Brazilian interest on net equity rules remain unchanged

Brazil_IIOn 30 September 2015, the Executive Branch of the Brazilian government released a Provisional Measure 694/2015 (PM 694), which was supposed to add a new deductibility limitation for interest on net equity (INE) for Brazilian income tax and social contribution tax purposes, and which additionally sought to increase the income tax withholding rate on INE payments to non-resident shareholders.

However, due to lack of action by the Brazilian Congress to convert the provisions of PM 694 into law (in its existing form or with amendments), the PM expired as of 9 March 2016. The expiration was confirmed by a notice released by the Brazilian Senate on the same date.

Hence, as for now, the Brazilian INE rules remain unchanged. However, as it is possible that the proposed amendments will be reintroduced in a future PM, multinational companies that own Brazilian entities should continue to monitor developments related to INE payments.

 

Read more about the PM 694 in our newsletter.

 

If you´re interested in this topic or have any questions connected with it, please feel free to contact our experts:

Daniel Gremaud
Partner, Leader Tax & Legal Romandie
daniel.gremaud@ch.pwc.com
+41 58 792 81 23

Matthias Marbach
Director, Tax & Legal Services
matthias.marbach@ch.pwc.com
+41 58 792 44 76

FinTech: Embracing the people opportunity

There has been a lot of talk about Financial Technology (“FinTech”) companies in recent months. The increasing use of technology to deliver financial services is not new, but recent advances in technology, digital security and processing power are unlocking opportunities for companies to completely rethink the way in which these services are provided, disrupting accepted business models along the way.

Many commentators to date have focused on the impact this will have on the provision of services and the structure of the market, but another important issue to consider is the people aspect. It is people, after all, who develop the innovative and groundbreaking solutions that will cause tremors through the industry.

But where should you start? If an organisation is to be successful in this new world, attracting and developing the right talent will be crucial.

People challenge What can HR do?
How do we develop the skills to be successful in this new market? Focus on innovation and agility to react quickly to change.Redesigned performance management to foster teamwork and “fail-fast” mindsets that promote innovation.Rethinking organisation structures to emphasise flatter, team based structures.
How do we remodel our own processes to attract talent? Develop 21st Century HR processes that deliver HR services through digital channels and cloud-based solutions across the employee life cycle.
How do we develop a FinTech-friendly employer brand? Develop a set of values that speak to innovative talent which is looking for a “grand challenge” to solve.Use events such as business incubators or “elevator pitch” investment programmes to engage with potential future talent.

Many of these changes relate to the culture of the business, something currently on the minds of FinTech start-ups as one of the potential barriers to effectively working with traditional businesses.

FinTech

This week sees the release of “Blurred Lines”, PwC’s global survey looking to assess the attitudes and emerging trends associated with FinTech. This survey provides some great food for thought, both for existing FS organisations and for those wanting to get in on the action with their own start-up.

There is a great deal to think about in this area, and we will see significant changes in people processes across the industry in the coming years. This presents an exciting opportunity for HR to be a strategic partner to the business when leadership are defining their response and group strategy for FinTech. You can access our survey here.

If you’d like to discuss your plans for introducing FinTech with an expert, please feel free to contact Stuart Jones.

Corporate governance and risk management: revision of FINMA regulations

On 1 March 2016, FINMA announced it was modernising its regulatory requirements for banks with regard to corporate governance, internal control systems and risk management. After implementing any potential changes that arise from the hearing phase, the new provisions should enter into force as of 1 August 2016.

In order to reflect the fundamental changes in the area of corporate governance and the lessons learned from the financial crisis about risk management, FINMA is revising the following circulars:

  • Total revision of circular 2008/24 ‘Supervision and internal control – banks’ and publication of a new circular 2016/XX ‘Corporate governance – banks’;
  • Partial revision of circular 2008/21 ‘Operational risks – banks’;
  • Partial revision of circular 2010/1 ‘Remuneration schemes’.

More stringent rules for corporate governance, internal control systems and risk management

The new circular 2016/XX ‘Corporate governance – banks’ will introduce new and revised rules as follows:

  • Definition of the principles and structures for supreme governing bodies ensuring a balance of the functions of the various bodies (checks and balances);
  • Creation of a conceptual risk management framework at the entity level;
  • Publication of information relating to corporate governance and risk management.

