RegTech – the growing technological revolution

One of the fastest growing sectors of the FinTech revolution is RegTech, a phrase coined as recently as 2015 by the UK’s Financial Conduct Authority (FCA). RegTech is a portmanteau word which describes how technology is being applied in the financial services sector to address the challenges associated with increased regulation and compliance requirements.

The need for RegTech has its antecedents in the 2008 global financial crisis. In the wake of the events that saw the world’s financial markets on the verge of a total collapse, governments and regulators were determined to try and make sure that such events could not happen again. New rules and regulations were introduced, and sanctions for non-compliance on banks and other financial institutions became much tougher. Compliance, previously a secondary, back-office function, began to play increasing a leading role in banking strategy and operations.

Faced with a raft of new regulatory measures and with the financial risk of non-compliance increasing exponentially, banks and other such financial institutions began to look to technology as a way of the meeting the new challenges they faced. At the same time, with the rise of new agile FinTech rivals starting to encroach on their traditional markets, these banks also looked to technology as a way of reducing the cost of their business processes, allowing them to compete with these newcomers.

Regulation applies equally to all organisations – pension funds, hedge funds, asset managers, insurance companies, as well as banks – irrespective of their size, scale or scope of operations. The volume and pace of regulation means that even the best-resourced firms are struggling to cope – which is where RegTech comes into the picture.

RegTech aims to drive down costs and improve processes by harnessing technology. It provides a way for institutions to respond to rapidly changing regulatory obligations more cheaply, effectively and accurately than they have ever managed before.

Many RegTech providers use the word agility to describe how their products use techniques like advanced analytics and assessment to teach systems how to “learn” and support both new and emerging regulation, with neural networks helping predict customer behaviour and fraud.

RegTech solutions tend to be cloud-based, which means that data is remotely stored, managed and backed-up.

Examples of RegTech tools include Tableau, Hadoop and Pentaho, which all are designed to organise vast amounts of data, and allow the creation of bespoke reporting which is flexible enough to meet the needs of both current and future regulatory requirements. Tableau, for example, is a visualisation tool which makes it easier to look at data in order to identify trends, and, from a compliance viewpoint, identify anomalies, even down to the individual customer transaction level. Hadoop is an open-source software platform for the distributed storage and processing of very large sets of data, whilst Pentaho is a data integration solution which aims to turn information into insights.

In the short-term, RegTech will help firms automate the more mundane compliance tasks, and reduce the operational risks associated with compliance and reporting requirements. However, longer-term its proponents hope it will empower compliance functions to make informed choices about the risks they face and how to manage and mitigate those risks.

Macron plans for single European tax rate blasted

Irish MPs are amongst the many politicians and legislators who have reacted angrily to French President Emmanuel Macron’s proposal to introduce a single European corporate tax rate. Macron has domestically been calling for a single-bloc rate, but such a plan has little support outside France.

Irish MEP, Brian Hayes, is one such opponent, saying “Marcon’s new corporate tax rate band may go down well in Paris, but there is overwhelming opposition in most of Europe to harmonisation of tax rates.”

Hayes also pointed out that corporate tax rates are not in the gift of the EU, but are for Member States to decide.

Macron has been accused of a conflict of interest, with critics citing the difference between the French corporate tax rate of 30% and the 12.5% rates which prevail in Ireland and Cyprus, with the President seen as trying to prevent smaller countries in the European Union from being able to attract foreign direct investment (FDI).

Hayes commented” Tax competition between countries is good for Europe and good for European investment. Tax competition keeps Europe on its toes and makes sure that business stays in Europe”.

This is not the first time that Irish politicians and the EU have found themselves in conflict over corporate tax policy in recent weeks. Last week, Irish MP, Michael Fitzmaurice, accused European Commissioner Jean-Claude Juncker – who he described as an unelected bureacurat – of acting like a dictator when it comes to tax, saying that, under no circumstances should he be “allowed to dictate what should happen with regard to tax rates in Ireland or anywhere else for that matter“.

