MalaysiaAuditors’ responsibilities

Great BritainIncentives for the creative sector

Spain New reporting obligations

GermanyCorporate dividends – tax refunds

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

Tobias KochECOVIS Lüdemann Wildfeuer & Partner Wirtschaftsprüfer, Steuerberater, Rechtsanwälte, Germany

2 Ecov i s info 2/2013

A couple of months ago, a listed company in Malaysia

shocked local auditors by filing a legal suit against its former directors, external and internal auditors. The company involved was Silver Bird Group Bhd. and two of its subsidiaries, which were troubled by possible finan­cial irregularities that involved a sum of over RM100 million.Crowe Horwath, Silver Bird’s long time external auditors, were named as one of the defendants. The legal action was taken on the assumption that there was alleged negligence and breach of duty of care and/or its duties and responsibilities on the part of Crowe Horwath as external audi­tors. In their immediate response Crowe Horwath diminished the allegation as “frivolous in nature and without basis”. They claimed they had discharged their duties professionally and had been in

fact the ones who first discovered the financial irregularities and re­ported them to the audit commit­tee and board of directors.The move to name an auditor as a defendant was believed to be the first of its kind in Malaysia al­though such suits have become common in countries like the United States, Great Britain and elsewhere. Those cases spotlight the roles and responsibilities of auditors. They also indicate that the profession of auditing and accountancy has become more of a challenge.As statutory auditors, we are en­gaged based on a scope of acti­vities laid out under the Interna­tional Standards on Auditing and Fraud Detection. Auditors do not examine every transaction and event, so there is no guarantee that all material misstatements, whether caused by error or fraud, will be detected. Auditors could have the ability to detect fraud or financial irregularities at an earlier stage with the involve­ment of forensic techniques, but this would require increased cost and time. A statutory audit is more of a deterrent: the longer someone perpetuates a fraud, the more indicators or red flags appear and the more likely he is to be caught. Apart from professional know­ledge, in some cases, especially involving grey areas, the audi­tors need wisdom, judgement and skepticism to balance cost and practicality issues against special demands and expecta­

tions of their clients. While pro­viding professional services, they also feel obliged to assist their clients in coming up with “clean accounts”. Problems may arise when the imbalances constantly occur.The profession is now fully com­mitted to better meeting the needs and expectations of inves­tors and capital markets through improving the audit quality and methodology by leveraging new, innovative technology and pro­cesses. As the demands made of auditors have been increas­ing, accounting standard setters also issue new standards and guidelines to improve our pro­fessionalism. But the profession itself cannot solve the problems on its own. Success will require the involvement of a large range of stakeholders inside and out­side the profession, such as the reporting community, the users of business reporting and the regulators.

ConclusionUltimately, a successful regula­tory regime will not be sufficient to ensure good outcomes. Cru­cially, companies need to have an appropriate culture that is focused on the companies de­livering the right long­term obli­gations to society. The right cul­tures are rooted in strong ethical frameworks and in the impor­tance of individuals making de­cisions in relation to principles rather than short­term commer­cial considerations.

MALAYSIA – AUDITORS’ RESPONSIBILITIES

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

AuthorKris Chankris.chan@ecovis.com

“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

TIPRead more:www.ecovis.com/fi­malaysia

3Ecov i s info 2/2013

O ne thing we do really well in the UK is producing

high­end television programmes like Downton Abbey, animation programmes such as Wallace & Gromit, and blockbuster video games such as the “Need for Speed” series. So when recently a number of high­profile and os­tensibly “British” television pro­grammes, such as “Titanic” and “Ripper Street”, were produced in other jurisdictions, notably the Republic of Ireland, the UK Govern ment got worried! The Film Tax Relief (FTR) system, introduced in 2006, has been very successful. The UK film in­dustry now contributes over £5bn a year to UK GDP and there has been a 70% increase in the UK film production work­force since 2007. Not only this, but FTR, just like the new Patent Box rules and R&D Tax Credits, has also resulted in an increased overall tax take to the Treasury through enhanced VAT and PAYE receipts.

