It is almost impossible to talk about anything else. The virus continues to wreak havoc across the globe. There doesn’t seem to be one single aspect of doing business that can be classified as ‘usual’. Working conditions are only one small part of the whole picture. Businesses are also struggling with maintaining cashflow, forecasting, financial and regulatory reporting. The pandemic has hit asset valuations hard. When it comes to putting together the final financial statements, there is a lot of questions around what to account for and how, particularly if the financial year end falls within the year 2020.
Equally, the tax authorities around the world had to rapidly respond with various relief schemes, suspending tax audits and - most visibly - en masse delaying of reporting deadlines for FATCA and CRS. For example, Bermuda tax authority has extended 2019 tax year CRS reporting deadline to 15 July 2020 while BVI has extended CRS reporting deadline to 31 July 2020, and FATCA to 31 August 2020. The Cayman Islands have gone as far as to delay both reporting deadlines to 16 November 2020.
Another area where the pandemic is causing a headache is determining tax residency. This is particularly true for firms not incorporated in a jurisdiction where they are tax resident and maintain their tax residency by satisfying the central management and control (CMC) test. One of the main requirements to meet the CMC test is for the board meetings to take place physically in the jurisdiction of tax residence. That has, of course, been severely impacted by the travel restrictions to combat the spread of the coronavirus. This would directly threaten the firms’ ability to maintain tax residency in certain jurisdictions, for example the UK and Singapore.
Regulators across the globe have also responded to the problem by relaxing the rules around central management and control conditions, and more recently, new Economic Substance rules. We have recently performed a webinar with PwC, where we suggest that storing recordings may be beneficial as many are relying on video calls and regulatory relaxations during the current global situation.
The pandemic has also started affecting reporting obligations that have not even come into effect yet. The reporting obligations under the Mandatory Disclosure Rules – or DAC6 directive in the EU – are coming into effect on 1 July 2020. Perhaps not surprisingly, the European Commission has now proposed to postpone the implementation date to 1 October 2020. Although this is only a proposal, it is most likely to be accepted, so the MDR reporting deadline is not likely to be effective before October.
All the actions by the regulators and governments to alleviate the impact of the pandemic are most welcome. However, it does show how the virus stopped the normal regulatory flow in its tracks. It shifted the focus from forward-looking to the ‘right here and now’, where the key priority is to help deal with the fallout of the pandemic.
Inevitably, this crisis will show - and is already showing - the cracks in the current regulatory frameworks around the globe. Furthermore, it is also highlighting new risks which will need to be addressed, regulated and managed in the new post-Covid-19 world. As we are grappling to get on top of the changes caused by the pandemic, it seems there is only one certainty we can enjoy. That once the virus is contained and the regulatory world has an opportunity to refocus, we will see yet more regulatory change.
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Nina is Compliance Product Manager at TrustQuay