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AB
ACCOUNTING AND BUSINESS CHINA 04/2013
CHINEXT
LOOKS AHEAD
INVESTING IN CHINA’S FUTURE
TAX TRANSPARENCY
DECISION-TIME FOR HONG KONG
HUMAN RIGHTS AUDITING FOR GOOD
CORRUPTION STEPS TO COMBAT
XBRL CAN IT DELIVER?
Editor’s choice 3
As deputy director general of Public Company Supervision II at the China Securities
Regulatory Commission (CSRC), Zhao Lixin is playing a leading role in developing the
ChiNext market – a key element in the national strategy for innovation. See page 12
time for agreement
A growing need for international tax transparency has cranked up
the pressure on jurisdictions to sign comprehensive double taxation
agreements (CDTAs). These allow the respective parties to determine
the taxing rights of each, as well as enabling the exchange of
information to prevent tax evasion. To date, Hong Kong has signed
27 such agreements. But as a low-tax jurisdiction, there may not be
a great incentive for some countries to enter into CDTAs where the
primary beneficiary may be viewed as Hong Kong.
So where does that leave countries wanting to enter into an
arrangement that allows the free exchange of tax information but
for whom a CDTA doesn’t cut it? Step forward the Tax Information
Exchange Agreement (TIEA). Except that Hong Kong has, so far,
declined to negotiate on TIEAs. Why? In our feature on page 16, we
look at the increasing pressure on Hong Kong to agree to the TIEA
framework put forward by the OECD Global Forum on Transparency
and Exchange of Information for Tax Purposes.
When the Global Forum conducted its phase 1 peer review report, it
noted that Hong Kong has an adequate legal and regulatory framework
to facilitate effective tax information exchange. Hong Kong has indeed
made great strides in establishing its international tax treaty network,
putting it on a par with international standards. This is in Hong Kong’s
interest as it enhances its position as an international business and
financial centre. But the fact that it is the only jurisdiction out of 108
Global Forum members to not agree to the TIEA framework raises
questions. In June 2012, the Hong Kong government concluded a
public consultation; ACCA has made submissions on this and broadly
supports the legal framework for entering into TIEAs, with caveats.
The phase 2 peer review report, on the progress of the Global
Forum’s members towards full and effective tax information exchange,
will be issued soon. As one tax professional puts it: ‘the pressure on
the government – and the profession – to act is immense.’
Colette Steckel, colette.steckel@accaglobal.com
XBRL takes hold a better audit
The ‘bar-coding’ Traditional
language geared methods can miss
to business the bigger picture
reporting is of how a company
gaining ground treats its people – RESEARCH AND INSIGHTS App big
globally, but not now stakeholders The new release of our app explores finance ambitions?
all companies are calling for function transformation, in particular shared For your next
are convinced human rights services and outsourcing. To download it, visit move, go to www.
of its efficacy audits www.accaglobal.com/riapp, or just search for accacareers.com/
Page 26 Page 42 ‘ACCA Insights’ in the iTunes App Store china-hong-kong
AB CHINA EDITION
CONTENTS
APRIL 2013
VOLUME 16 ISSUE 4
Asia editor Colette Steckel
colette.steckel@accaglobal.com +44 (0)20 7059 5896
Editor-in-chief Chris Quick
chris.quick@accaglobal.com +44 (0)20 7059 5966
International editor Lesley Bolton
lesley.bolton@accaglobal.com +44 (0)20 7059 5965
Sub-editors Loveday Cuming, Peter Kernan, Vivienne Riddoch
Design manager Jackie Dollar
Designers Robert Mills
Production manager Anthony Kay
Advertising James Fraser
jfraser@educate-direct.com +603 9205 8498
Head of publishing Adam Williams
Printing Times Printers
Pictures Corbis
Editorial board Rosanna Choi, Jimmy Chung, Tracy Ho,
Belinda Kwee, Andy Lam, Arthur Lee, Roy Leung, Derek
Poon, Anthony Tyen, Fergus Wong, Davy Yun
ACCA
President Barry Cooper FCCA
Deputy president Martin Turner FCCA
Features
Vice president Anthony Harbinson FCCA
Chief executive Helen Brand OBE
ACCA Connect
members@accaglobal.com +44 (0)141 582 2000 12 What next for ChiNext?
Zhao Lixin of the China
Securities Regulatory
ACCA Beijing Accounting and Business is published 10 Commission discusses
+86 10 6518 6122 times per year. All views expressed within the development of the
accabj@cn.accaglobal.com the title are those of the contributors.
burgeoning board
The Council of ACCA and the publishers
ACCA Chengdu do not guarantee the accuracy of 16 The heat is on Hong
+86 28 8620 2085 statements by contributors or advertisers, Kong is under pressure to
info@cn.accaglobal.com or accept responsibility for any statement establish a legal framework
that they may express in this publication.
ACCA Guangzhou for tax information exchange
Copyright ACCA 2013 Accounting and
+86 20 8755 7932 agreements
accagz@cn.accaglobal.com Business. No part of this publication may
be reproduced, stored or distributed 20 Beating bribery The
ACCA Hong Kong without the express written permission global anti-corruption push is
+852 2524 4988 of ACCA.
gathering pace
info@hk.accaglobal.com Accounting and Business is published by
Certified Accountant (Publications) Ltd, a 23 Reward rethink
ACCA Macau subsidiary of the Association of Chartered Good risk management relies
+853 8294 6708 Certified Accountants. on a healthy corporate culture
macau@cn.acca
29 Lincoln’s Inn Fields
global.com
London, WC2A 3EE, UK
26 XBRL overkill? Despite its
+44 (0) 20 7059 5000 growing popularity, XBRL has
ACCA Shanghai
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yet to win over the doubters
www.accaglobal.com
accash@cn.acca global.com
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June 2012
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Worldwide
There are six different versions of
Accounting and Business: China, Ireland,
International, Malaysia, Singapore and UK.
