The latest developments in corporate reporting and taxation were outlined to leading Isle of Man non-executive board members at a special breakfast briefing organised by PwC in December 2013.

The briefing, part of PwC’s ongoing commitment to keeping board members up to date on governance and related matters, heard presentations from Nick Halsall, PwC Isle of Man Assurance Partner, Wendy Jessup, PwC Isle of Man Assurance Senior Manager, and George Sharpe, PwC Isle of Man Tax Director.

Nick Halsall explained the latest developments in corporate reporting and assurance matters, focusing on corporate governance requirements for Isle of Man companies. His presentation also included recent developments affecting UK companies including the new strategic report, changes to the reporting of directors’ remuneration and the introduction of a number of new disclosure requirements.

A significant area of discussion was the FRC’s UK Corporate Governance Code, which, among other measures, sets new standards for the content of annual reports. It places an onus on company directors to ensure and affirm that the annual report is ‘fair, balanced and understandable’.  Nick explained, with reference to specific examples, what this would mean for future annual reports, as well as what the recent changes meant for the role of the audit committee. While the intention is to facilitate engagement between investors and companies, Nick said PwC’s view is that the FRC proposals do not go far enough, and do not provide the information that engaged investors are asking for. ‘Investors want auditors’ views on outcomes, not just on the audit process.’

Wendy Jessup opened her presentation by confirming that UK GAAP as we know it is ending, and outlined the two standards issued by the FRC as replacements, FRS 101 and FRS 102. Wendy explained that with adoption set for 1 January 2015, now is the time to consider the best way forward. The differences between the alternatives were discussed, with a focused look at FRS 101 and FRS 102. Wendy said that many companies might opt for FRS 102, unless they are eligible for FRS 101 or the FRSSE (the accounting framework for smaller companies) depending on the facts and circumstances of the company. However, she warned board members must consider that FRS 101 and 102 will bring accounting and disclosure changes, and it may impact a company’s tax and distributable profits.

The briefing closed with George Sharpe’s explanation of the latest tax developments. He discussed the imminent arrival of FATCA, and the need to be ready ahead of the 1 July 2014, deadline, as well as the ‘pandemic’ of inter-governmental agreements FATCA has created. In addition to the Isle of Man having automatic tax exchanges with around 30 countries in the next three years, businesses should also be prepared for public records of the beneficial ownership of every company, and possibly every trust, being introduced.

George also expanded on the legislative and regulatory impact the perception that some companies are making money without paying their ‘fair share’ in taxation will have. In the short term multinational corporations could look to base erosion and profit sharing, and in the longer term turn to consolidated corporate tax bases, both of which will impact on offshore centres.

George said: ‘It could be very, very uncomfortable for the Isle of Man, and the Island needs to think how to reposition itself.’

George drew a parallel between the failure of state socialist economics in the 1980’s and the challenges facing free market capitalism today. He explained state socialism was replaced not by democracy and free markets but by economic anarchy, where wealth and power gravitated to the strong and greedy. George warned that not confronting the challenges facing us today, and ensuring that capitalism evolves to meet the aspirations of ordinary people, would be a mistake.

‘Perhaps rising to the challenge of dealing with this issue is the best way forward for all of us,’ he concluded.
A number of further briefings for Isle of Man non-executive directors will take place in 2014.  Anyone interested in attending future events in the series should contact Linda Jackson on 689689 or email her at l.jackson@iom.pwc.com 

Photograph: (left to right) Nick Halsall, Partner, Wendy Jessup, Senior Manager, George Sharpe, Tax Director.