / to the GRE.  The GRE would also be obliged to undertake the VAT compliance obligations of the group.
    • HoldCo will need to apply for a temporary Maltese VAT number as all taxable persons included in a VAT group are required to be registered for VAT purposes in Malta prior to being allowed to join a VAT group.
    •  Other non-VAT implications should also be considered including updating invoice templates, reviewing VAT controls of the entities within the VAT group, the impact to the financial statements of being jointly and severely liable for VAT of a VAT group and the VAT reporting procedure as a group since transactions will still need to be reported on a standalone level.
    • A VAT group cannot be voluntarily cancelled prior to the lapse of 24 months from the formation of the VAT group.
    The application of VAT grouping provides several benefits ranging from a reduced VAT cost to cash-flow advantages. However, one should also ensure that applying for a VAT-group does not create burdens that outweigh the benefits. The implications of a VAT group may vary drastically, depending on the fact pattern and circumstances, and should be analysed upfront on a case-by-case basis.

     Aida Cachia is a Manager in tax at PwC Malta and forms part of the PwC Malta VAT team. 

    Michael Borg is a Senior Manager in tax at PwC Malta and forms part of the PwC Malta VAT team

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