Unsurprisingly the proposed new tax relief for the creative sector (released on 11 December 2012) is based around the FTR model. Given that it is the Chancellor’s avowed intention that the new relief should be “the most ge­nerous available in the world”, it was also no surprise that it was well received.

How does the relief work? Just as with FTR, the tax re­lief will only be available to UK companies which fall within the charge to corporation tax (note that LLP’s will not be eligible, but co­productions will) and to pro­ductions where “core expendi­ture” is at least £1m per pro­gramme hour and at least 25% of this core expenditure is UK based. There are no minimum expenditure limits for animation or games, by the way.Companies for this purpose are deemed small or large pending on whether core expenditure is more or less than £20m. Small

companies can claim an addi­tional deduction worth 100% of the lower of either UK ex­penditure or 80% of total core expenditure. Large companies are restricted to 80% of this fig­ure. If a company is loss­making it can surrender the additional losses for a cash credit.In summary, a small company will be able to claim an addi­tional 20p on every pound of core expenditure, besides the tax relief it would normally obtain on the expenditure, and a large company can claim an additional 12.8p.

DefinitionsAs with all legislation, “the devil is in the detail”, and not all the terminology has an obvious meaning. Here are two of the key definitions:

Core expenditure is expendi­ture on pre­production, prin­cipal photography and post­production of the programme. Certain development, distri­bution and finance costs are not eligible. Production fees will qualify towards the £1m threshold, provided they are less than 10% of the pre­pro­duction budget. For animation the cost of relevant quality as­surance should qualify, but not service maintenance costs.

The Cultural Test. 16 points out of the same 31 in the orig­inal test are still needed. Points will be awarded for British lo­cations, characters, dialogue, demonstrating British heritage

NEW TAX RELIEF IN THE UK

Incentives for the creative sectorThe UK Government defends the country’s pole position in high-quality productions.

AuthorChristopher Jenkinschristopher.jenkins@ ecovis.com

“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

4 Ecov i s info 2/2013

“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

AuthorsLily Gao lily.gao@ecovis.com Richard Hoffmann richard.hoffmann@ecovis.com

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. Be­forehand one should choose the legal structure of the company that best suits your business since there exists a variety of options (including offshore structures e. g. locating your business in Hong Kong, limited liability com­panies, joint ventures and the existence of representative of­fices). This also has an impact on the registered amount of capital needed and can have an impact on tax rates, as the tax system in China imposes different taxes on for­eign investments based on the industry. Therefore, it is always recommendable to have an overview of the most important taxes.

For this purpose, the long article (see: Tip) illustrates the different legal structures and their charac­teristics as well as legal restrictions. Additionally, the relevant tax payments for foreign investments will be explained.

Starting Business in China – in Brief

or creativity, developing acti­vity taking place in the UK and use of British developers. The main difference to the film Cultural Test is the expansion of the “cultural content” sec­tion to include the EEA (Euro­pean Economic Area), not just the UK.

What programmes are eligible?

dramas, documentaries and comedies with a slot length of more than 30mins and core expenditure of at least £1m of direct production cost per hour

Programmes must be intended for broadcast on TV and also the internet and for digital dis­tribution via mobile phones. Games must be available for “commercial release”.

Dramas and documentaries are treated as animations if their really animated content is at least 51%

Several programmes com­missioned together will be treated as one, but the relief will be applied separately to each commissioned pro­gramme.

Non­eligible programmes include advertisements, news, current af­fairs and discussion programmes, quiz, game and chat shows, com­petitions, live events and training programmes. Games producers will be required to self­certify during the claims process that video games do not contain por­nographic or other extreme ma­terial.

TIPRead more:www.ecovis.com/tax­ creative­uk

TIPRead more: www.ecovis.com/start­china

5Ecov i s info 2/2013

T he PIO card holder is entitled to the following benefits:

a multiple entry, multi­purpose visa for visiting India. The PIO card itself is treated as a visa. Therefore no separate stu­dent/employment/business visa will be required for admis­sion to colleges or institutions or before taking up employ­ment, conducting business, etc. in India. There are special counters for speedy immigration clearance at designated immigration checkpoints. exemption from registration

with local police authorities for a continuous stay of up to 180 days in India

parity with non­resident In­dians (NRIs) in economic, fi­nancial and educational fields except for acquisition of agri­cultural land or plantations

The PIO card can also be used as proof of identity when applying for a PAN card (the ten­digit al­phanumeric identification number for Indian income tax purposes) or a driving licence, and when opening a bank account in India, if the PIO card holder resides in India.