See them all at www.accaglobal.com/ab
Regulars
BRIEFING TECHNICAL
06 News in pictures 44 Update The latest from the
A different view of recent headlines standard-setters
08 News in graphics 46 Audit standards ISACA is
We show a story as well as tell it using updating its standards in line with
innovative graphs advances in IT
10 News round-up 48 CPD: debt or equity? IAS 32 aims
A digest of all the latest news and to provide clarity for definitions of
developments assets and liabilities in relation to debt
instruments
VIEWPOINT
30 Cesar Bacani Outgoing CFOs have
51 All about EVA Our new series
explores economic value added
54 US corporate healthcare What will
Your sector
much to pass on to the up and coming be the implications for companies of
the new Affordable Care Act?
33 CORPORATE
31 Errol Oh It’s time to enable more
women to reach the boardroom 33 The view from Ali Hammad of
Almutlaq Group, Saudi Arabia, plus
32 Barry Cooper Emerging economies
should follow China’s example and
CAREERS news in brief
adopt IFRS 60 The next step How three finance 34 Finding a balance Despite their
professionals turned the financial crisis affluence Hong Kong and Singapore
to their advantage score badly in the happiness stakes
38 The mobile workplace The rise
of the ‘bring-your-own-device’ culture
requires careful management
41 PRACTICE
41 The view from Gayle Dickerson
FCCA of Grant Thornton, Sydney, plus
news in brief
42 Auditing for human rights
An insight into a complex area
of reporting
ACCA NEWS
CPD
Accounting and Business is a rich source of
62 Disciplinary and regulatory
hearings Publicity protocols are
set to change in 2014
CPD. If you read it to keep yourself up to
63 CPD There are many different
date, it will contribute to your non-verifiable
ways of accessing CPD
CPD. If you read an article, learn something
new and apply that learning in some way, it 64 News Charity Fun Day
will contribute to your verifiable CPD. Each Appreciation Lunch celebrates
month, we also publish an article or two with fundraising success; Beijing and
related questions to answer. If they are Shanghai Annual Conferences take place; ACCA and
relevant to your development needs, they BDO China sign Memorandum of Understanding; AB Corporate, an
can also contribute to your verifiable CPD. Accounting and Business special edition, available online; record
One hour of learning equates to one unit of numbers pass exams; new appointments to ACCA/IMA Accountants for
CPD. For more, go to Business Global Forum
www.accaglobal.com/members/cpd
6 News in pictures
01 David Beckham
has become a
global ambassador for
Chinese football in a bid
to boost its profile. He
will combine the role
with playing for French
team Paris St-Germain
02 Japan’s prime
minister Shinzo
Abe announced that
Tokyo could be an
inspiration for other
cities if it wins the
right to host the
2020 Olympics
03 Aged 114,
Misao Okawa
from Japan has been
recognised by Guinness
World Records as the
oldest woman alive
7
04 Europe’s
horsemeat
scandal has spread to
Asia, with an imported
lasagne brand taken
off the shelves of
ParknShop, one of the
biggest supermarket
chains in Hong Kong
05 After winning an
Oscar for movie
blockbuster Life of Pi,
Taiwanese director Ang
Lee has been celebrated
across Asia. Lee shot the
film in his home country
and has been thanked
publicly by president
Ma Ying-jeou
06 Park Geun-
hye was sworn
in as South Korea’s
first woman president
at an inauguration
ceremony at the National
Assembly in Seoul, with
global sensation Psy
also performing
07 As the global
demand for ivory
is on the rise, Singapore
is bucking the trend. The
number of shops selling
ivory in the country has
more than halved in the
last decade, according to
a survey by two wildlife
conservation groups
8 News in graphics
1 2 3 =4 =4 6
TOKYO OSAKA SYDNEY OSLO MELBOURNE SINGAPORE
THE CRIPPLING COST OF LIVING IN URBAN ASIA
According to the latest Worldwide Cost of Living Survey from the Economist Intelligence Unit, five cities in Asia Pacific and one
in Europe have displaced Zurich at the top of the most expensive urban location list. The top 20 now includes 11 Asian cities.
99M MOBILE MIRED
Number Brands in Asia Pacific are struggling to develop
of people formal mobile strategies, putting at risk the
living us$2.8bn
success of their marketing plans, according to
below the YEOH TION a study by Warc and the Marketing Association
G
poverty LAY for the Festival of Media Asia. Respondents
line in rated Japan and South Korea as the most
China us$4.5bn innovative in Asia Pacific for mobile marketing.
in 2012 LEE SHIN
(down CHENG
us$4.8bn
from 122m QUEK LENG
in 2011). CHAN 1 JAPAN
61%
Proportion us$5.6bn
TEH HONG
of Chinese PIOW
companies
facing
us$6.6bn
LIM KOK
a skills THAY A
KORE
shortage, UTH
according 2 SO
us$11N.7
to Grant bn
Thornton. ANADA
KRISHNAN us$12.5b
13% n 3 CHI
NA
Proportion ROBERT KU
OK
of Asian 4 SINGAPORE
investors
looking for
openings MALAYSIANS CRACK FORBES
overseas, Fourteen of the world’s 1,342 billionaires
according are Malaysians (up from 11), according to 5 INDIA
to an EY the latest Forbes rich list, with Robert Kuok
survey of ranking joint 76th richest man on the planet.
investors.
WAS THIS YEAR’S BONUS BIGGER THAN LAST YEAR’S?
in figures
Finance professionals in three locations told Efinancialcareers.com how their latest annual bonus compares
with the previous one. The average increase was 19% in Hong Kong, 10% in Australia and 8% in Singapore.
Month
KEY:
Bigger
Smaller
AUSTRALIA HONG KONG SINGAPORE The same
9
510m
$31, 1
GLOBALS’ GROWTH SLOWS
,300m 6%
Despite overall income growth in 2012, the 22
leading global accountancy networks have seen $31 Global
accounting
their rate of growth dip for the first time since 2009
as a result of pressure on fees, regulatory scrutiny and
2 network
income
intense competition across the industry. According to the growth in
latest survey by International Accounting Bulletin, there 2012 (8% in
has been virtually no change in the Big Four’s market share.
,420m 2011).
RANK COMPANY GROWTH RATE $24 US$145bn
Combined
3 revenue of
1 PwC +8% leading global
accountancy
2 DELOITTE +9% networks
in 2012
3
30m
ERNST & YOUNG +7% (US$137bn in
3,0
$2
2011).
