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In the first part of this article, we highlighted the current state of Interbank Offered Rates (IBORs), the factors behind the shift from IBORs to Alternate Reference Rates (ARRs), and the top 10 challenges to be faced in transitioning to the ARRs. In this second part, we will delve into the key operational, financial and accounting considerations that come along with the imminent discontinuation of IBORs.
In the first part of this article, we covered Republic Act 112321 or the Revised Corporation Code of the Philippines (RCC), which redefined the corporate rules to promote ease and flexibility in doing business, as well as take full advantage of technological innovation.
For nearly 40 years, Batas Pambansa 68 or the old Corporation Code governed the way corporations operate in the Philippines. While the Code has been interpreted by jurisprudence and has been complemented by the Securities Regulations Code (SRC), the Revised Code of Corporate Governance, and the Foreign Investments Act, among others, it has taken nearly four decades to overhaul its provisions.
Every business aims to minimize disruption in its operations. For importers, effective and efficient supply chain management is vital to ensuring business performance targets are achieved. These enterprises heavily rely on the smooth and free flow of imported goods for use in their operations, be they for manufacturing or retail. As such, any risk of a freeze in movement or seizure of goods which may arise from the Bureau of Customs’ (BoC) exercise of police authority is potentially troublesome.
New platforms and drivers of productivity are creating new possibilities at unprecedented speeds, with steady advances in robotics, cognitive technologies and intelligent automation. To remain relevant and competitive, businesses are looking to implement digital strategies to keep up with the speed of change.
In 2017, EY launched a Worldwide Indirect Tax Developments Map. It is a tool designed to track changes occurring around the world in value added tax (VAT), goods and services tax (GST) and other sales taxes, global trade, excise and other indirect taxes. Initially, the team gathered 400 records for VAT/GST and sales taxes from across the globe and noted an average of 30 to 40 changes per month. Based on these developments, five key VAT trends for succeeding years were identified:
Traditionally, credit is extended to customers based on a credit score. Lenders such as banks, credit card companies and other financial institutions assess creditworthiness using information from credit bureaus and their own databases. The traditional credit-scoring process usually verifies customers’ identity and assesses their ability and willingness to pay. The ability to pay is based on current income and outstanding debt, and willingness to pay is based on past credit performance.
The new Charter of the Social Security System (SSS) took effect on March 5 with the passage into law of Republic Act (RA) No. 11199 or the “Social Security Act of 2018.”
We continue to see how technology disrupts traditional business models, resulting in new trends, products, and services, as well as how it dramatically transforms customer behaviors. Technology and innovation are considered great enablers, with the potential to rapidly remake the way we live, work and play. Yet, nearly all of today’s greatest disruptions have one common element -- at their very core, these innovations are again empowering people.
In line with efforts to better protect minority investors and improve corporate governance, the Securities and Exchange Commission (SEC) now requires Publicly-Listed Companies (PLCs) to disclose dealings with their related parties. SEC Memorandum Circular No. 10 provides the rules on reporting material related party transactions (RPT) and the minimum requirements in drafting the RPT policies of PLCs.
Established in 2015, the ASEAN Economic Community promotes the significant growth and potential of the region’s emerging economies. Key drivers of emerging economies are small and medium enterprises (SMEs). However, with rapid digitalization occurring across almost all business sectors, ASEAN SMEs are increasingly looking to transform their enterprises. SMEs are considering tapping into digital trends to further grow and strengthen their competitive edge as well as making use of emerging technologies to maintain their profitability.
Taxpayers are sometimes reluctant to file VAT refund claims because it triggers a mandatory VAT audit, not to mention the need to submit voluminous of documents and the uncertainty of when the processing will be completed. Any delay in the processing of a VAT refund claim may cause cash flow problems to the claimant because the input VAT remains unutilized when it could have been invested or used as working capital.
With the fast-paced development of technology, the fourth industrial revolution is reshaping nearly every aspect of business. We often read about how technology and disruption are transforming critical business functions, and one such function that needs to keep up is human resources or HR. More and more, the HR function needs to explore how new solutions, trends and technologies (such as automation) can have a direct impact on productivity.
In February, President Rodrigo R. Duterte signed into law Republic Act No. 11213, “An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2017 and Prior Years with Respect to Estate Tax, Other Internal Revenue Taxes, and Tax on Delinquencies.” However, it was signed with certain line item vetoes including the grant of a general tax amnesty which was vetoed in its entirety.
