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Tuesday 16 October 2018

Global Insight April 2016

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Make in India campaign boosts FDI inflows

 

Foreign direct investment in India is on the up thanks to incentives aimed at foreign companies.

The Indian Government’s ‘Make in India’ campaign has received significant attention from countries across the globe. With the core objective of making India a global manufacturing hub by building the country’s capabilities and incentivising foreign companies to set up their facilities in India, the initiative has led to some important policy reforms and process improvements.

Focusing on 25 key sectors, the campaign has brought in significant reforms such as higher limits for foreign direct investment (FDI) and simplified investment norms for several sectors, including railways, defence, insurance and medical devices. The campaign has been supplemented by initiatives to make it easier to do business in India – simplifying processes of incorporation and obtaining clearances, easing regulatory requirements, digitising regulatory processes, along with various other state-specific initiatives. With the help of these campaigns, India has become one of the most favourable investment destinations in the world.

Since the launch of the Make in India campaign in September 2014, gross FDI inflows have increased substantially, by 32% to US$64.8bn, compared with a 16% increase in the 15 months before the campaign. The main sectors attracting investment include services, construction development, computer hardware and software, telecommunications and automotive.

What’s next?

In order to showcase the impact of the campaign and its achievements, and the potential of design and innovation across India's manufacturing sectors, the Government held a ‘Make in India Week’ in February 2016 in Mumbai. The event saw an investment commitment of over US$221bn, along with the announcement of several new policy reforms and investment plans. The Government has stated that in the coming year, it aims to further improve the environment for investors, help start-ups and small and medium enterprises to scale up operations, and promote quality jobs through innovation and by developing a design ecosystem. 

The campaign’s immense success, despite sluggish global growth, is a positive sign for India’s future. While the world economy expanded by 3.1%, India witnessed robust growth of 7.6% in 2015-2016, becoming the fastest-growing major economy in the world, with further acceleration expected over the next two years. Manufacturing activity contributed 17.4% to the total value added to the economy in 2015-2016, and manufacturing growth, as measured by the Index of Industrial Production, accelerated to 3.1% during April–December 2015, from 1.8% in the same period of 2014.

While expectations of a global revival may be weak, it’s evident that prospects for India remain bright.

For more information, contact:
Manoj Gidwani

SKP, India
T: +91 22 6730 9000
E: manoj.gidwani@skpgroup.com

www.skpgroup.com

Multinational pooling

 

Multinational businesses of all sizes can reap the rewards offered by pooling employee benefit plans

Multinational pooling is a mechanism that allows multinational companies to combine the insured employee benefit plans of their subsidiaries in different countries with a multinational pooling network. These insured benefits can then be ‘experience rated’ to take overall claims performance into account and an overall surplus or loss can then be determined.

Where a surplus arises, rather than being retained by insurers on a plan-by-plan basis, it is returned (less expenses) to the multinational as a dividend. If claims performance is such that a deficit arises, this can be carried forward or covered by stop loss insurance. Over the medium-to-long term, 8% to 15% of premiums can typically be returned as dividends. Importantly, plans remain insured in each country with local insurers benefiting from normal terms, conditions, administration and local claims settlement. Premium rates are set locally by insurers who compete on price and service quality in each country. Pooling can also offer improved visibility of local plans, and in certain circumstances can result in improved terms at a local level.

A growth sector

There are eight major pooling networks operating in various forms. They are either owned by insurers with a regional or global presence or are independent. Independent networks generally have a wider geographical coverage and have the ability to select leading insurers in each country as local members. Pooling offers firms the potential to realise economies of scale and to reduce the cost of their employee benefits provision through the payment of multinational dividends, while in each country, maintaining contracts with leading local insurers ensures that the best terms are achieved for the firm. Given the trend towards higher premium rates in some countries and the increasing globalisation of business, the use of multinational pooling can only be expected to grow.

Pooling is not only the preserve of large companies: several networks offer small groups pooling, which is designed to allow smaller multinational businesses to take advantage of pooling with other similar-sized companies while being protected from variations in their own claims performance. There are usually no minimum employee or premiums criteria to join, provided there are insured contracts in at least two countries. Any losses are generally not carried forward. One of the leading small group pools has generated a dividend of an average of 13.94% over the period from 2011 to 2015.