4 KPMG +1%
4 180,529
5 BDO +6% Global
workforce of
6 GRANT THORNTON +10% PwC, the firm
with biggest
16m
$6,0
7 RSM +1% fee income.
8 BAKER TILLY INT +3% 5
9 CROWE HORWATH +5%
10 NEXIA +22%
82m
www.InternationalAccountingBulletin.com $4,1
6
87m
40m
$3,9
$2,8 7
10 17m
$3,0
78m $3,3
9 8
According to the survey, 18 of the 22 Deloitte has ever wrested away from audit and accounting services, with
networks surveyed grew revenue in it – once, in 2010. advisory – and to a lesser extent tax –
2012, down from 21 in 2011. Of all 45 The year saw a surge in M&A activity bringing in organic growth.
surveyed networks and associations, among the larger mid-tier networks, Worldwide, firms in Turkey (35%),
23% reported a fall in revenues and with BDO International merging with China (28%) and India (20%) enjoyed
11% saw double-digit growth (down PKF International’s firms in Australia, strongest average growth in the year,
from 27% in 2011). PwC remained the China and the UK. as networks and associations invested
largest global network, a title that only Firms saw continued pressure on heavily in these emerging economies.
10 News round-up
BONUS BONANZA scheme for the disposal of electrical for finance professionals this year.
Nearly four in 10 Hong-Kong based and electronic equipment waste, Unveiling the findings of its 2013
finance professionals (39%) received imposed in 2010. The government Salary Guide Greater China, Alan
on average a bigger bonus in 2012, says that recycled glass bottles, after Wong, managing director, Kelly
up from 33% in 2011. They fared suitable processing, can be turned Services Hong Kong, said: ‘With the
better than their peers elsewhere into different kinds of construction return of market confidence in 2013,
in the region, according to the materials. It hopes that 70% of the we are observing a significant shift
eFinancialCareers annual Bonus city’s waste glass – over 100 tons to a more positive outlook among
Survey. It found that in Singapore, the per day – can be recovered through leaders in the business community.
proportion of those receiving higher the scheme. A three-month public As a benefit for all, organisations
2012 bonuses was 31% (up from 29% consultation, launched in February, will seem willing to move from merely
in 2011), while in Australia, the figure end in May. surviving in the present environment to
fell to 28% (from 34% in 2011). For investing in future growth. As outlooks
around half of Hong Kong finance WHAT PRICE CARBON? improve, we are excited to observe a
professionals, bonuses decreased China is tipped to be the next country growing demand for candidates with
or stayed the same. ‘Given that the to introduce a carbon tax. Mainland solid accounting, insurance and other
average bonus amount has increased, press has reported that Beijing ‘will financial skills.’
our results suggest that financial proactively introduce a set of new
services companies in Hong Kong taxation policies designed to preserve DEBT SAVVY
have focused on rewarding their top the environment, including a tax on Close to half of China’s provinces are
performers in order to ensure that they carbon dioxide emissions’. Quoting setting their growth sights lower as
retain them,’ said George McFerran, a senior official within the Ministry the central government urges quality
managing director, Asia Pacific, of Finance, the reports said that the of expansion over speed – a sign of
eFinancialCareers. government is also considering taxing an increased focus on tackling rising
energy-intensive products such as debt. Bloomberg reported that 14
WASTE NOT batteries, as well as luxury goods such provinces have set lower targets for
Faced with what it calls ‘an imminent as private aircraft, in order to clear up gross domestic product expansion this
waste management crisis’, the China’s smoggy skies. A rise in the coal year than in 2012, and the other 17
Hong Kong Government is considering tax and a resource tax levied on water left their goals unchanged, according
a tax on glass bottles. Under the have also been mooted. to Nomura Holdings.
proposal, a mandatory recycling fee
would be levied on bottle suppliers – JOBS JOY YUAN STEPS UP
similar to the existing levy on plastic Workforce solutions provider Kelly Internationalisation of the Chinese
shopping bags since 2007, and a Services forecasts more job openings currency has received a boost
after derivatives-exchange operator
CME Group began offering foreign-
IFRS GOOD FOR CHINA exchange futures contracts in
New ACCA research has found that Hong Kong denominated in yuan.
convergence to international financial KC Lam, the Singapore-based head
reporting standards (IFRS) has of foreign-exchange products in
benefited the Chinese economy. Does Asia for CME, told China Daily that
IFRS Convergence Affect Financial the status of China – as the world’s
Reporting Quality in China? found second-biggest economy, number-one
that the value relevance of earnings exporter and number-two importer
of Chinese companies listed on – means growing global demand
the Shanghai and Shenzhen stock for its currency. He said that CME’s
exchanges increased following IFRS decision to launch the yuan-deliverable
convergence in 2007. offshore contracts was ‘primarily
Manos Schizas, senior economic commercially driven’.
analyst at ACCA, said that convergence
demonstrated ‘how policymakers have SLICING INTO THE PIE
matched and integrated accounting The CEO of AIA Group, Asia’s third-
reforms with economic ones – it is largest insurance company, says that
actively helping China achieve more most Asians remain under-insured,
balanced, equitable and sustainable Shanghai Stock Exchange despite the record growth of his
growth led by the private sector.’ company. AIA reported a 27% leap inAnalysis 11
THE GIFT OF GIVING?
While there’s a thin line between the longstanding Asian practice of offering
gifts to clients and the far murkier waters of bribery, the growth in international
anti-corruption regulation is bringing increased clarity to transactions
P20
the value of its new business, boosted US$314bn, are manageable, according system. While regulators in Asia
by growth in Thailand and Singapore, to Moody’s Investors Service. During are committed to implementing
but CEO Mark Tucker told CNBC that this period, annual maturities will global reforms, there are important
the company was yet to fully capitalise peak at US$92bn in 2014, up from differences compared with Europe and
on growth across Asia and said the US$78bn in 2013, before declining to the US, making it ‘difficult for banks to
region's insurance ‘pie’ was getting US$63bn by 2016, according to the work out what they need to do country
larger. Tucker said that ‘80% of the report. ‘These maturity amounts are by country,’ said Simon Topping, head
world’s insurance industry growth will manageable, given the strong issuance of financial services regulation, Asia
come from emerging markets, half of levels in recent years, and because Pacific, for KPMG.
that from China,’ offering ‘fantastic
opportunities for us’.
