International Tax, Audit, Accounting and Legal News ECOVIS info . Issue 2/2013

Malaysia Auditors’ responsibilities Great Britain Incentives for the creative sector Spain New reporting obligations Germany Corporate dividends – tax refunds

Tobias Koch ECOVIS Lüdemann Wildfeuer & Partner Wirtschaftsprüfer, Steuerberater, Rechtsanwälte, Germany “Detecting and preventing financial irregularities early will require the involvement of all stakeholders, from accountants and auditors to regulators.” Kris Chan, ECOVIS AHL, Kuala Lumpur, Malaysia

MALAYSIA – AUDITORS’ RESPONSIBILITIES Financial irregularities – who is to blame? Increasingly auditors are held accountable when corporate fraud is detected.

couple of months ago, a fact the ones who first discovered tions of their clients. While pro­ A listed company in Malaysia the financial irregularities and re­ viding professional services, they shocked local auditors by filing ported them to the audit commit­ also feel obliged to assist their a legal suit against its former tee and board of directors. clients in coming up with “clean directors, external and internal The move to name an auditor as accounts”. Problems may arise auditors. The company involved a defendant was believed to be when the imbalances constantly was Silver Bird Group Bhd. and the first of its kind in Malaysia al­ occur. two of its subsidiaries, which though such suits have become The profession is now fully com­ were troubled by possible finan­ common in countries like the mitted to better meeting the cial irregularities that involved a United States, Great Britain and needs and expectations of inves­ sum of over RM100 million. elsewhere. Those cases spotlight tors and capital markets through Crowe Horwath, Silver Bird’s the roles and responsibilities of improving the audit quality and Author long time external auditors, were auditors. They also indicate that methodology by leveraging new, Kris Chan named as one of the defendants. the profession of auditing and innovative technology and pro­ [email protected] The legal action was taken on accountancy has become more cesses. As the demands made the assumption that there was of a challenge. of auditors have been increas­ alleged negligence and breach As statutory auditors, we are en­ ing, accounting standard setters TIP of duty of care and/or its duties gaged based on a scope of acti­ also issue new standards and Read more: www.ecovis.com/fi-malaysia and responsibilities on the part of vities laid out under the Interna­ guidelines to improve our pro­ Crowe Horwath as external audi­ tional Standards on Auditing and fessionalism. But the profession tors. In their immediate response Fraud Detection. Auditors do not itself cannot solve the problems Crowe Horwath diminished the examine every transaction and on its own. Success will require allegation as “frivolous in nature event, so there is no guarantee the involvement of a large range and without basis”. They claimed that all material misstatements, of stakeholders inside and out­ they had discharged their duties whether caused by error or side the profession, such as the professionally and had been in fraud, will be detected. Auditors reporting community, the users could have the ability to detect of business reporting and the fraud or financial irregularities at regulators. an earlier stage with the involve­ ment of forensic techniques, but Conclusion this would require increased cost Ultimately, a successful regula­ and time. A statutory audit is tory regime will not be sufficient more of a deterrent: the longer to ensure good outcomes. Cru­ someone perpetuates a fraud, cially, companies need to have the more indicators or red flags an appropriate culture that is appear and the more likely he is focused on the companies de­ to be caught. livering the right long-term obli­ Apart from professional know­ gations to society. The right cul­ ledge, in some cases, especially tures are rooted in strong ethical involving grey areas, the audi­ frameworks and in the impor­ tors need wisdom, judgement tance of individuals making de­ and skepticism to balance cost cisions in relation to principles and practicality issues against rather than short-term commer­ special demands and expecta­ cial considerations.