In addition, banks in categories 1 to 3 will be subject to the following provisions:

  • Appointment of an audit committee and a separate risk committee;
  • Designation of a chief risk officer (CRO) responsible for risk control (at systemically important banks, the CRO must be a member of the Executive Board);
  • Extensive publication of information on corporate governance based on the requirements of SIX Exchange for listed companies.

Wider range of operational risks to monitor

The revision of the circular 2008/21 ‘Operational risks – banks’ includes the simplification of the operational risk management principles (now integrated in the new circular 2016/XX ‘Corporate governance – banks’).

Among others, the new requirements concern:

  • IT risk and cyber risk management;
  • Maintenance of key operations in cases of business failure;
  • Risk management of cross-border activities.

Read more about the revised circular: here.

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Restriction in the binding application of minimum requirements for remuneration systems

The revised requirements of circular 2010/1 ‘Remuneration schemes’ now apply only to institutions with a minimum capital requirement of CHF 10 billion.

Besides this, the circular specifies some new conditions concerning the design of remuneration systems.

Entry into force of the revised regulations as of 1 August 2016

The draft circulars were published on 1 March 2016. Interested parties are invited to submit their opinions on the revisions before 13 April 2016. After the hearing phase, FINMA will publish a report.

After implementing any potential amendments, the new circular 2016/XX ‘Corporate governance – banks’ and the revised circulars 2008/21 ‘Operational risks – banks’ and 2010/1 ‘Remuneration schemes’ should enter into force as of 1 August 2016.

However, FINMA should grant a transition period of one year regarding the compliance with some requirements of the new circular 2016/XX ‘Corporate governance – banks’. It should be the case with the creation and approval of the risk management framework at the entity level, as well as some organisational measures (such as the appointment of an audit committee and a separate risk committee, and the designation of a separate CRO).

 

Link to FINMA website: Press release

 

If you are interested in this or another topic, please don’t hesitate to contact one of our experts:

 

Yan Borboën
PwC
Avenue C.-F. Ramuz 45
Case postale, 1001 Lausanne
+41 58 792 8459

Jens Probst
PwC
Birchstrasse 160
Postfach, 8050 Zürich
+41 58 792 2959

Marco Schurtenberger
PwC
Birchstrasse 160
Postfach, 8050 Zürich
+41 58 792 2233

Vincent Colonna
PwC
Avenue Giuseppe-Motta 50
Case postale, 1211 Genève 2
+41 58 792 9032

Global pension risk – How do Swiss multinationals compare to their peers

Bild_Pension_BlogLower long-term interest rates look here to stay. People are living longer. Finding positive real investment returns with an acceptable level of risk is getting tougher. All of these factors are putting pressure on the costs of retirement.

Our 2014 survey of corporate attitudes about global retirement provision showed the global trend towards defined contribution pension plans which place the risk of financing retirement on employees. While this trend continues, the legacy of past promises made by corporates remains.

Our analysis of the latest financial disclosures of 587 companies across Europe shows the continuing and growing impact retirement obligations have on balance sheets and corporate results. Our study looked at companies with market capitalisations over €1bn, including 71 Swiss corporates. This showed that:

  • The 71 Swiss multinationals in our analysis had total defined benefit obligations of €204bn.
  • These obligations were on average 16% of market capitalisation (value of shares in circulation).
  • Assets to cover 85% of these obligations, a fall of 5% compared to 2013/14.
  • Annual payments by Swiss companies to defined benefit plans were of 2.4% of the obligations (i.e. €4.9bn), equivalent to 0.3% of shareholder value a year.

You can find our full analysis here.

Solving these challenges needs a clear global strategy combined with local actions and plans to execute risk reduction. Our 2014 survey outlines some of the options and approaches available to multinationals: http://www.pwc.com/gx/en/services/people-organisation/publications/global-pensions-survey.html

 

New TIEA signed between Switzerland and Brazil – meanwhile Dutch holding companies back on “gray list” of privileged tax regimes

TIEA_BildOn 23 November 2015, Switzerland and Brazil have signed a new tax information exchange agreement (TIEA). The new TIEA does not only foster the bilateral relationships between the two countries and ensures compliance with OECD international fiscal transparency standards, but also underlines Switzerland’s removal of the Brazilian blacklist in June 2014 permanently. Before entering into force, the TIEA however needs to be ratified by the countries’ parliaments and is subject to an optional referendum in Switzerland.