Although it’s often overlooked, pooling has the potential to add significant value to the employee benefit programmes of multinational companies.
 

For more information, contact:

Barrie Brown
Smith & Williamson
T: +44 141 222 5035
E: barrie.brown@smith.williamson.co.uk

www.smith.williamson.co.uk

A unified tax regime across Europe: evaluating the impact

 

Turbulent times in the EU have caused political leaders to consider the benefits of having a unified tax regime once again.

Politicians across the EU are under pressure to address many problems, but a particular focus for the media and many voters is the issue of tax avoidance.  With EU politicians needing to show consensus on a range of issues, could the introduction of a unified tax regime, a Common Consolidated Corporate Tax Base (CCCTB), across the EU provide an opportunity for a relatively ‘easy’ win?

Two previous attempts at a unified tax regime have failed. What are the likely consequences and will it be any more successful this time?

Proposed benefits

According to the European Commission, a CCCTB would:  

  • be a solution to profit shifting and corporate tax abuse within the EU by eliminating the mismatches between national tax systems
  • enable a common approach to non-EU countries
  • provide a unified approach in countering aggressive tax planning.

Both the European Parliament and the President of the European Commission are in favour.  Corporate tax as a source of tax revenue is diminishing and changes here will have less of an impact.  And, of course, the EU is supposed to be a single market. 

The drawbacks

After the reduction and elimination of preferential regimes, there will be winners and losers among member states.  The losers will need to raise taxes in other areas, reduce public expenditure or a mixture of both. Higher tax expenses will reduce companies’ profit margins. This could mean raising prices for customers or cutting back on operations and employing fewer people. Those investing in the corporate sector could receive a lower return on their investment. Finally, if the CCCTB is introduced successfully, attention will then turn to other taxes.

But will it succeed this time?

The answer is ‘probably not’. Regardless of whatever else is happening, sovereignty over fiscal policy is probably a ‘red line’ over which member states will not cross, particularly for those outside the eurozone. ‘Austerity’ is still a difficult issue in most parts of the EU, and competition between member states for tax revenues is likely to remain for some time yet.

Dividing EU consolidated taxable profit between member states is probably too difficult to resolve for the time being. Any benefit derived from the momentum generated by the OECD BEPS project will be put to the test as all countries involved with BEPS are requested to introduce changes into their domestic legislation.

For more information, contact:
Mike Adams

Nexia International
T: +44 20 7487 4648
E: mike.adams@nexia.com

www.nexia.com


 

The base erosion and profit shifting project – a watershed moment in the making

 

The shake up of the global tax system is being closely monitored by low-tax countries in particular.

The OECD has announced an important series of developments regarding the base erosion and profit shifting initiative, which are of special interest to countries such as Singapore, whose business friendly environment is due in part to its competitive tax regime. 

BEPS comes to fruition

On 5 October 2015, the OECD released its long-awaited final reports on all 15 focus areas under the BEPS initiative. BEPS is widely regarded as the most significant global tax overhaul in recent times, forcing multinational enterprises to rethink the way they invest and structure their operations globally. The 15 focus areas address the coherence of tax rules in order to remove loopholes at the same time as emphasising substance over form so that taxing rights are aligned with value-adding activities. BEPS also aims to address issues of transparency around tax reporting and disclosure requirements and shed light on sectors such as the digital economy which continue to challenge tax authorities around the world.

Before the final reports were released, another major milestone was reached with the signing of the Multilateral Competent Authority Agreement (MCAA) by 31 countries for the automatic exchange of Country-by-Country (CbC) reports, which is a significant component of the BEPS measures around transfer pricing. It will help tax authorities compare profits that are earned by multinational enterprises in the various countries where they operate against measures of real economic activity such as employment and sales. This could, possibly for the first time, start revealing to tax authorities the extent to which profits of multinationals are being booked in tax havens or low tax jurisdictions.