2 Ecovis info 2/2013 “The new scheme will enhance the benefits of the successful Film Tax Relief system and expand them to further areas such as computer games.” Christopher Jenkins, ECOVIS Wingrave Yeats, London, UK

NEW TAX RELIEF IN THE UK Incentives for the creative sector The UK Government defends the country’s pole position in high-quality productions.

companies can claim an addi­ tional deduction worth 100% Author of the lower of either UK ex­ Christopher Jenkins christopher.jenkins@ penditure or 80% of total core ecovis.com expenditure. Large companies are restricted to 80% of this fig­ ure. If a company is loss-making it can surrender the additional losses for a cash credit. In summary, a small company will be able to claim an addi­ tional 20p on every pound of core expenditure, besides the tax relief it would normally obtain on the expenditure, and a large ne thing we do really well Unsurprisingly the proposed new company can claim an additional O in the UK is producing tax relief for the creative sector 12.8p. high-end television programmes (released on 11 December 2012) like Downton Abbey, animation is based around the FTR model. Definitions programmes such as Wallace & Given that it is the Chancellor’s As with all legislation, “the devil Gromit, and blockbuster video avowed intention that the new is in the detail”, and not all the games such as the “Need for relief should be “the most ge­ terminology has an obvious Speed” series. So when recently nerous available in the world”, it meaning. Here are two of the key a number of high-profile and os­ was also no surprise that it was definitions: tensibly “British” television pro­ well received. Core expenditure is expendi­ grammes, such as “Titanic” and ture on pre-production, prin­ “Ripper Street”, were produced How does the relief work? cipal photography and post- in other jurisdictions, notably Just as with FTR, the tax re­ production of the programme. the Republic of Ireland, the UK lief will only be available to UK Certain development, distri­ Govern­ment got worried! companies which fall within the bution and finance costs are The Film Tax Relief (FTR) system, charge to corporation tax (note not eligible. Production fees introduced in 2006, has been that LLP’s will not be eligible, but will qualify towards the £1m very successful. The UK film in­ co-productions will) and to pro­ threshold, provided they are dustry now contributes over ductions where “core expendi­ less than 10% of the pre-pro­ £5bn a year to UK GDP and ture” is at least £1m per pro­ duction budget. For animation there has been a 70% increase gramme hour and at least 25% the cost of relevant quality as­ in the UK film production work­ of this core expenditure is UK surance should qualify, but not force since 2007. Not only this, based. There are no minimum service maintenance costs. but FTR, just like the new Patent expenditure limits for animation The Cultural Test. 16 points Box rules and R&D Tax Credits, or games, by the way. out of the same 31 in the orig­ has also resulted in an increased Companies for this purpose are inal test are still needed. Points overall tax take to the Treasury deemed small or large pending will be awarded for British lo­ through enhanced VAT and PAYE on whether core expenditure is cations, characters, dialogue, receipts. more or less than £20m. Small demonstrating British heritage

Ecovis info 2/2013 3 “The process of foreign investment in China is a complex subject and raises a lot of questions due to the legal requirements that have to be considered.” Richard Hoffmann, ECOVIS R&G Consulting Ltd, Beijing, China

What programmes are Several programmes com­ eligible? missioned together will be dramas, documentaries and treated as one, but the relief comedies with a slot length will be applied separately of more than 30mins and to each commissioned pro­ core expenditure of at least gramme. £1m of direct production cost per hour Non-eligible programmes include TIP Programmes must be intended advertisements, news, current af­ Read more: www.ecovis.com/tax- or creativity, developing acti­ for broadcast on TV and also fairs and discussion programmes, creative-uk vity taking place in the UK and the internet and for digital dis­ quiz, game and chat shows, com­ use of British developers. The tribution via mobile phones. petitions, live events and training main difference to the film Games must be available for programmes. Games producers Cultural Test is the expansion “commercial release”. will be required to self-certify of the “cultural content” sec­ Dramas and documentaries during the claims process that tion to include the EEA (Euro­ are treated as animations if video games do not contain por­ pean Economic Area), not just their really animated content nographic or other extreme ma­ the UK. is at least 51% terial.

