Clearly there were some firms that struggled initially with either technology aspects or changes to working practices required with working from home in lockdown but on the whole the industry has shown huge flexibility and adaptability to continue to service clients over the last six months.
In practice, many of Jersey’s ultimate clients are based internationally, so we have been well used to maintaining strong relationships with them by phone or digitally and the various service providers locally are therefore set up to deal with remote engagement. The fact that the accountants, lawyers, administrators and banking contacts are normally only a stone’s throw apart does not change that we have been set up to conduct business in this way previously and so working from home (up to 10 miles apart) has not made too much difference in the short term. It is clear, however, that building new relationships, coaching teams and sharing ideas can be more challenging when not meeting in person and so there is certainly enthusiasm to return to a more ‘normal’ working environment.
Taxation developments
Substance regime
As I discussed in more detail in last year’s publication, the implementation of Jersey’s substance regime continues to be the primary point of relevance from a tax perspective. This requires that companies which are tax resident in Jersey and undertaking / earning gross income from ‘relevant activities’ need to satisfy three key tests to demonstrate substance on the Island. Failure to meet the requirements will result initially in penalties but repeated offences could result in the company being struck off.
Most businesses are now into their second calendar year of complying with the law and should have solid procedures in place to ensure compliance with the technical requirements.
However, the filing of the first tax returns in the economic substance era are due in December 2020 and administrators are realising the complexity and time involved in completing the returns, which was previously little more than an admin exercise for most. To reduce the impact on internal resourcing and to avoid passing costs on to clients, they are looking for efficient and tech-driven ways to complete and file.
Helpfully, Revenue Jersey issued guidance in response to the COVID-19 pandemic, noting that a company would not be determined to have failed the economic substance test where its operating practices had to be adjusted to compensate for the outbreak. This is not a ‘free pass’ for companies which were already failing but will be of value to companies which were ordinarily in compliance.
Response to COVID-19
Governments around the world are acting decisively to protect their people and economies from the disruption being caused by the COVID-19 pandemic and Jersey is no different. Whether through fiscal support packages, incentives to generate stimulus in the local economy, or a rebalancing of revenue measures going forwards, tax systems will play a significant part in helping to alleviate the financial and economic turmoil.
The Government of Jersey continues to be in a strong net asset position, having built up significant reserves over the years for just this type of event, which therefore puts us in a better position than most to take a more pragmatic approach to restoring fiscal normality, potentially over a longer period of time.
DAC6 and MDR
Jersey has lodged legislation introducing ‘Mandatory Disclosure Rules’ (MDR), following commitments given by the Government of Jersey to the EU Code of Conduct Group. The rules, which were debated in June 2020 but, at the time of writing, are continuing to be reviewed by legislators, are expected to come into force late 2020 or, more likely, 2021. They will require promoters, service providers and, in some circumstances, users of Common Reporting Standard (CRS) avoidance arrangements and opaque offshore structures to provide Revenue Jersey with information about those arrangements and structures. Information relating to users resident in other jurisdictions would be exchanged with the tax authority of that jurisdiction.
Given the strength of Jersey’s AML regime, it is not anticipated that reportable arrangements will commonly occur but firms are reviewing their onboarding and transaction processes to ensure they are in compliance, putting in place training for staff to ensure they can identify red flags and escalate to MDR champions. They are additionally dealing with EU DAC6, which introduces similar but more complex rules. Although the EU directive does not have direct effect in Jersey, its drafting is wide and a number of Jersey businesses are realising that they or their administered entities are potentially within scope of the legislation. There is additional complexity whereby, as a directive, it is being implemented slightly differently in each Member State and those nuances need to be considered by local firms, along with developing a compliance regime which deals with MDR and EU DAC6 efficiently.
Auditing developments
Meanwhile, several UK reviews of the auditing profession were published in the last 12 months and will likely filter down through the local market, addressing three main areas:
- Market structure – the Competition and Markets Authority published their report into the UK statutory audit market, making a number of recommendations in relation to areas such as oversight of audit committees, joint audits and operational separation for certain categories of audit (mainly the listed FTSE350 market)
- Regulator – the Kingman report has led to the creation of a new audit regulator (ARGA) with increased transparency, enforcement powers and market intelligence
- Product – the Brydon review focused on the needs and expectations of the users of audits and among its 64 recommendations it suggested a new stronger corporate auditing profession with a unifying purpose and principles, relevant to a wider group of stakeholders, and wide-reaching change throughout the corporate reporting ecosystem, impacting company boards, executives, investors and regulators, as well as audit professionals and the audit product.
On top of these reviews, there have been some updates to certain auditing standards and requirements, principal of which are:
- Financial Reporting Council (FRC) Revised Ethical Standard
- ISA 570(R) – an updated auditing standard in relation to Going Concern
- ISA 540(R) – revisions to Auditing Accounting Estimates and Related disclosures
All of the aforementioned updates were predominantly in response to certain large corporate failures over previous years but are also very relevant in responding to the potential impacts of COVID-19.
Accounting developments
In the world of international accounting, there are relatively few changes for financial services entities, with the most significant two being: IFRS 16 Leases, which was applicable for periods beginning on or after 1st January 2019 and required lessees to recognise nearly all leases on the balance sheet, reflecting their right to use an asset for a period of time and the associated liability for payments; and further guidance on the treatment of expected credit losses (ECL) under IFRS 9, which has been particularly relevant in response to COVID-19.
JSCCA support for its members
In these challenging times, continuing to be engaged with emerging developments is paramount to ensuring that we remain up-to-date, able to respond to our clients’ needs and service their requirements.
With so much change about, the Jersey Society of Chartered and Certified Accountants (JSCCA) fulfil some very important roles for the profession:
- Members of the Executive Committee regularly participate in discussions and panels with the local regulator, government, Jersey Finance, the taxes office (Revenue Jersey) and other industry leaders to help shape strategy and ensure that all parties are mindful of the impact of certain actions
- Our technical and regulatory subcommittee chairs ensure that representatives from industry meet to discuss, collaborate and respond to consultations and emerging regulations
- Our training sub-committee ensures that there are comprehensive development opportunities for members, both on a monthly basis but also through our two-day CPD conference, to stay abreast of emerging issues.
We also have strong links with other related organisations, such as the GSCCA in Guernsey and the UK’s professional bodies (ICAEW, ICAS and ACCA), to ensure that we uphold the highest standards of professional conduct and are aligned on key areas of topical interest.
The accountancy profession – including tax practitioners, auditors, management accountants, book-keepers and those who may have moved into other tangential sectors, such as risk, compliance, operations and management – continues to be a core pillar for the various professional services the Island provides to support the international business, finance and investment communities and staying up-to-date with emerging developments is key to all of us in the industry.