TAX-HAPPY HONG KONG
FUND FRIENDLY Hong Kong’s business environment is
Deloitte has welcomed an extended so favourable that almost two-thirds
exemption from profits tax for of businesses would not consider
offshore funds that invest in Hong moving their headquarters abroad for
Kong – ‘something the industry has a lower corporate tax rate, according
long been seeking’, it says. The move, to Grant Thornton research. The latest
announced in February’s Budget, International Business Report reveals
will help position Hong Kong as an that 64% of businesses in Hong Kong
international asset management would stay put.
centre, Deloitte says. However, William Chan, tax partner at Grant
the firm wants the government Thornton Hong Kong, said: ‘Hong
to consider further extending the Kong is renowned for being a global
exemption ‘to include local funds as business city with its multicultural
well, in order to truly enhance the environment and its vital role in
industry in the territory’. accessing one of the world’s biggest
and most complicated markets –
PEER PRESSURE China. As a place with one of the best
Hong Kong companies are falling legal structures and business-friendly
behind their counterparts in Asia’s tax environments around the globe,
fast-growing economies in adopting Hong Kong is still able to attract
employee strategies to distinguish and retain businesses and, more
themselves and demonstrate why importantly, talented people.’
they are a great place to work,
thereby increasing the risk of reduced
employee engagement and poorer the maturities are dominated by HEALTHY SIGN
business performance, according to a investment grade and domestic bonds,’ China has earned a World Bank
survey conducted by Towers Watson. said Ping Luo, a Moody’s vice president tick for its efforts to improve
The professional services firm’s and senior analyst. national health care. Among 22
research shows that companies with a countries that have significantly
strategic approach to their employee BANKS CHALLENGED expanded access to health care in
value proposition and total rewards Capital, liquidity and Foreign the last decade, China’s ‘march to
face fewer challenges attracting and Account Tax Compliance Act Universal Health Coverage (UHC)
retaining key employees. In addition, (FACTA) compliance are top issues for is unparalleled’, the World Bank
they are seven times more likely banks in Asia, finds a recent KPMG found. Beijing has made ‘remarkable
to have employees that are highly report on banking regulations. It progress’ in its efforts to provide the
engaged and three times as likely to highlights the lack of a level playing whole nation with basic medical and
see financial performance significantly field on regulatory reform in Asia health care, while ensuring equal
above their peers. Pacific and possible negative effects access to, and affordability of, health
longer term on the economy. Evolving services. Hospital admissions have
CORPORATE REFUNDING TICK Banking Regulation – Asia Pacific increased significantly, suggesting
The refunding needs of Asian non- highlights the regulatory burden on improved access; however, up to
financial corporates (excluding Asia-Pacific banks resulting from 50% of current admissions ‘may
Japan) for domestic and crossborder global efforts to enhance the stability be amenable to more cost-effective
bonds due through 2016, totalling and resilience of the global banking outpatient care’.12
A NEW DIRECTION
In an exclusive interview, Zhao Lixin, deputy director general of Public Company
Supervision II at the China Securities Regulatory Commission (CSRC), describes the
importance of the ChiNext market, a Nasdaq-style board for listing hi-tech companies
*CHINEXT
When were you appointed and what
does your role involve?
I was appointed the deputy director
general of Public Company Supervision ChiNext – an abbreviation of China
II, a new regulatory department Next – was opened by the Shenzen
set up within the China Securities Stock Exchange and is independent
Regulatory Commission (CSRC) to of the exchange’s Main Board and
govern companies listed on ChiNext, in SME Board.
August 2012. Since then I have played The ChiNext market started
a leading role in the regulation of trading on 30 October 2009,
ChiNext-listed companies. and mainly lists hi-tech startup
Currently, measures are in place to companies and those with high
improve information disclosure and growth potential. As of November
*ZHAO LIXIN
corporate governance and standardise 2012, 355 companies were listed on
the operation of companies, and ChiNext with a stock market value of
Zhao Lixin is a member of the we are also doing in-depth research RMB847.9m.
Chinese Accounting, Finance and innovative exploration on market
And Business Research Unit; a standardisation and development.
visiting professor at Sun Yat-sen What makes ChiNext so distinct as
University Management School; How influential is ChiNext in the a market?
an international researcher growth of China and its listed In terms of positioning, ChiNext
at the Chinese Accounting, companies, and why is there a need will support the national strategy of
Finance and Business Research for a separate CSRC department? innovation, and promote innovative
Unit at Cardiff University in the With the rise in the number of enterprises’ development and
UK; and an academic adviser companies listed on ChiNext and the economic growth. ChiNext has
at the Post-Doctoral Research size of the market, the regulatory attracted a large number of corporate
Center at Shenzhen Stock workload is increasing rapidly. Based listings because compared with the
Exchange Research Institute. on the current initial public offering Main Board and SME Board, its
He has a Master of Business (IPO) trend, the number of companies listing threshold is significantly lower;
Administration and Civil Law, listed on ChiNext is expected to go up companies are smaller in scale with
and holds a Doctorate in finance. significantly in the 12th Five-Year Plan undiversified main business and low-
Zhao has published more than period. Meanwhile, the ChiNext will risk resistance to major changes in
50 articles in academic journals gradually show different characteristics macro-economy, policies and industry;
in China and internationally from those of the Main Board – hence and companies are mainly in strategic
and written several books, the increasing regulatory differences. emerging industries, including new-
including Market Evaluation To further improve supervision generation information technology,
Study on Listed Company M&A of companies listed and better energy-saving, environmental
Restructuring; The Way Out – the facilitate ChiNext’s function to protection, advanced equipment
Roles, Tasks and Responsibilities serve the real economy, we urgently manufacturing, new material, new
of Independent Directors; and need to strengthen regulatory power. energy, bio-medicine industries,
Listed Company Internal Control So we established a dedicated etc. So it is quite different from the
Evaluation Practice. regulatory department. Main Board.13
*SUPERVISION
DEPARTMENT OF PUBLIC COMPANY
DEPARTMENT II
The main functions of the department are to:
* develop regulatory rules and implementation details for
companies listed on ChiNext
* encourage listed companies to improve their corporate
governance structure
* provide relevant regulatory opinion regarding listed
companies’ mergers and acquisitions activities
* supervise and guide securities exchanges and CSRC
branch offices’ regulatory activities for companies
* supervise obligation fulfilment of companies and their
directors, supervisors, senior management and major
shareholders as per securities laws and regulations
* assist relevant departments to regulate companies’
sponsor organisations and financial advisers’ behaviour
* assist relevant departments to regulate companies’
issuance of stocks and bonds
* coordinate relevant departments to deal with
companies’ delisting and other major risks.14
Golden opportunity: ChiNext offers an alternative to the Main and SME Boards for young, innovative companies
Are companies listed on ChiNext in of traditional financial information, directors, supervisors and senior
need of any particular assistance or investors need more supplementary management, increasing punishment
support in their development? non-financial information behind for market manipulation, insider
Before listing, many ChiNext companies financial information, which drives trading and false disclosure, and
had won various technological company performance. Apart from encouraging listed companies to build
innovation incentives or subsidies. general information, they also need corporate governance structures and
After listing, companies can take full more diversified, industry-specific standardise operations.