Starting Business in China – in Brief

The process of foreign invest­ ment in China is a complex sub­ ject and raises a lot of questions due to the legal requirements that have to be considered. Be­ Authors forehand one should choose the Lily Gao legal structure of the company [email protected] Richard Hoffmann that best suits your business since richard.hoffmann@ecovis. there exists a variety of options com (including offshore structures e. g. locating your business in Hong Kong, limited liability com­ TIP Read more: panies, joint ventures and the www.ecovis.com/start-china existence of representative of­ fices). This also has an impact on the registered amount of capital needed and can have an impact on tax rates, as the For this purpose, the long article (see: Tip) illustrates tax system in China imposes different taxes on for­ the different legal structures and their charac­ eign investments based on the industry. Therefore, teristics as well as legal restrictions. Additionally, it is always recommendable to have an overview of the relevant tax payments for foreign investments the most important taxes. will be explained.

4 Ecovis info 2/2013 “The PIO card is treated as a visa and can also be used as proof of identity when opening a bank account in India.” Deepa Rathi, ECOVIS R. Kabra Corporate Advisors Ltd., Mumbai, India

INDIA’S PIO CARD An admission ticket to many benefits Persons of Indian origin who are citizens of other countries may apply for a PIO card.

he PIO card holder is entitled with local police authorities for T to the following benefits: a continuous stay of up to 180 a multiple entry, multi-purpose days in India visa for visiting India. The PIO parity with non-resident In­ card itself is treated as a visa. dians (NRIs) in economic, fi­ Author Therefore no separate stu­ nancial and educational fields Deepa Rathi dent/employment/business except for acquisition of agri­ [email protected] visa will be required for admis­ cultural land or plantations sion to colleges or institutions The PIO card can also be used as TIP or before taking up employ­ proof of identity when applying Read more: ment, conducting business, for a PAN card (the ten-digit al­ www.ecovis.com/pio etc. in India. phanumeric identification number There are special counters for for Indian income tax purposes) speedy immigration clearance or a driving licence, and when at designated immigration opening a bank account in India, checkpoints. if the PIO card holder resides in exemption from registration India.

GERMANY – CORPORATE DIVIDENDS Tax refunds in Germany Corporate shareholders from the EU and EEA can reclaim dividend tax paid previously.

ccording to the previous capital provision in the EU treaty. the sale of shares in the corpo­ A German withholding tax After protracted efforts to bring rate entity remains unchanged. regime, dividends distributed to the German withholding tax re­ As the previous withholding tax domestic corporate sharehol­ders gime into line with the principles regime was incompatible with generally enjoyed exemption of of the EU treaty and the ECJ de­ EU law, shareholding companies Author Tobias Koch 95% in real terms. However, cision, German legislators finally in the EU and EEA can apply for [email protected] this relief was not granted to adopted the new law on March retroactive tax exemption for all shareholdings of less than 10% 1, 2013. previous dividends distributed to by foreign companies including Under the new law no tax ex­ them before February 12, 2013. TIP Read more: those from EU and EEA (shares emption will be granted for fu­ Informal applications for tax re­ www.ecovis.com/refund- not covered by the EU parent- ture tax periods in cases where funds can be submitted to the tax-germany subsidiary directive). a corporate shareholder owns federal tax office (Bundeszentral­ In its decision dated October less than 10% of the shares in amt für Steuern) by companies 10, 2011 with respect to case the corporate entity. This rule registered or with their head of­ 284/09 the European Court of applies irrespective of whether fices within the EU or EEA, pro­ Justice (ECJ) concluded that this the corporate shareholders are vided they own less than 10% of German withholding tax regime domestic or not. However tax the shares in the German corpo­ violates the free movement of exemption for capital gains from rate entity.