While the newly signed TIEA provides more legal and economic certainty, it may also be a first step in direction of a deeper collaboration in tax matters, particularly building a corner stone for a future double taxation treaty.

For further information regarding the aforementioned topic read our latest publication here.

General Data Protection Regulation GDPR

The European Union (“EU”) has now adopted the General Data Protection Regulation (“GDPR”). A “strong compromise” was reached over how to ensure a high level of data protection across the EU. It was agreed by the EU Parliament and Council on December 15, 2015

The GDPR will impose a radical, much tougher data protection regulatory framework across the EU over the processing of personal data. Every EU-based “controller” or “processor” of personal data will be regulated, as will be every controller based outside the EU that targets or sells goods or services to, or stores and uses personal data of people living in the EU. This means that also companies based in Switzerland will have to comply with the provisions of the GDPR when processing the personal data of people living in the EU.

The big innovations in the GDPR

The adoption of the GDPR will present many entities everywhere with numerous new challenges. Key issues to be aware of include:

Compliance
Strict new compliance requirements will be imposed. For example, entities will have to perform “Privacy Impact Assessments”, conduct privacy audits and also have to implement “Privacy by Design” methodologies into their business processes.

Usage controls
Personal data will be subject to strict new usage controls (including “data minimisation”, “data portability” and the “right to be forgotten” principles).

Consent
Obtaining consent to use personal data will be much harder to achieve and to prove.

Bundling
The provision of a service that is conditional upon the individual giving permission for their data to be used for non-essential purposes (such as marketing) will be prohibited.

Aggregation
The ability to aggregate data to enable an individual to be profiled will be severely reduced.

Supervision
Regulators will also be empowered to carry out audits and inspections of entities on demand.

Breach disclosure
Entities will be required to report serious contraventions of the law to the regulators and to people affected.

Fines
Depending upon the final version of the regulation, serious violations of these new requirements will be punishable by fines of up to either 2% or 5% of group annual worldwide turnover.

Litigation
Citizens and pressure groups will be given the right to engage in group litigation (“class actions”) to recover compensation, even for any distress caused by breaches of the law.

Therefore, the EU GDPR raises countless compliance issues. It would be very easy to “get lost” in so much detail. Work will need to be done to understand the impact on each organisation, and to prioritise the compliance effort.

How PwC can help you

As a multi-disciplinary practice, we are uniquely placed to help you adjust to the new regulatory environment. Our global data protection team includes lawyers, consultants, auditors, technical risk specialists, forensics experts and strategists.

Save the date

We are holding a Webinar on Tuesday 26 January 2016 4pm, during which we will update you with our latest thinking on the GDPR, and talk about the impact of the new requirements for data protection and what this means for Swiss business. We are looking forward to discussing this topic with you. An invitation will be included in the January Newsletter.

Please click here to register for the Webinar.

For more information on the subject of data protection, please refer to the article Safe Harbor: stormy seas in Europe – impending storm in Switzerland?

Process Intelligence: better control, better performance, better processes

Be it for procurement, for sales or for insurance claim approvals, processes drive the main cycles in your company. There is, however, often a gap between how processes are intended to be and what they are in reality. Identifying and understanding these gaps is imperative to boosting your operational effectiveness and efficiency, ensuring quality and compliance, standardising workflows, as well as detecting anomalies or fraud.

PwC’s Process Intelligence analyses the data from your IT systems and makes them fully transparent for you. Curious to understand the main propositions and added value of Process Intelligence?

Check out our video, the related blog post and the technical demos in English and French.

Video

Demo

More information here

Process Intelligence: Your processes, transparent

What is the state of your business processes?