advantage of the capital markets, information for valuation purposes. Third, some misunderstanding exists
achieve expansion through mergers Therefore, the new problems and about the direction of ChiNext. How to
and acquisitions, and raise funding for challenges are how to select non- create a good market, public opinion
development by subsequent issuance of financial indicators to integrate with and the regulatory environment for
shares or bonds. traditional information disclosure; and ChiNext companies’ growth, how to
build a company information disclosure lead the market to properly view the
What challenges do you face? system based on investors’ needs so as normal performance fluctuations of
ChiNext companies have their own to better promote the market pricing ChiNext companies, how to suppress
distinctive operational features and risk of companies’ risks. market manipulation of ChiNext
patterns, posing new challenges to the Second, given ChiNext companies’ companies and speculation on IPO
regulatory approach. lower level of corporate governance stocks have become new challenges
First, companies have more there are challenges in strengthening for regulation.
diversified information disclosure supervision and accountability Fourth, there is the arduous
requirements. Given the limitations for controlling shareholders, task of investor education and15
protection. In addition to traditional
methods such as risk disclosure,
we need to explore legal ways to
protect investors’ interests and
develop a market-oriented risk-
sharing mechanism.
How responsive has China’s capital
market system been in promoting and
financing the development of fast-
growing/startup enterprises?
Since the listing of the first ‘CHINEXT-LISTED COMPANIES SHOULD
batch of companies on ChiNext
on 30 October 2009, the market
BECOME AN IMPORTANT FORCE IN PROMOTING
has maintained rapid growth, ECONOMIC GROWTH’
with the number of newly listed
companies increasing year by year promoting economic growth. From How might integrated reporting assist
and steady growth of market size. By our perspective, we should not only in conveying the worth of a company
the end of October 2012, there were provide more support for ChiNext- listed on ChiNext?
355 ChiNext-listed companies with a listed companies to leverage Information disclosure places a
total financing of RMB231.039bn capital markets for development, particular emphasis on expressing and
and a total market capitalisation of but also prevent underperforming disclosing non-financial information
RMB833.72bn. companies’ violation of laws because ChiNext companies are mostly
Public financing not only provides and regulations. asset-light, ‘new-economy’ companies,
stable financial support for the making it hard for ordinary investors
development of ChiNext companies, What are the most pressing to understand their technology and
but also encourages and directs demands of corporate reporting in business model and even harder to
a huge amount of private capital China today? determine the company’s core values
to flow into startup companies, Traditional corporate information and risks via financial data.
promoting their growth. Since its disclosure tends to help investors Since the launch of ChiNext, we
launch three years ago, ChiNext to judge the value and risk of a have been stressing the need for non-
companies have been confronted with company through financial data. financial information disclosure, with
complicated internal and external Financial data can vividly reflect specific requirements for annual,
economic environments, but always a company’s assets, liabilities quarterly and mid-year reports, which
focus on their main business, with and owner’s equity. Therefore it’s have been well received by investors.
revenue growth rate above the an effective way to determine ChiNext companies’ regular reports,
market average. a company’s value and risk in especially annual reports, have shown
traditional industries where some trends of integrated reporting.
Do you foresee any impact of tangible assets account for the lion’s Many annual report disclosure
China’s slowing growth, in the wake share, but not so for emerging asset- requirements for ChiNext have already
of the global economic crisis, on light, hi-tech, new-model, non-linear- been adopted by the Main Board
companies’ development? How might growth ‘new-economy’ businesses, and SME Board, stressing the need
that affect ChiNext? whose core competitiveness tend not for non-financial information as well
The global economic slowdown to be the machinery, equipment, plant as financial data disclosure in listed
really has an adverse impact and other tangible assets, but human companies’ annual reports.
on the development of China’s resources, sales network, brands Integrated reporting should be
listed companies, with a decline and other intangible assets, which the future direction of information
in performance for companies in are not reflected by financial data. disclosure of listed companies. We will
many industries. China’s economy is There are considerable limitations. continue to strengthen the integration
in a critical period of adjustment and Information disclosure needs to and complementarity of financial data
changes in structure and direction, combine financial information and and non-financial information.
which is both a challenge and non-financial information, making
opportunity for listed companies. them complementary to each other Zhao Lixin was interviewed by
ChiNext-listed companies should so as to meet investors’ decision- Colette Steckel, Asia editor,
become an important force in making needs. Accounting and Business16
A WIDER REACH
With growing pressure on Hong Kong to abandon its
stance of not entering into tax information exchange
agreements, is the territory’s hand being forced?
D
oubts as to whether Hong
Kong would succumb to
international pressure to put
in place a legal framework
for entering into tax information
exchange agreements (TIEAs) with
other jurisdictions were quashed
in early February at the meeting of
the territory’s Legislative Council
(LegCo) Panel on Financial Affairs.