Ecovis info 2/2013 5 “Our guide-book “Doing Business in Vietnam 2013” will be very helpful for foreign investors and enterprises planning to approach the Vietnamese market.” Trung Nguyen, ECOVIS STT Vietnam, Hanoi, Vietnam

ECOVIS STT VIETNAM Award-winning services ECOVIS STT Vietnam has been honored as “Top Vietnam Brand in 2012” for its excellence.

n behalf of ECOVIS STT of investors and further the pub­ Author O Vietnam, Managing Part­ lic interest in the preparation of Trung Nguyen ner Nguyen Thanh Trung received informative, accurate and in­ [email protected] the cup and certificate granted dependent audit reports. The by “The Economic Times” in PCAOB also oversees the audits the award ceremony held on 16 of broker-dealers, including com­ March 2013 at the Hanoi Opera pliance reports filed pursuant to House. federal securities laws, to pro­ “Top Vietnam Brand” has been mote investor protection. a prestigious award within As a PCAOB registered firm ECO­ Vietnam’s enterprise commu­ VIS STT Vietnam commits itself to nity since 2003. Over the last 9 rendering high-quality services, years, the award has attracted under the strict supervision of an thousands of enterprises in vari­ independent organization. ous sectors across the country For further information: http:// such as finance and banking, services in the fields of auditing, pcaobus.org/Registration/Firms/ textiles and garments, leather outsourcing and legal consulting Pages/RegisteredFirms.aspx footwear, construction, telecom­ with the best quality and cost ef­ munications and informatics. ficiency. ECOVIS STT Vietnam is Guidebook for “Doing This award is aimed at honouring committed to making the best Business in Vietnam” Vietnamese enterprises for out­ use of its capacities and code of ECOVIS STT Vietnam has released standing achievements in busi­ ethics to provide clients with the “Doing Business in Vietnam” as ness operation and contributing optimized benefits meeting all of one of the most effective guide- to the country’s socioeconomic their long- as well as short-term books for foreign enterprises development. needs. which plan to enter the Vietna­ ECOVIS STT Vietnam prides itself As one of the winners of “Top mese market or to invest in the on being one of 100 awarded en­ Vietnam Brand in 2012”, we at country. terprises. During over 10 years of ECOVIS STT Vietnam have clearly “Doing Business in Vietnam” com­ operation the firm always strives shown and proved our competi­ prises 7 chapters ranging from an for continuous improvement in its tive capacity, our sustainable de­ overview of Vietnam’s business velopment and our prestige in and cultural environment and a the domestic market. snapshot on foreign direct invest­ ment to taxation, banking and Quality assured by PCAOB exchange control, accoun­ting On 8 January 2013, ECOVIS STT and financial reporting, labor Vietnam was registered with and employment, and land and the Public Company Accounting lease customs. The guidebook Oversight Board (PCAOB), a non­ aims to provide a reference and profit corporation created by the orientation for foreign investors Sarbanes-Oxley Act, a 2002 U.S. and entrepreneurs who intend to federal law. do business or invest in Vietnam. The PCAOB mission is to oversee You will find the publication the audits of public companies on our website: in order to protect the interests www.ecovis.com/vietnam.

6 Ecovis info 2/2013 “Assets and rights located outside Spain that have not been reported to the Spanish tax authorities in time could be taxed as unjustified capital profit.” Tim Lorenz, ECOVIS Barcelona, S.A., Barcelona, Spain

SPAIN – NEW REPORTING OBLIGATIONS Chasing after assets and rights abroad Tax residents not conforming to the new reporting rules will face severe sanctions.