A ccording to the previous German withholding tax

regime, dividends distributed to domestic corporate sharehol ders generally enjoyed exemption of 95% in real terms. However, this relief was not granted to shareholdings of less than 10% by foreign companies including those from EU and EEA (shares not covered by the EU parent­subsidiary directive). In its decision dated October 10, 2011 with respect to case 284/09 the European Court of Justice (ECJ) concluded that this German withholding tax regime violates the free movement of

capital provision in the EU treaty. After protracted efforts to bring the German withholding tax re­gime into line with the principles of the EU treaty and the ECJ de­cision, German legislators finally adopted the new law on March 1, 2013. Under the new law no tax ex­emption will be granted for fu­ture tax periods in cases where a corporate shareholder owns less than 10% of the shares in the corporate entity. This rule applies irrespective of whether the corporate shareholders are domestic or not. However tax exemption for capital gains from

the sale of shares in the corpo­rate entity remains unchanged. As the previous withholding tax regime was incompatible with EU law, shareholding companies in the EU and EEA can apply for retroactive tax exemption for all previous dividends distributed to them before February 12, 2013. Informal applications for tax re­funds can be submitted to the federal tax office (Bundeszentral­amt für Steuern) by companies registered or with their head of­fices within the EU or EEA, pro­vided they own less than 10% of the shares in the German corpo­rate entity.

INDIA’S PIO CARD

An admission ticket to many benefitsPersons of Indian origin who are citizens of other countries may apply for a PIO card.

GERMANY – CORPORATE DIVIDENDS

Tax refunds in GermanyCorporate shareholders from the EU and EEA can reclaim dividend tax paid previously.

AuthorDeepa Rathi deepa.rathi@ecovis.com

TIPRead more:www.ecovis.com/pio

AuthorTobias KochTobias.koch@ecovis.com

TIPRead more:www.ecovis.com/refund­tax­germany

“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

6 Ecov i s info 2/2013

O n behalf of ECOVIS STT Vietnam, Managing Part­

ner Nguyen Thanh Trung received the cup and certificate granted by “The Economic Times” in the award ceremony held on 16 March 2013 at the Hanoi Opera House.“Top Vietnam Brand” has been a prestigious award within Vietnam’s enterprise commu­nity since 2003. Over the last 9 years, the award has attracted thousands of enterprises in vari­ous sectors across the country such as finance and banking, textiles and garments, leather footwear, construction, telecom­munications and informatics. This award is aimed at honouring Vietnamese enterprises for out­standing achievements in busi­ness operation and contributing to the country’s socioeconomic development. ECOVIS STT Vietnam prides itself on being one of 100 awarded en­terprises. During over 10 years of operation the firm always strives for continuous improvement in its

services in the fields of auditing, outsourcing and legal consulting with the best quality and cost ef­ficiency. ECOVIS STT Vietnam is committed to making the best use of its capacities and code of ethics to provide clients with the optimized benefits meeting all of their long­ as well as short­term needs.As one of the winners of “Top Vietnam Brand in 2012”, we at ECOVIS STT Vietnam have clearly shown and proved our competi­tive capacity, our sustainable de­velopment and our prestige in the domestic market.

Quality assured by PCAOBOn 8 January 2013, ECOVIS STT Vietnam was registered with the Public Company Accounting Oversight Board (PCAOB), a non­profit corporation created by the Sarbanes­Oxley Act, a 2002 U.S. federal law. The PCAOB mission is to oversee the audits of public companies in order to protect the interests

of investors and further the pub­lic interest in the preparation of informative, accurate and in­dependent audit reports. The PCAOB also oversees the audits of broker­dealers, including com­pliance reports filed pursuant to federal securities laws, to pro­mote investor protection. As a PCAOB registered firm ECO­VIS STT Vietnam commits itself to rendering high­quality services, under the strict supervision of an independent organization.For further information: http://pcaobus.org/Registration/Firms/Pages/RegisteredFirms.aspx