The panel looked at the jurisdiction’s
network of comprehensive double
taxation agreements (CDTAs) and, in
particular, at the need to amend its
legislation with regard to TIEAs with
other jurisdictions. It is understood
that subsequent to the LegCo panel
meeting, relevant amendments to
the Inland Revenue Ordinance are
being drafted with the intention of
introducing them into legislation in
the second quarter of 2013.
As Philip Hung, director – tax Department’s (IRD) annual seminar exchange of information by Hong Kong
services at PwC, attests, the pressure at its downtown Revenue Tower in all circumstances.
on the government – and the headquarters a month earlier, where Among other issues, it concluded
profession – to act is immense. ‘When the focus of attention was the two- that of the existing Hong Kong double
the consultation was held by FSTB phase peer review carried out by the taxation treaties at the time, those
[Financial Services and the Treasury Global Forum to assess its members’ with Belgium, Vietnam, Thailand,
Bureau] in 2012, we were told that progress towards full and effective tax Austria and Switzerland did not
of the then 108 members of the information exchange. provide for enough effective exchange
OECD Global Forum [on Transparency of information. Those with Austria
and Exchange of Information for Tax Could do better? and Switzerland, for example, require
Purposes], 107 had agreed to the TIEA The phase 1 peer review report on that when an exchange of information
framework. Hong Kong was the only Hong Kong examined the quality of between governments takes place,
one that didn’t. Some bodies have the legal and regulatory framework for the requesting government also
said that if we don’t sign up to a legal tax information exchange. Released needs to provide the ‘name and
framework for TIEAs, so what? But in October 2011, it commented address’ of the person possessing the
we can’t risk being put on a blacklist. favourably on Hong Kong’s adequate information when making an exchange
The repercussions of not acting legal and regulatory framework to of information request. The double
are serious.’ facilitate effective tax information taxation agreement with Switzerland
February’s LegCo panel followed exchange, and made around 10 also seems to contain a provision that
the Hong Kong Inland Revenue recommendations to ensure effective the requesting government identify17
interested in concluding a CDTA (which 2013, the territory had signed 27
would necessarily include an exchange CDTAs with partners as diverse as
of information provision). Belgium, Thailand, Canada, Kuwait,
The risk of not allowing TIEAs is Malta and Mexico. All contain a clause
that Hong Kong could be identified enabling the respective governments
as an ‘uncooperative jurisdiction’ in to exchange information relating to the
the phase 2 peer review – due to the income and assets of nationals of the
forum’s opinion that preference for a treaty partner.
CDTA over a TIEA cannot be seen as FSTB’s efforts to further expand
a reason for refusal to enter into an Hong Kong’s CDTA network, however,
exchange of information agreement. have hit a brick wall with several of
The Phase 2 report is expected to be its major trading partners, namely
issued soon, which is probably partly Australia, Germany, Russia and the
why the LegCo Panel was convened US. Accordingly, after the conclusion
in February. in June 2012 of a public consultation
on the feasibility of a legal framework
A growing network for TIEAs (see box overleaf), the
The FSTB, Hong Kong’s finance government is proposing to enter into
ministry, has committed to a TIEAs with countries that have been
continuing expansion of Hong Kong’s unwilling to enter into a CDTA.
network of CDTAs with its trading The framework would allow for
and investment partners. It has also TIEAs with foreign governments, not
accepted the international trend only for the purpose of affording relief
of enhancing tax transparency and from double taxation in relation to
has confirmed that it will continue income tax and any tax of a similar
to ensure that Hong Kong’s tax character but also for the purpose of
information exchange is on a par with exchanging information in relation to
international standards. any tax imposed by the laws of Hong
As an FSTB spokesperson said: ‘This Kong or the territory concerned; and
is key to facilitating the flow of trade, that the Inland Revenue Department
investment and talent between Hong can exercise its power to obtain and
disclose information if satisfied
that it relates to tax assessments in
‘SOME SAY THAT IF WE DON’T SIGN UP, SO WHAT? respect of any period after the date on
BUT WE CAN’T RISK BEING PUT ON A BLACKLIST. which the relevant CDTA or TIEA comes
into operation.
THE REPERCUSSIONS OF NOT ACTING ARE SERIOUS’ Tax specialist Roddy Sage, CEO
of AFP Group, is not surprised
the ‘name and address’ of the person Kong and the rest of the world, as by the decision to move towards
under examination. According to the well as enhancing Hong Kong’s position implementing the legal framework
Global Forum, these requirements are as an international business and for TIEAs. In his Roddy’s Rant blog he
duly restrictive and inconsistent with financial centre.’ noted that Hong Kong was the only
the standard. In fact, Hong Kong has taken huge Global Forum member ‘that does
The forum also noted that Hong steps forward in establishing its not have legislation permitting its
Kong law currently does not allow for international tax treaty network in government to enter into a TIEA’.
standalone TIEAs and that it seemed recent years. The amendment to the The conundrum, as identified by
to be policy to only negotiate double Inland Revenue Ordinance in March KPMG, is that if Hong Kong does not
taxation agreements instead. One of 2010 enabled Hong Kong to adopt the amend its legal framework to allow
the forum members indicated that it international standard in exchange it to enter into TIEAs, it runs the risk
had approached Hong Kong with an of information arrangements and, of being considered an uncooperative
interest in negotiating a TIEA; Hong since then, its tax treaty network has jurisdiction, which could lead to some
Kong’s reply was that it was only expanded rapidly. As at 31 January type of sanctions being imposed by18
others. On the other hand, if Hong
Kong amends its legal framework to
comply with the Global Forum, the
concern is that there may be little
incentive for jurisdictions to enter into
a CDTA with Hong Kong when they
already have a TIEA in force.