There is often a gap between how business processes are intended to be and what they are in reality. There are many reasons for this: the complexity of business and system landscapes; changes that have occurred over time; exceptions to process blueprints for operational reasons; users with too much freedom within the IT systems; and finally, people who often only see some of the processes whilst missing the complete picture.

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Understanding the real flow of your business processes is paramount when you want to improve process effectiveness or efficiency, ensure quality or compliance, standardise, or detect anomalies or fraud.

The traditional approach to understanding processes is through interviews, workshops, observations and document analyses, possibly accompanied by sample analysis. This method requires a lot of resources and time, and does not guarantee that the model which emerges reflects reality, as information may not be fully objective on the one hand, and incomplete on the other.

PwC’s Process Intelligence offering analyses the data from your IT systems as used by your people from day to day, and unveils what really happens in your business processes. The advantages of such a data-integrated approach are manifold:

  1. It is based on objective information – data doesn’t lie.
  2. It is based on the complete data set describing all transactions performed by the parties involved.
  3. It allows you to look at the process from different perspective (e.g., by process, by product, by person, by area, by company code, by team, etc.).
  4. The results are obtained quickly.
  5. The analyses deep-dive into every process detail.

PwC’s Process Intelligence

Our approach and tools empower us to analyse any process in any industry, as long as the system bookkeeps a “history” of steps carried out during the process execution.

Our approach to discover and analyse processes starts with a workshop to jointly analyse the extent of process automation and the expected level of standardisation within your business processes. This facilitates the identification of key focus areas, which will be further examined during the next phase. In an audit context, in general, we focus on areas where a high level of standardisation is assumed, as these could provide most audit efficiencies going forward.

In the next phase we analyse the selected processes in detail. This phase includes one or more iterations to be able to achieve the right level of process detail thus enabling us to distinguish between planned and unplanned process deviations. We utilise process mining techniques such as those described here:

  • Process discovery establishes how business processes are actually executed by your staff in your system. It enables you to evaluate the level of process standardisation, looking at frequent as well as exceptional activities in the process.
  • Process compliance and benchmarking techniques allow us to measure conformance to organisational rules or regulations and process blueprints, to compare how different entities execute the process, and identify factors causing deviations from the process blueprint.
  • Good practice identification searches for effective paths of process execution, identifies key people and potential training needs as well as success factors. By measuring performance characteristics, such as execution and lead times, and by spotting duplicate or unplanned activities, areas for improvement can be identified.
  • Organisational analyses show how people and teams collaborate, how they comply with segregation of duties, and assigned roles and responsibilities.

How does this work?

Based on the selected processes and the underlying system, we provide you with a set of tables and fields that you need to download for a specific time period. This includes master data, transactional data as well as change tables. If you use SAP, we have a proprietary, open-source download tool that will be made available to you to ensure smooth and efficient extraction of data.

We analyse your data with our Process Intelligence tool, which is paired with our proprietary SAP process and data dictionary knowledge to translate your data into actual business process flows. The output of this analysis is then discussed with the process owners and specialists and refined accordingly. This ensures that we adequately consider all business specifics.

After we arrive at a detailed understanding of your processes, we will share the results with you in a workshop and discuss the real process flows, any potential deviations and related implications for the audit as well as for your business.

For widely-used ERP systems, such as SAP ECC, Microsoft AX and Oracle, we have off-the-shelf scripts to analyse your main processes, e.g., procurement, sales and master data management processes. Further scripts can be developed depending on your needs.

What you get out of it?

The results of our analysis will be made available to you. Our Process Intelligence reports include:

  • Process transparency depicting the processes from various relevant angles.
  • A process health-check dashboard consisting of the top-ten most common or seldom used process paths, the value they generate, the most or least active users, and the most “expensive” paths, for example.
  • Transactional-level process indicators, such as “retrospective purchase orders”, “journals parked over 30 days”, “inventory movements” and “three-way-match configuration”.

For more information on the topic discussed above please contact me or visit our website.

Safe Harbor: stormy seas in Europe − impending storm in Switzerland?

On 6 October this year the European Court of Justice declared that the European Commission’s ‘Safe Harbor’ decision (2000/520) of 2000 which found that the United States afforded an adequate level of protection of personal data was invalid.