Ireland has also reacted angrily to last week’s decision to refer the country to the European Court of Justice for its failure to recover €13 bn. in back taxes from Apple, whose European headquarters is based in Dublin. They contend that the EU does not understand Irish law, that the interference by the EU, in what they regard is a domestic tax matter, is an infringement of national sovereignty, with a spokesman for the Finance Ministry in Dublin previously commenting “Ireland does not do deals with taxpayers”.

At least it appears that Macron’s proposals do not have much current traction, with Vanessa Mock, the Commission’s spokesperson for taxation and the customs union declaring “when it comes to taxation, tax rates are an area of national sovereignty, and the Commission has no intention of interfering with that. Neither do we plan a harmonisation of corporate tax rates.”


EU proposing major overhaul of VAT to combat tax fraud

The EU is proposing a major overhaul of European VAT rules to combat tax fraud which is reported to cost the bloc €50 billion annually (although Europol, the EU crime agency, estimates that the figure could be double this).

The isting EU VAT rules were introduced in 1993 at the time of the creation of the single market, and were intended to be a temporary fix until such time as rates could be harmonised across member states – a project now long abandoned. However, the result is a hotchpotch of differing rules and provisions, with the need to make any meaningful reform complicated because all changes at a European level need unanimous approval, which is very difficult to achieve in reality. This leaves the existing VAT system open to abuse and fraud.

EU Commissioner for taxation, Pierre Moscovici said “VAT rules are a quarter of a century old and no longer fit for purpose. Fraud today is not something citizens can accept any more, particularly when it finances organised crime and terrorism”.

The new rules will have two broad objectives – to prevent fraud and to simplify the lives of companies in the EU, with Moscovici estimating EU companies will save up to €1 bn. a year in administrative costs with the new rules.

One practice that the EU in particular wants to target is the scam known as the “missing trader fraud”, which involves cross-border sales of high value portable products such as mobile phones, computer chips and even credits on carbon dioxide emissions.

The fraud enables a trder to buy goods from a supplier in one country, VAT-free, and then sell those goods at full price, including the VAT in another country. The trader then “disappears”, taking the VAT with them. Meanwhile, the original supplier of the imported goods is able to reclaim the full VAT from their government.

The logical extension of such practices are the creation of so-called “carousel schemes” where criminals create a network of suppliers and traders which continuously indulge in such trades, stealing millions of VAT payments which are due in the process.

The proposed reforms, which the EU hopes to have in place by 2022, will see suppliers charge VAT on all EU sales.

These proposals are part of wider global efforts to reduce tax avoidance, and aggressive tax evasion, and forms part of a broader programme by governments and regulators to promote greater transparency and harmonisation when it comes to tax, including initiatives such as BEPS, CRS and new rules on transfer pricing.


Amazon and Apple targeted in new EU tax crackdown

Both Amazon and Apple were the subject of a fresh crackdown by the European Union on Wednesday over the amount of tax they pay on their European operations.

In the case of Amazon, the company has been ordered to pay €250 million in back taxes, following the decision of the European Commission that the technology giant had been given an unfair tax deal in Luxembourg.

Apple meanwhile was hit by the news that the Commission plans to take Ireland to the European Court of Justice (ECJ) for failing to recover 13 billion in back taxes from the US corporation.

European Competition Commissioner Margrethe Vestager said that under their agreement with Luxembourg, Apple had arranged to pay substantially less tax than other companies in Luxembourg, which is illegal under state aid rules. Under the 2003 agreement, Amazon was allowed to move a substantial part of its profits from Amazon EU to Amazon Holding Technologies, which was not subject to tax. In doing so, they ensured that almost three-quarters of the profits earned in Luxembourg were not taxed. Vestager commented “Member States cannot give selective tax benefits to multinational groups that are not available to others”.

The case is slightly embarrassing for the European Commission because its current president, Jean-Claude Juncker, was the prime minister of Luxembourg back when the deal was struck.

Amazon for its part denies receiving an special tax benefits from Luxembourg, with a spokesman commenting that the company was studying the ruling of the Commission and was evaluating the legal options available to it, including an appeal.

Meanwhile the decision to refer Ireland to the ECJ is the latest salvo in an ongoing dispute which has seen the European Commission arraigned on one side, with Apple and the Irish Republic on the other.