* PEER PRESSURE BEGINS TO BITE
To avoid the problem of double taxation, jurisdictions sign comprehensive
As Sage noted: ‘I question whether double taxation agreements (CDTAs) to clarify the taxing rights of each
[the Hong Kong Government] will party. In addition, as a means of promoting trade and investment, a CDTA
have the strength of character to will normally result in reduced withholding tax rates on passive income such
enter into TIEAs only with those as dividends, royalties and interest. It will also likely include an article that
countries where there is an acceptable provides for the exchange of taxpayers’ information on a reciprocal basis as
purpose, as opposed to a vague hope necessary in order to carry out the agreement and to prevent tax evasion.
of increasing government revenues. But as Hong Kong is a low-tax jurisdiction with no capital gains tax and no
There is also the question of ensuring withholding taxes on the outflow of dividends and interest, some countries may
that a TIEA partner does not provide have little or no incentive to enter into CDTAs with it, viewing the exercise as one
the information to third parties, whose primary beneficiary is Hong Kong. Such a jurisdiction may, however, be
whether within that country or to interested in entering into a standalone tax information exchange agreement
others with whom the TIEA partner (TIEA) with Hong Kong in order to better prevent tax evasion by taxpayers liable
also shares information. Finally, to tax in its jurisdiction.
I wonder whether the Hong Kong In the phase 1 peer review report on Hong Kong, the Global Forum on
Government will resist any suggestion Transparency and Exchange of Information for Tax Purposes noted that at least
that foreign agencies should be allowed one jurisdiction had approached Hong Kong with a view to negotiating a TIEA
direct access to documents retained in but Hong Kong apparently turned it down. The Global Forum also noted that the
Hong Kong.’ 2010 amendments by Hong Kong to its domestic law to allow for the exchange
FSTB considers that its proposals of information under the framework of a CDTA did not extend to TIEAs or other
are the minimum necessary to information exchange arrangements.
address the concerns of Hong As recommendations to rectify these deficiencies, the Global Forum
Kong’s treaty partners, and should suggested that ‘Hong Kong should enter agreements for exchange of
enable Hong Kong to meet its information (regardless of their form) with all relevant partners, meaning
international obligation in tax those partners who are interested in entering into an information exchange
transparency. In pursuing the arrangement with it’.
changes, however, it has indicated Given this peer pressure, in June 2012, the Hong Kong government concluded
that it will remain mindful of a public consultation on whether Hong Kong should enter into standalone
concerns about taxpayers’ privacy TIEAs with other jurisdictions. Submissions were received from a wide range
and the confidentiality of information of organisations and corporates including the Hong Kong General Chamber of
exchanged, and will ensure that Commerce, Society of Trust and Estate Practitioners Hong Kong Branch, Hong
necessary safeguards are in place. Kong Trustees’ Association, Hong Kong Bar Association, The Law Society of
For example, it will only exchange Hong Kong, the Swedish Chamber of Commerce in Hong Kong and, of course,
information on receipt of a request, ACCA Hong Kong.
and no information will be exchanged The latter’s submission, while broadly in support of the legal framework for
on an automatic or spontaneous entering into TIEAs, cautioned that the following be taken into account:
basis; information sought should 1 In choosing TIEA partners, Hong Kong only enters into TIEAs with other
be foreseeably relevant (ie, no countries with a mutual commitment to sign CDTAs in an agreed timeframe
‘fishing expeditions’); information within a reasonable duration.
received by treaty partners should 2 Those countries with which Hong Kong is in the midst of CDTA negotiations
be treated as confidential; and should not see those negotiations shifted to a TIEA.
Hong Kong will not accede to any 3 To minimise resource implications to the Hong Kong Government, any TIEA
requests for tax examinations that Hong Kong will enter into will only cover taxes that are common to both
abroad and assistance in the contracting parties.
collection of taxes. 4 Any exchange of information can only be conducted on request and the
safeguards of data confidentiality adopted under TIEA should not be less
Kate Watson, journalist than those under the existing Exchange of Information (EoI) arrangement.20
GIFTS OR GAFFES?
While gift-giving has long formed part of the fabric of business practice in Asia, it is vital
to understand the implications of recent anti-bribery legislation, says Rob Morris
G
ift-giving is an integral part countries like China and Vietnam bribery laws in recent years. Third,
of Asian culture, not only for present increased risk exposure to it, authorities are increasingly cooperating
birthdays and holidays such due to the prevalence of state-owned with one another across borders in
as the Chinese New Year, but companies and government employees. their enforcement efforts.
also at business meetings as a sign The UKBA, meanwhile, considers all For example, if a company in the
of respect. The status or cost of a forms of bribery as illegal. Kickbacks UK has evidence suggesting that it
gift is important, as well as how it is from a supplier to a procurement is losing business because an Asian-
presented. Refusing to accept one is manager would be covered, for based competitor is using bribes,
considered impolite. Gift-giving is said
to help cultivate strong relationships,
and Asian business culture IF A UK COMPANY IS LOSING BUSINESS BECAUSE
emphasises personal relationships.
However, this dynamic is what makes
AN ASIAN-BASED COMPETITOR IS USING BRIBES,
Asian companies susceptible to CHARGES COULD BE LEVIED UNDER LOCAL LAWS
corruption. Companies must walk a
fine line between what is appropriate example. Additionally, under the collaboration among regulators could
and what may be considered a bribe. UKBA, all employees, regardless of result in charges levied against the
Recent developments in the global whether or not they are affiliated with Asian-based company in its home
anti-corruption effort, particularly the government, may produce risk country under local laws.
the enactment of the UK Bribery exposure. In light of the UK law and its Finally, an Asian company that does
Act (UKBA) and escalating damages strict liability, it is important for Asian business with a company with ties to
associated with violations of the companies to assess those risks they the US or UK may reasonably presume
United States Foreign Corrupt may face associated with improper that at some point it will be required
Practices Act (FCPA), have put the payments, and establish procedures to by business-relationship protocol to
onus on companies to re-examine detect and prevent bribery. adopt anti-bribery policies and related
gift-giving and other traditional ways of controls relevant to its counter-party’s
doing business – and nowhere is this Global enforcement of rules compliance regime.