Safe Harbor Framework

This Safe Harbor Framework was one of a number of legal bases allowing the transmission of personal data from the EU to the United States to the 5,500 or so US entities self-certified under the Safe Harbor scheme. With this legal basis no longer valid, data transfer now has to be put on another basis, as stipulated in Article 26 of EU Directive 95/46/EC.

Declaration of invalidity

One of the reasons for the European Court of Justice’s declaration of invalidity is that personal data are not afforded adequate protection because the Safe Harbor Framework does not sufficiently limit the US government’s ability to infringe on the fundamental rights of individuals for reasons of national security and the public interest, and that it even gives these aims precedence over the safe harbor principles. There are thus not adequate safeguards in place to ensure that personal data will only be accessed if this – in terms of the European interpretation – is necessary and proportionate. As evidence of disproportionate use of personal data by government authorities it points to the PRISM programme exposed by Edward Snowden.

Implications for Switzerland

This European Court of Justice decision does not have any direct consequences for Switzerland for the time being. Switzerland and the United States have their own Safe Harbor arrangement – albeit virtually identical to the US/EU agreement – that currently affords an adequate level of data protection for around 3,900 self-certified US entities. However, it seems likely that the turmoil in Europe will also spill over into Swiss data protection, and that the Swiss Federal Data Protection and Information Commissioner (FDPIC) will also conclude that the Swiss Safe Harbor Framework no longer meets the requirements of Swiss data privacy law. In its initial opinion, the FDPIC indeed expressed the view that the European Court of Justice’s decision also calls the agreement between Switzerland and the United States into question, and that as far as Switzerland is concerned, in the event of renegotiation only an internationally coordinated approach that includes the EU would be appropriate.

Update:

On 22 October the FDPIC found that the Safe Harbor Framework between Switzerland and the United States no longer constitutes an adequate legal basis for data transfer to the United States. Swiss companies that transfer data to the United States on the basis of the Safe Harbor Framework must contractually agree guarantees assuring adequate levels of data protection with the US entity by the end of January 2016. While this will not solve the problem of disproportionate interference by the authorities, it will enable the level of data protection to be improved somewhat. In addition, persons affected must be given clear and comprehensive information, especially regarding the possibility that the data could be accessed by the authorities

If you’d like to talk about Safe Harbor, contact our experts:

Interest rate risk in the banking book − A regulatory proposal for more standardisation and consistency

In June 2015, the Basel Committee on Banking Supervision (BCBS) published a consultation paper on interest rate risk management in the banking book. In this paper, the BCBS proposes updating the current Pillar II treatment through the application of either a ‘standardised Pillar I approach’ or an ‘enhanced Pillar II approach’. The key change that will have the most impact on banks is the potential introduction of a regulatory minimum capital requirement.

Motivation

In the last few years, during the fundamental review of the trading book, the BCBS identified similar risks in the current regulatory framework on interest rate risks in the banking book. To facilitate a more consistent view of the risks in a bank’s balance sheet, the BCBS published an updated working paper for managing interest rate risks in the banking book. It is a somewhat complementary approach to the treatment of interest rate risk in the trading book. The second consultative paper on the ‘Fundamental review of the trading book defines a revised boundary between financial instruments in the trading book and in the banking book. To cover the market risks of the instruments in the trading book, banks are subject to a minimum capital requirement calculated on the basis of a Pillar I approach. To reduce incentives for capital arbitrage, the BCBS now also proposes a standardised Pillar I approach for interest rate risk in the banking book – hence requiring banks to hold a minimum capital level to cover such risks. As an alternative option, the BCBS proposes a so-called enhanced Pillar II approach, which requires banks to follow an updated supervisory Pillar II process and to calculate and disclose a standardised capital requirement level.

The Pillar I approach has the benefit of promoting market confidence in banks’ capital adequacy, as well as helping provide greater consistency, transparency and comparability across the banking industry. On the other hand, an enhanced Pillar II approach can better accommodate different market conditions and risk management practices across jurisdictions.

In reviewing the market risk coverage in the trading book, the BCBS assessed the impact on and changes to the banking book, and set out the motivations for the proposed implementation of the new framework as follows:

Implementation Details

For a more detailed overview of the two approaches, read more here.