Guidebook for “Doing Business in Vietnam”ECOVIS STT Vietnam has released “Doing Business in Vietnam” as one of the most effective guide­books for foreign enterprises which plan to enter the Vietna­mese market or to invest in the country.“Doing Business in Vietnam” com­prises 7 chapters ranging from an overview of Vietnam’s business and cultural environment and a snapshot on foreign direct invest­ment to taxation, banking and exchange control, accoun ting and financial reporting, labor and employment, and land and lease customs. The guidebook aims to provide a reference and orientation for foreign investors and entrepreneurs who intend to do business or invest in Vietnam.You will find the publication on our website:www.ecovis.com/vietnam.

ECOVIS STT VIETNAM

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

AuthorTrung Nguyen trung.nguyen@ecovis.com

“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

7Ecov i s 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

I n order to prevent and combat tax evasion Spain has estab­

lished new reporting obligations for assets and rights located out­side Spain. The new reporting ob­ligations are regulated by Royal Decree 1558/2012 dated 15th November, 2012, and serve to prevent and combat tax evasion.According to Royal Decree 1558/2012 of 15th November, 2012, Spanish tax­resident enti­ties and individuals, as well as permanent establishments of non­resident individuals or enti­ties, have to declare the follow­ing assets and rights located out­side Spain at 31st December 31, 2012:

accounts held in financial enti­ties located outside of Spain

values, securities, insurance rights and income deposited, administered or obtained out­side Spain

real estate and real estate rights located outside Spain

The time limit for filing the repor­ting returns ends on 30th April of

the following year for which the information must be reported.There is no reporting obligation for assets and rights the value of which is lower than the given threshold of EUR 50,000 estab­lished for each of these groups. Should this amount be exceeded in one or more of the aforemen­tioned groups, these assets have to be declared in the information return. In the following year the informa­tion return has to be filed only in the following cases:

if new assets or rights exist which exceed the given threshold

if assets and rights already re­ported to the Spanish tax au­thorities have increased by at least EUR 20,000.

The new tax law specifies sig­nificant penalties for incorrect, incomplete or late reporting of assets and rights located out­side Spain. Non­compliance with the new reporting obligation is subject to EUR 5,000 penalty

for unreported, false informa­tion or data, with a minimum of EUR 10,000 per asset group listed above. Should the non­compliance refer to all three asset groups, the minimum penalty is increased to EUR 30,000.

Furthermore, assets and rights located outside Spain that have not been reported within the time limit to the Spanish tax au­thorities could be considered as unjustified capital profit and will be taxed retroactively, by apply­ing the general tax rate (up to a maximum of 56%). This would also generate a most serious in­fringement subject to a penalty of 150%.

SPAIN – NEW REPORTING OBLIGATIONS

Chasing after assets and rights abroadTax residents not conforming to the new reporting rules will face severe sanctions.

AuthorTim Lorenztim.lorenz@ecovis.com

As an entrepreneur or top executive you should not miss this unique opportunity. We invite you to attend the following Ecovis event (admission free!): “ChancenWelt – Ausland” on 23rd Sep-tember, 2013, in Munich, Germany, to hear talks by experts and personal accounts of what makes for successful endeavours. After the presen­tations our Ecovis advisors, who will be posted at each of the 20 national information desks, would be happy to give you first­hand information: you

will be impressed how quickly each of the part­ners in our global Ecovis network can respond to any questions you may have about planned projects abroad and provide solutions to any fis­cal, legal and practical problems arising when penetrating foreign markets, processing transac­tions and considering making investments. You will find further information about this event and the corresponding registration form under www.ecovis.com/internationalevent

Advancing your foreign business➔Steuerberatung ➔Wirtschaftsprüfung ➔Rechtsberatung ➔Unternehmensberatung

Veranstaltung am 23. September 2013in MünchenAnmeldung unter:

ChancenWelt –Ausland50 Experten aus20 Ländern mit Ihnenim persönlichenGespräch

www.ecovis.com/internationalevent

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