more relevant than in Asia. Asian companies that operate in the
UK or US are subject to enforcement Crackdown on corruption
Extra-territorial reach to Asia of the UKBA and FCPA; companies The trend toward increasingly active
Whether by virtue of direct operations, that do not, should still be aware of and aggressive regulation is not
local subsidiary, the mere presence of other significant risks associated with confined to developed countries,
a sales office, or the employment of bribery, although they face less risk. and there is no sign, even given the
UK or US nationals, Asian companies First, regulators in the US can fragile state of the global economy,
with ties to the UK or the US may bring charges against a company that that this trend will change. Some
be exposed to risk associated with makes a bribe payment through the Asian countries have taken steps to
potential violations of the UKBA and US banking system. Second, many adopt anti-corruption laws, passing
the FCPA. Sovereign wealth funds may countries in Asia have their own regulations that are extra-territorial
also expose companies to risk when anti-bribery laws. Singapore’s anti- in nature and similar to the FCPA and
investments involve third parties who bribery laws are extra-territorial, while UKBA. Singapore has established the
receive fees for introductions when China’s law is considered stronger Prevention of Corruption Act and the
such payments may not be warranted. within its own borders than the FCPA. Corrupt Practices Investigation Bureau
The FCPA focuses on bribery of Asian countries such as Thailand and and possesses a well-developed legal
government officials. As a result, Indonesia have updated their anti- system to combat corruption.21 In Hong Kong, a dedicated anti- corruption law, the Prevention of Bribery Ordinance, and an agency, the Independent Commission against Corruption (ICAC), are responsible for combating bribery. The ICAC maintains a visible presence by placing prominent signs in public places designed to discourage corruption and promote whistleblowing. Its profile rose even more when in 2012 the ICAC charged two of Hong Kong’s richest businessmen with bribing a former public official. Some countries have also employed high-profile raids to remind companies that they will crack down on improper activities. Meanwhile, Malaysia and Indonesia have taken initial steps to show that they are taking corruption seriously. The Malaysian Anti-Corruption Commission was created in 2008 and modelled after Hong Kong’s ICAC. Companies with ties to the government that make an ‘integrity pledge’ can obtain competitive advantages, such as being shortlisted during competitive bidding processes. South Korea, Singapore and other countries have whistleblower laws. In August 2012, South Korea’s anti-corruption agency said it would introduce a law in which government officials caught accepting more than one million won ($883) worth of bribes or entertainment could face imprisonment. Meanwhile, China has increased its prosecution of bribery cases in industries such as pharmaceuticals and energy. So far, the cases that have been prosecuted are high-profile in nature, but are widely perceived as simply being the ‘tip of the iceberg’.
22
Reducing the risks
Asian companies that violate the
* Establishing clear, written policies
related to gifts or other hospitality
a review of business partners and
third parties, but also due diligence
UKBA or the FCPA face significant that may influence, or be perceived on potential acquisitions. It is
risks to their businesses, including as influencing, business dealings. important for them to identify any
fines, damage to their reputation, and * Ensuring that stated policies and red flags. If a problem is detected,
potential loss of contracts. But they procedures are enforced and that management should clearly designate
may also face sanctions in foreign audit rights over distributors are the responsibility for conducting a
jurisdictions in which they operate, due exercised appropriately. thorough independent investigation to
to the violation of local laws. They may
also find themselves at a disadvantage
* Including anti-corruption clauses
within customer, supplier and
identify the facts in a timely manner.
Once these processes are in place,
when negotiating with principals, employment contracts. companies should ensure that they are
customers or suppliers, due to their understood by employees.
failure to have adequate anti-corruption Being prepared It is also important to provide
policies and procedures in place. Asia’s gift-giving culture is one employees and counterparties with a
Corruption remains a serious reason why Asian companies are means to seek advice or report alleged
issue in Asia, and anti-corruption particularly vulnerable to allegations misconduct via a whistleblower hotline.
enforcement efforts will likely remain of corruption. Others are adherence The aggressive enforcement of
a priority. As a result, it is important to hierarchy and, often, the need for anti-bribery laws that began a decade
for companies to make compliance third-party agents or distributors ago shows little sign of slowing
a part of their culture. Policies and to assist with the sale of products in the near future. Rather, extra-
procedures should be incorporated into to remote regions in geographically territorial and local laws together
business dealings and transactions, diverse countries, or in countries with cooperation among regulators in
and communicated throughout the with limited infrastructure. Once the international community appear
organisation. A compliance programme third parties are involved, monitoring likely to have a continuing and lasting
should involve: the steps taken by the sales force impact on Asian companies, either
* Conducting a risk assessment.
Potential exposures may include
to generate business becomes
far more challenging. Adherence
directly or indirectly via counter-
parties. As such, Asian companies
those associated with working with to anti-corruption laws requires need to be well aware of these risks
third parties in high-risk countries. sufficient internal controls and and take the necessary steps to
* Setting a ‘tone at the top’. If
top-level management commits to
robust compliance systems, not only
within the company itself but also
mitigate them.
preventing bribery, it can foster a cul- its distributors. Rob Morris is a managing director
ture in which bribery is not accepted. Given what is at stake, it is critical of AlixPartners and leader of the
* Increasing compliance procedures
and training to ensure that adequate
for companies to be aware of, and
able to act on, their exposure to
financial advisory services practice in
Asia. AlixPartners is a global business
anti-bribery policies are put in place. risk. They should perform not only advisory firm
*CATCHING UP
According to Transparency International, only 23% of companies in
Malaysia prohibit facilitation payments and only 19% in Indonesia. In
the Philippines, only 11% of companies have such prohibitions in place
compared with 22% in China. In South Korea, just 14% prohibit payments.
Hong Kong companies are more likely to look at payments with wariness,
with 39% prohibiting them. While 32% of Singapore firms have such rules, in
Japan the proportion is 28%. In the UK, the figure is much higher, at 43%; but in the US only
16% of companies make bribery an explicit no-no. Austria is by far the strictest, where 89%
prohibit payments, and in Argentina the proportion is 79%.
Half of companies in Malaysia say they lost business in the previous year due to corruption,
compared with only 9% in Singapore, 10% in Hong Kong and 11% in South Korea. In the UK, 17%
of companies believe corruption cost them contracts and 30% in the US share that belief. At the
same time, only 49% of companies in Malaysia believe they have an ethical duty to fight corruption
compared with 77% in China, 78% in Hong Kong, 81% in the Philippines and 84% in Singapore.
Alfred Romann, journalistYou can also read