The impact on individual countries: Singapore

National tax authorities, local businesses and inward investors will be weighing up the potential impact of BEPS. Each country still has the sovereign right to set its own tax policies in response to its own domestic priorities. Singapore, for example, has been supportive of the BEPS initiative from the start. There is no doubt that Singapore’s role as one of the key locations in the Asia-Pacific region for the establishment of headquarter operations makes it acutely sensitive to developments on the BEPS front. While Singapore’s role in the BEPS initiative has thus far largely been that of a passive observer, it has already been taking some cautious steps in responding to these new rules. The assessment criteria for tax incentives, for instance, is being enhanced to provide the added assurance that profit levels are commensurate with the level of activities and functions being performed in Singapore from a transfer pricing standpoint.

What’s next?

The issue is not so much what reforms countries like Singapore will need to put forward but more so what measures they may need to consider in response to the reforms that other jurisdictions choose to implement in response to the final BEPS reports. While it’s questionable as to whether Singapore and others will continue adopting a ‘passive observer’ approach to the many unfolding developments on the BEPS front, the more pertinent test would be whether they can stay nimble enough to calibrate their responses such that they maintain their tax competitiveness while ensuring that they play their part in upholding a robust and fair international tax framework.

For more information, contact:

Lam Fong Kiew
Nexia TS, Singapore
T: +65 6534 5700
E: lamfongkiew@nexiats.com.sg

www.nexiats.com.sg


 

To fight a big data security problem, think ‘small’

 

For spammers, small is the new big, as they try to avoid detection by sending fewer messages than ever before.

Following a report from Bloomberg, more light has been cast on what is called ‘artisanal spam,’ or ‘snowshoe’ spam. Rather like how an actual snowshoe redistributes the weight of the person wearing it, snowshoe spam involves redistributing the load of a spam message across multiple IP addresses. This is done to help avoid detection by filters designed to combat spam messages sent from one IP address to many thousands of email addresses.

Spamming is about more than trying to entice recipients to buy into various stock schemes or pharmaceutical enhancers. It’s also a petri dish spawning malware of all sorts. That’s why it’s a good idea to fight back at a similarly micro level. Here are three tips you can employ right now to help combat spam attacks.

Give employees guidelines

If you haven’t already, develop clear employee guidelines for everything from clicking on links to using personal email accounts and more. Remember that employee guidelines that are not promoted internally and discussed at least annually will be as effective as a billboard in the middle of a desert.

Watch out for red flags

Whether or not it’s covered in the employee guidelines document, encourage each associate to simply read the message carefully to spot any tell-tale red flags:

  • A long, nearly unintelligible ‘From’ address. An official message from your bank probably isn’t coming from an email address like bank_name@omega.19991.ca. You might have to click ‘Show details’ or a similar button/command to see this information.
  • Urgency that isn’t being conveyed through any other communication method. If your CEO really needed US$10m wired to an account in another country, she or he would probably do more than send an email. Be skeptical of any message touting urgency and seek colleagues’ input before taking any action whatsoever.
  • Generic salutations, such as ‘Dear Friend,’ or one you don’t commonly receive. If you’re commonly called Bob but you receive a message addressed to ‘Robert’, because it’s in your email address, you’ll know the sender isn’t a close friend, colleague or business associate – even if the email address (which can be faked easily) suggests otherwise.
Think before you hit ‘send’

If a reply absolutely MUST be sent, do so carefully. The reason there’s so much spam out there (estimates are as high as 400 billion messages per day) is that it works. If a message comes across your desk that is so enticing as to require a response, consider doing the following:

  • NEVER click on a link within the message itself. Conduct a search online to seek out whatever offer or information is presented.
  • If a reply is required once you locate relevant information, don’t enter your official email address into any online forms. Use a service such as 10minutemail.com to create a temporary email address that expires in, you guessed it, ten minutes.

Outsmarting even the most dedicated spammer doesn’t always require a firewall and strong email filter – although you should definitely have both. Sometimes combating cyber crooks – even the ‘small’ ones – just takes a little bit of effort and access to the right tools.

For more information, contact:

Jessica Dore
Rehmann, US
T: +1 989 797 8391
E: jessica.dore@rehmann.com

www.rehmann.com

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