The European Commission argues that Apple’s tax arrangements in Ireland, where the company has its European headquarters, are illegal, in as much as the company pays tax at an effective rate of only 1% there. Apple contend that it is not an issue of what tax it pays, but where the tax is paid; as most of their products and services are “created, designed and engineered in the US, that is where they pay most of their tax.

Ireland, for its part, has always claimed that this is a matter of national sovereignty, and that the European Commission has misunderstood the relevant facts and Irish law”.

The Irish government have said that they are extremely disappointed with the Commission’s decision and intend to vigorously defend the case, although, in reality, it may be several years before the matter comes to court.

However, whatever the rights and wrongs of the individual cases, the message from the European Union is clear, with Ms. Verstager commenting “I hope that both decisions are seen as a message that companies must pay their fair share of taxes, as the huge majority of companies do.”

Cyprus Social Security going online

All individuals employed in Cyprus – both employed and self-employed – are obliged to make Social Insurance Contributions based on their earnings; monthly in the case of those employed, and quarterly for those self-employed. One feature of this system, up to this point, has been the manual nature of the process. Individuals, employers or their representatives have been required to physically present themselves at the relevant Government office in order to make the relevant cash, cheque or card payment, together with the presentation of the necessary documentation. It is, therefore, welcome news that finally there are plans to move everything online.

Cypriot legislation requires employers to calculate Social Insurance Contributions based on the monthly emoluments of their employees, and pay them within a month of the applicable contribution period i.e. within one month retrospectively. In the case of the Employee, their share is deducted automatically from their earnings by the employer, and paid on their behalf to the Government.

The current Social Insurance Contribution rates are as follows:

Employer Employee
Social Insurance 7.8% 7.8%
Redundancy Fund 1.2% NIL
Industrial Training 0.5% NIL
Social Cohesion 2% NIL

In addition, there is a holiday fund of 8% which most businesses can claim exemption from by proving that they offer their employees paid leave as part of their conditions of employment.

The Social Insurance, Redundancy Fund and Industrial Training contributions are restricted to €54,396 annually (equivalent to €1,046 per week or €4,533 a month). However, the Social Cohesion Fund part is unlimited and is not regarded as deductible for the purposes of calculating corporation tax.

Failure to pay contributions on time leads to penalties which range from 3% to 27%, depending on the period of time that the payment has been delayed, and the amount of the contributions due.

Self-employed contributions are paid on a quarterly basis as follows:

  • January to March – must be paid by the following May 10th;
  • April to June – must be paid by the following August 10th;
  • July to September – must be paid by the following November 10th; and
  • October to December – must be paid by February 1oth of the following year.

There are minimum limits of annual income on which self-employed people must pay social insurance contributions, and these vary by profession such as:

Persons exercising a profession:

·       For a period under 10 years

·       For a period exceeding 10 years




Wholesalers, estate agents, insurance agents, manufacturers and other businessmen 40,351
Clerks, typists, cashiers, secretaries 19,496
Shopkeepers 18,589
Designers, computer users, marine engineers 19,949

This list is not exhaustive, but AJD Consultants can advise if a particular occupation is not covered above.

Despite all this, the intensively manual nature of the Social Insurance payment system has made this a very ineffective process hitherto. This is why the announcement that the whole system is going to be automated so that payments and monthly submissions can be made online is very welcome. Launched under the joint auspices of the Ministry of Labour, Social Insurance and Welfare, and the Social Insurance Services, the new system aims to improve the productivity and effectiveness of both the private and the public sector, whilst aiming to eliminate the waste of productive time.

Under the slogan “Do It Electronically”, a special website has been created, giving taxpayers more information and allowing them to register for the scheme (

Unfortunately the website is currently only available in Greek, so AJD Consultants has contacted the department responsible, asking when an English version will be available.


New report highlights reasons for tax evasion

A recent report published by HMRC in the UK – research report 433 – has looked at the causes of small and medium-sized businesses to evade tax, and has sought to identify if holding particular beliefs or attitudes makes people more likely to indulge in tax evasion.

The report “Understanding evasion by small and mid-sized businesses” was conducted on a relatively small sample size (40 small and 5 mid-sized businesses), so may not be indicative of more widely held beliefs. Furthermore, as it focused on those businesses which were actually engaged in tax evasion, the findings do not mean, statistically, that such practices are common.