Since 2016, the Anti-Money Laundering Council (AMLC) and its supervisory agencies have issued significant updates and tightened anti-money laundering (AML) and counter terrorist financing (CTF) regulations in the Philippines, aligning them closer with international standards.
When we talk about cybersecurity, we usually think of information technology systems that manage and access data. But there’s another side of technology that is often overlooked by enterprise security processes -- the industrial control systems that handle physical processes through monitoring or direct control, such as valves, pumps and similar systems that have a physical “switching” function. The reason for this is that most of these systems have traditionally been isolated from corporate information networks, operated separately as they have functions outside of processing data -- such as regulating power or water flow for utilities companies, the control network of a train system, or medical scanning equipment in a health care entity.
The global business environment continues to evolve at a rapid pace, with factors such as globalization and technology disrupting traditional roles, processes and operations. One of these areas is in the tax landscape, where the changes are fundamentally and permanently changing how tax professionals operate.
In recent years, the Philippine banking ecosystem has undergone rapid digital transformation driven by sweeping technological advances. The Philippine Banking Almanac states that the Philippine banking industry started as a government venture to provide deposit services and fund production in the agricultural and commercial industries. That was 160 years ago and since then, the industry has evolved to include various aspects of financing, up to the ubiquitous digital systems that are now used all over the world. This is no surprise since the banking industry has always been characterized by continuous, customer-driven innovation.
On Feb. 14, the President signed into law Republic Act No. 11213 or the Tax Amnesty Act of 2019 (RA 11213). The law provides for estate tax amnesty and tax amnesty on delinquencies. In this article, we will zoom in on the tax amnesty on delinquencies.
Big data is starting to become a cliché among business executives, given that almost everyone is now leveraging big data in decision making. “Big data” was defined in 2012 by Gartner (a global research and advisory firm) as “high-volume, high-velocity and/or high-variety information assets that demand cost-effective, innovative forms of information processing that enable enhanced insight, decision making, and process automation.”
Traditionally, businesses have used the term “markets” to refer to economies. Hence the terms “developed market” or “emerging market” are usually associated with countries at a certain level of development. However, given the changing times and consumer paradigms, businesses may need to shift their focus to smaller “markets.” Cities, for example, are expected to grow further. A United Nations study projects that by 2050, 68% of the world’s populations will live in urban areas, with corresponding effects on infrastructure and the environment, as well as consumption behaviors.
Every two years, the Entrepreneur Of The Year (EOY) Philippines program stages a road show to announce the start of the nomination period for entrepreneurship awards. In our recent road shows in Cebu and Davao, the local reporters were curious to know our observations on entrepreneurship in the country since we launched the awards in 2003. This was a good point to reflect on after 16 years of celebrating the best among Filipino entrepreneurs.
The new lease standard under Philippine Financial Reporting Standard (PFRS) 16 has been effective for annual periods beginning on or after January 1, 2019.
In the first part of this article, we discussed some of the environmental consequences brought on by the rapid increase of infrastructure and economic development in the country. Although the Philippines maintains the lowest ecological footprint in ASEAN, growing overconsumption, unregulated production, and waste mismanagement all contribute to the environmental burden on the land.
The Philippines’ GDP growth has maintained a relatively stable upward trend over the last decade. Regionally, the archipelago continues to outpace most of its neighbors, maintaining an average annual growth rate of six to seven percent in the last seven years. The driving force behind this economic and developmental progress is the reinvigoration of the national government’s investment in public works, health and education infrastructure, and improved public financial management. However, the effort and resources expended towards the modernization and overall development of the Philippines still falls short in one key consideration -- climate and environmental resilience and the sustainability of these infrastructural pursuits, and of the overall development and growth path of the country in its entirety.
Of late, a number of companies in the Philippines have been releasing non-financial reports, either called “Environmental, Social and Governance (ESG) Reports,” or “Integrated Reports,” or “Sustainability Reports.” However, these are not yet mandatory. In fact, it was just recently that the Securities and Exchange Commission (SEC) released Memorandum Circular No. 4, which provides the sustainability reporting guidelines for publicly-listed companies on a “comply or explain” approach for the first three years of implementation, starting with the 2019 reporting period. In the absence of a reporting requirement, a key driver that has influenced companies to disclose non-financial information has been the demand from their investors for such reports.
If we evolve our thinking about social security, pension, retirement and voluntary savings, could we deliver better socioeconomic outcomes for the Philippines and improve the financial well-being of millions of Filipinos?
If we evolve our thinking about social security, pension, retirement and voluntary savings, could we deliver better socio-economic outcomes for the Philippines and better financial well-being for millions of Filipinos?