n order to prevent and combat the following year for which the for unreported, false informa­ I tax evasion Spain has estab­ information must be reported. tion or data, with a minimum Author lished new reporting obligations There is no reporting obligation of EUR 10,000 per asset group Tim Lorenz [email protected] for assets and rights located out­ for assets and rights the value listed above. Should the non- side Spain. The new reporting ob­ of which is lower than the given compliance refer to all three asset ligations are regulated by Royal threshold of EUR 50,000 estab­ groups, the minimum penalty is Decree 1558/2012 dated 15th lished for each of these groups. increased to EUR 30,000. November, 2012, and serve to Should this amount be exceeded prevent and combat tax evasion. in one or more of the aforemen­ According to Royal Decree tioned groups, these assets have 1558/2012 of 15th November, to be declared in the information 2012, Spanish tax-resident enti­ return. ties and individuals, as well as In the following year the informa­ permanent establishments of tion return has to be filed only in non-resident individuals or enti­ the following cases: ties, have to declare the follow­ if new assets or rights ing assets and rights located out­ exist which exceed the given side Spain at 31st December 31, threshold Furthermore, assets and rights 2012: if assets and rights already re­ located outside Spain that have accounts held in financial enti­ ported to the Spanish tax au­ not been reported within the ties located outside of Spain thorities have increased by at time limit to the Spanish tax au­ values, securities, insurance least EUR 20,000. thorities could be considered as rights and income deposited, The new tax law specifies sig­ unjustified capital profit and will administered or obtained out­ nificant penalties for incorrect, be taxed retroactively, by apply­ side Spain incomplete or late reporting of ing the general tax rate (up to a real estate and real estate assets and rights located out­ maximum of 56%). This would rights located outside Spain side Spain. Non-compliance with also generate a most serious in­ The time limit for filing the repor­ the new reporting obligation is fringement subject to a penalty ting returns ends on 30th April of subject to EUR 5,000 penalty of 150%.

Advancing your foreign business

➔ Steuerberatung ➔ Wirtschaftsprüfung ➔ Rechtsberatung ➔ Unternehmensberatung ChancenWelt – As an entrepreneur or top executive you should will be impressed how quickly each of the part­ Ausland 50 Experten aus not miss this unique opportunity. We invite you ners in our global Ecovis network can respond 20 Ländern mit Ihnen im persönlichen to attend the following Ecovis event (admission to any questions you may have about planned Gespräch free!): “ChancenWelt – Ausland” on 23rd Sep- projects abroad and provide solutions to any fis­ tember, 2013, in Munich, Germany, to hear cal, legal and practical problems arising when talks by experts and personal accounts of what penetrating foreign markets, processing transac­ makes for successful endeavours. After the presen­ tions and considering making investments. You Veranstaltung am 23. September 2013 tations our Ecovis advisors, who will be posted at will find further information about this event in München

Anmeldung unter: each of the 20 national information desks, would and the corresponding registration form under www.ecovis.com/internationalevent be happy to give you first-hand information: you www.ecovis.com/internationalevent

Ecovis info 2/2013 7 About ECOVIS Ecovis is a leading global consulting firm with its origins in Continental Europe. It has over 4,000 people operating in over 50 countries. Its consult- ing focus and core competencies lie in the areas of tax consultation, accounting, auditing and legal advice. The particular strength of Ecovis is the combination of personal advice at a local level with the general expertise of an international and interdisciplinary network of professionals. Every Ecovis office can rely on qualified specialists in the back offices as well as on the specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients with effective support, especially in the fields of international transactions and investments – from preparation in the client‘s home country to support in the target country. In its consulting work Ecovis concentrates mainly on mid-sized firms. Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal, managerial and administrative issues.

The name Ecovis, a combination of the terms economy and vision, expresses both its international character and its focus on the future and growth.

LEGAL NOTICE Publisher . ECOVIS International, Ernst-Reuter-Platz 10, 10587 Berlin, Germany, tel. +49 (0)30-31 00 08 55, fax +49 (0)30-31 00 08 56 Realization . EditorNetwork Medien GmbH, 80805 Munich, Germany Editorial Department . Kurt Bülow, Denmark; Vanessa Hadinegoro, Netherlands; Robert McCann, United Kingdom; Dr. Ferdinand Rüchardt, Germany; Andreas Karaolis, Cyprus; Carmen Vasile, Romania ECOVIS info is based on information which we consider to be reliable. However, due to constantly changing laws, liability may not be assumed.