Nevertheless, the report does identify a number of differing attitudes which distinguish evading from non-evading businesses, including:

  • Sense of citizenship – an individual’s core beliefs and values;
  • The ability to distinguish and respect the difference between business and personal assets – the extent to which what belongs to a business is kept separate from what belongs to an individual;
  • The perception of risk – both in terms of the risk itself and the ability of the business to manage that risk;
  • The prospective financial incentive or reward (the amount of tax which could be evaded); and
  • The willingness to actively seek or create opportunities for tax evasion; the degree of strategic planning which goes into evading activities.

From there, the report links these attitudinal variances to external influences, such as social norms, media coverage, and market forces, to identify four main types of tax evader.

  • The Unthinking Evader – those who habitually indulge in low level tax evasion without conscious thought almost;
  • The Invested Evader – businesses which regard themselves as driven by financial necessity to evade tax in order either to survive or grow;
  • The Lifestyle Evader – those who regard tax evasion as a way of having a lifestyle that they could not otherwise afford, and justify their actions by pointing to the tax that they actually do pay; and
  • Systematic Evader – as the name suggests, those who actively contemplate tax evasion and make it an integral part of their business model.

The sort of evasion recorded in the report ranges from businesses who deal in cash in order to under-declare income, to others which “employ” teenage children who do not really work but whose personal allowances are used to save tax. Then there are those business owners who claim personal expenditure items as business expenses, and others who have bought assets for the business, such as computers, and then taken them home for personal use.

Many of these examples are small in themselves; however, added-up they can represent a large tax loss to the economy. And, while the HMRC report is focused on the UK, such practices are common in many other economies and may be even more rife.

UK Solicitors warned against aggressive tax schemes

According to the ICAEW (Institute of Chartered Accountants in England and Wales) the body regulating solicitors in the UK, the SRA (Solicitors Regulation Authority), has published an official warning to its members, cautioning that any who are involved in promoting and implementing aggressive tax avoidance schemes may be subject to disciplinary action.

The SRA’s concerns apparently have been fostered by some law firms and individuals who have been promoting aggressive tax strategies that “go beyond the will of Parliament”.

In the warning, solicitors are reminded of the principles they should maintain when giving clients advice on tax planning. These include upholding the rule of law, ensuring the proper administration of justice, acting with integrity and in the best interests of the client. The SRA then goes on to say that solicitors should behave in a way that engenders public trust, and that when they have advised on schemes that subsequently turn out to be illegal, then it will, prima facie, be regarded as evidence of misconduct.

The sternness of the warning has come as a surprise to some observers, particularly the use of language that cautions that advising a client on a tax avoidance scheme that fails “will leave yourself open to the risk of disciplinary proceedings as well as committing a criminal offence”.

Back in 2015, the government challenged the tax profession in the UK to stop aggressive tax avoidance schemes by strengthening their professional rules. In response, an updated PCRT (Professional Code of Conduct in relation to tax) was published in March 2017 by the ICAEW and six other professional regulatory bodies, introducing new standards to supplement existing fundamental ethical principles. These clarified what was expected of members when providing tax advice, and made it clear that the endorsement and promotion of certain aggressive tax avoidance schemes was not acceptable.

Whilst the SRA is not one of the PCRT bodies, its latest warning is a stark reminder that solicitors are expected to adhere to a certain level of conduct, and that law firms and solicitors have an important role in ensuring that taxpayers meet their legal obligations, and ensure that the public has trust in them.

More widely, it is further illustration of the way the whole regulatory climate around tax planning has changed. Not only is tax evasion now a crime; aggressive tax planning is also being outlawed. Professional advisors and clients need to acknowledge and accept this.

New Cypriot tax residency rules

Recently the Cypriot parliament approved a law which introduced new tax residency rules for individuals. The new law, which is effective retrospectively from 1st January 2017, amends the provision of the ITL (Income Tax Law), and now means that, in certain circumstances, an individual can be deemed tax residence in Cyprus, even if they spend less than 183 days in the Republic in a tax year.