Our last four Suits the C-Suite articles have emphasized the need for importers to be audit-ready in the event that the Bureau of Customs (BoC) conducts a Post Clearance Audit (PCA). The BoC has already issued 32 Audit Notification Letters (ANLs) to importers; anyone could be next on the list.
When shipments are “cleared” at the border after payment of duties and taxes, importers often assume that the Bureau of Customs (BoC) will simply move on without double-checking the shipment. This assumption is inaccurate. The BoC can actually conduct an audit of past transactions, similar to the function of the Bureau of Internal Revenue (BIR). This exercise is the Post-Clearance Audit (PCA). It usually covers the last three years of importations and the PCA is undertaken to check the correctness of importers’ goods declarations, and the accuracy of their tax payments.
Many struggle to remember certain details, such as the phone numbers even of those close to them. This is due to the intrinsic limitation of human memory, or perhaps some see the brain simply as an organ to process information but not to store data. In any case, we acknowledge the importance of keeping records appropriately -- not just mentally -- but in some retrievable form. With the current strides in digital disruption and innovation, we now have more tools and devices to assist in storing and accessing whatever information we need.
As discussed in last week’s column, Customs Administrative Order (CAO) No. 01-2019 has been issued. The CAO covers the conduct of the post clearance audit (PCA) and implementation of the prior disclosure program (PDP). Considering the high penalties -- ranging from 125% to 600% of the revenue loss -- to be imposed during a customs audit, it is imperative for an importer to consider if it will be beneficial to avail of the PDP.
The nature of business today is very different from how it was just a few years ago. Technology, innovation and new consumption behaviors are driving disruption every day. Yet, some things – such as fraud, bribery and corruption – have remained constant. This was the main finding of the EY Global Fraud Survey 2018: Integrity in the spotlight, which focused on emerging markets.
The humble image evoked by the idea of a traditional, family-run business contrasts with the fact that they are considered economic powerhouses, or hold the potential to be, with the right foresight, planning, and management. Conglomerates and well-known franchises may have started out as mom-and-pop stores, before penetrating mainstream retail. And such a tale is not at all uncommon. A recent study from the Harvard Business School on family businesses noted that family firms account for two-thirds of all the businesses around the world. Additionally, 70-90% of global GDP is created by these institutions annually, and 85% of start-up companies even gain footing with capital investments using family money. In short, family businesses have prevailed and continue to do so in every sector and region, on a global scale.
In a previous article in this column, we spoke about how important it is for company leaders to become digital-enabled in today’s disruption-led competitive landscape. We discussed how digital age leaders are not only better equipped to meet emerging business challenges and changes in the competitive landscape, but are also delivering better financial performance for their companies.
In the first part of this article, we recalled that both private and public sectors must take the business of digital transformation an utmost priority if the country is to achieve both local and regional economic success. In particular for the public sector, government must spearhead efforts to create a digitally-inclusive, technologically-capable nation. Otherwise, digital innovations will fall short of mainstream adoption. This idea was touched on during the ASEAN Outlook Conference 2018.
In recent articles published in this column, we have highlighted the growing need for digital-ready leadership and the digital transformation of organizations. In today’s challenging environment, leaders must assume the main responsibility of fostering a company culture which is receptive to innovations in both internal methods and offered services.
In a world of constant disruption and innovation-led advances, organizations are increasingly leveraging technology to transform their business strategies. However, as revealed in the Global Leadership Forecast 2018 (a joint research project by EY, Development Dimensions International, Inc. and the Conference Board), many companies are unable to keep up with the pace. The forecast also mentions that 50% of the 2006 Fortune 500 companies no longer exist, while futurist speaker Thomas Frey projects that advances in robotics and artificial intelligence will impact over two billion jobs in the next decade. Given the inescapable technological trajectory that the world is on, organizations with digital-savvy leaders who are cognizant of the threats and opportunities brought about by technology are now outperforming competitors with less digitally-capable leaders.
The Regional Trial Court (RTC) of Makati released its decision on the petition of banks seeking the invalidation of Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 4-2011, which prescribed the rules for the proper allocation of costs and expenses for banks and financial institutions, for income tax reporting purposes. The RTC ruled that RR No. 4-2011 is unconstitutional, and ordered a permanent injunction on its implementation.
Offsetting (or netting) may arise in business transactions where there is a debtor-creditor relationship. Considering that two parties can be both debtor and creditor of each other, offsetting can be resorted to in order to reduce, or even extinguish the liability, if the legal conditions are present and if the criteria under Philippine Financial Reporting Standards (PFRS) are met.