Formerly, the rules stated, that in order to be deemed tax resident in Cyprus, an individual needed to spend an aggregate of 183 days or more in any tax year in the Republic. The day of arrival counts as one day spent in the Republic, the day of departure as a day spent outside. If you departed and came back to the country on the same day, then that was counted as a day spent in Cyprus, whereas arriving and departing the Republic on the same day was regarded as day outside.

The amendment to the law now states that somebody can be deemed to be tax resident in Cyprus if they meet a number of following cumulative conditions.

If the individual does not stay in any other state for one or more periods, exceeding, in aggregate, 183 days in the same year of tax assessment, and who is not regarded as tax resident in any other state in the same year of assessment then they can claim tax residency in Cyprus provided that:

  • They stay in the Republic for at least sixty 960) days in the year of assessment; and
  • They exercise any business in the Republic and/or are employed in the Republic and.or holds an office for a person tax resident in the Republic at any time during the year of assessment; and
  • They maintain a permanent residence in Cyprus which is owned or rented by them.

One proviso is that, even if an individual meets these cumulative stipulations, they will not be considered tax resident in Cyprus, if the business, employment or office they hold is terminated or comes to an end.

The new provisions are designed to offer an incentive for individuals to transfer their tax residency to Cyprus, and to be taxed only on income from activities that the individual carries out in the Republic.

This new law makes it attractive for an individual with earnings in excess of €100,000 to be regarded as tax resident but non-domiciled in Cyprus (non-dom). This is because they are granted an exemption from Income Tax and Defence Tax on dividends received either in Cyprus or aboard. They are also allowed an exemption from tax of 50% of their salaries for up to 10 years, which can substantially reduced their income tax liability.



Permanent Establishment – Are new rules on the cards?

Permanent Establishment is a concept anchoring much current tax legislation. Any activity which is carried out by a business in a country that results in the generation of revenue in that country is likely to be regarded as a Permanent Establishment (PE); on that basis, local authorities will assess corporation tax on deemed in-country revenue. To be formally recognised as a PE, the revenue-generating PE will normally need to be registered as some form of corporate entity in the host country – either as a branch, a subsidiary, or representative office.

There is no universal definition of PE – it is usually determined on a country by country basis, by reference to local law and applicable double tax treaties. However, there are a number of commonly used indicators to determine whether the activities of a foreign organisation give rise to a PE in a particular country. These include:

  • If an organisation operates out of a fixed place of business in the host country (this can either be a fixed office or even an office in an employee’s house);
  • If an organisation’s employees in the host country receive some form of sales-based compensation, such as commission or bonuses;
  • If the job-title of an employee includes some reference to sales or revenue generation, and that employee has been contracted in the host country for a prolonged period of time; and
  • Sales made to customers in the host country which have been negotiated by locally-based staff or agents.

When an activity is deemed, however, to be preparatory or auxillary in nature – in other words it is not an essential part of business as a whole – then PE is generally not regarding as existing; although, in practice, it may be the responsibility of the tax payer to demonstrate that it does not exist, rather than that of tax authorities to prove that it does.

Essentially, this tax residency approach has been the fundamental behind the concept of PE for more than a century, which makes a recent proposal, leaked and published by Reuters, all the more radical. At a meeting held in Tallinn last weekend with EU Finance Ministers, a proposal was put forward by Estonia, which currently holds the presidency of the European Union, to amend and change the definition of PE.

Under their proposal,rather than using tax residency as the basis for determining Permanent Establishment, value creation should be used instead. In other words, a multi-national would be taxed according to the value it created in a host country; that virtual PE would be considered enough to substantiate a taxable presence in a country and, therefore, make it liable to corporate income tax.

This would have potentially large-scale implications for international taxation and the application of double-tax treaties, and comes hard on the heel of news that the OECD, in the light of the BEPS initiative and consideration of the tax treatment of technology groups, has indicated that the definition of PE is up for wider debate.

It is acknowledged that theseproposals are radical, and that a consensus needs to be built before there is wider acceptance of the need to change the definition of Permanent Establishment. Nevertheless, this could mean yet another shake-up to the taxation of foreign subsidiaries, and another level of complexity added for accountants, tax experts and managers of multi-national organisations.