Dispatch (UK/ROW version)

• single corporation tax rate for Europe?
• 'audit Kitemark' proposed
• a call for action
• CGT changes spark frenzy
• now IASB attacked by pension advisers
• introduction of IFRS 'mishandled'

single corporation tax rate for Europe?

France will press for a single corporation tax rate across the European Union when it assumes the EU presidency in the second half of this year. Christine Lagarde, the country's Finance Minister, said: 'It's an issue that we are determined to push.'

Officials at the European Commission are thought to be sympathetic to France's move. Officially, the Commission supports competitive tax rates where the impact is positive, opposing them where it is harmful. Laszlo Kovacs, the EU's Commissioner for Tax, is currently focusing on creating a unified system to calculate corporation tax, while member states continue using their own tax rates.

Speaking at this year's Brussels Tax Forum, Kovacs said he hoped to propose common rules for computing corporation taxes later this year. 'We are aware that there are significantly higher tax compliance costs and administrative burdens for companies operating across the internal borders in the EU, than for those acting only within one member state,' said Kovacs.

'At present, EU enterprises have to deal with 27 different systems to compute their taxable base, which creates many problems related, for example, to transfer prices or cross-border loss recovery,' explained Kovacs. 'The smooth functioning of the European Single Market is impeded by tax obstacles such as double taxation, high compliance costs, tax costs involved in business restructuring and, in general, tax measures that induce firms to invest and operate domestically rather than in another EU member state.'

Kovacs stressed that harmonisation of corporation tax rates would only happen if there was a 'unanimous will' for it. 'Tax rates… are normally best decided in the 27 capitals,' he said. But there needs to be greater co-operation by member states in acting together on tax policy, he argued - for example, in agreeing a harmonised system for VAT reduced rates.

France's proposal for an EU-wide single corporation tax rate has provoked anger in Ireland, where the rate is 12.5%, compared to France's 33%. The Irish Government believes that much of its recent economic success was generated by its low rate of tax. It also worries that the debate makes a 'yes' vote less likely in the forthcoming referendum on the Lisbon treaty. Ireland is the only member state obliged to gain approval from its voters before it can sign a European treaty.

'audit Kitemark' proposed

Public company audits should be reformulated, with a focus on meeting a 'Kitemark' standard, John Griffith-Jones, co-chairman of KPMG Europe, has proposed. Griffith-Jones was giving the annual Aileen Beattie Memorial Lecture.

There is now an 'expectation gap' facing auditors, which should be tackled by a 'new approach' and a 'new contract', said Griffith-Jones. 'I believe the "Kitemark" that the profession and society should agree to work towards could be summarised in the vernacular as "these accounts are about right unless the management have deliberately conspired to falsify them". I am not about to argue for any reduction in the rigour with which an audit is carried out. I am not arguing for the commoditisation of an audit. And I am not proposing to take on liabilities I cannot meet.'

A 'Kitemark' would instead impose greater responsibility on individual auditors and their firms, said Griffith-Jones. 'Society, for its part, would need to accept the standard of "about right" as value for money and that, like it or not, there is not, as of now, sufficiently reliable audit technology to make it possible to remove the fraud caveat.'

BSI, which operates the Kitemark, welcomed the proposal. Ian Harper, sales and marketing director at BSI Product Services, said: 'BSI Product Services offers to support the industry in the development and measurement of a suitable standard should it wish to pursue the goal of achieving the Gold Standard, Kitemark symbol of quality.'

a call for action

Leaders of the G7 group of leading industrial nations have urged the International Accounting Standards Board (IASB) to take urgent action to strengthen standards relating to the use of off-balance sheet structures.

The IASB must address the accounting and disclosure problems of off-balance sheet exposures on an 'accelerated basis', said the G7. Joint work should take place with other standard setters to achieve international convergence.

Banks must move towards a common system of valuation of assets and liabilities, taking a consistent approach to the writing-off of assets. Ministers approved proposals drawn-up on the G7's behalf by the Financial Stability Forum (FSF) - a group that brings together a number of central banks and leading economists. FSF reported that: 'Potential weaknesses in valuation practices and disclosures, and the difficulties associated with fair valuation in circumstances in which markets become unavailable, have become apparent from the turmoil.'

The G7 agreed that the IASB should strengthen standards relating to valuations and enhance guidance on valuations of financial instruments when markets are not active. Financial institutions should adopt rigorous processes for valuations, disclosing the methodologies they use and what uncertainties there are in their use of valuations. The International Auditing and Assurance Standards Board, along with national audit standard setters, should consider the lessons of the financial crisis and provide enhanced guidance to auditors on valuations of complex or illiquid financial products and related disclosures.

FSF also considered the impact of Basel II, concluding that while it is an improvement over Basel I, it needs to be further strengthened in terms of regulatory oversight of banks, with more attention given to banks' liquidity, off-balance sheet activities and the use of securities. Within days, the Basel Committee on Banking Supervision began tightening its liquidity requirements.

The global cost of the market turmoil has been valued by the International Monetary Fund at US$1,000bn and is causing regulators throughout the world to reconsider their approach. Charlie McCreevy, the EU's Internal Markets Commissioner, has admitted that the EU is unprepared to deal with a crisis on the scale of Bear Stearns or Northern Rock. But under a new agreement signed by Europe's central banks and drawn-up by McCreevy's officials, new cross-border regulatory procedures have now been agreed.

Meanwhile, the European Union has launched an investigation into the UK Government's handling of the Northern Rock collapse and whether it broke EU state aid rules in the bank's nationalisation.

CGT changes spark frenzy

Accountancy firms in the UK reported heavy end of tax year demand for their services, as clients avoided the double whammy of higher capital gains tax (CGT) and new charges for non-domiciles.

David Kilshaw, tax partner and head of private client advisory at KPMG in the UK, said: 'It was the busiest end of tax year in living memory for our team. It was a combination of the changes to CGT and on non-doms, so an awful lot of clients were shuffling their affairs around ahead of close-of-play on 5 April. We did not really have many people selling businesses for the sake of it, but a number of deals under consideration were accelerated to hit the deadline and we acted for a number of people who were moving shares around, or disposing of shares, ahead of the deadline.'

Mike Warburton, tax partner at Grant Thornton, agreed that the close of tax year was extremely busy, not least because of the confusion and late notice of final details on the non-domicile rules. With the increase in tax rates on disposed shares rising from 10% to 18%, there was a sharp increase in clients selling holdings, or transferring them into trusts in which they were trustees - so that they disposed of shares, while retaining control of them.

'Within the provinces, we had a very busy time,' said Warburton. 'It was not just because of the CGT changes, but also with the non-doms. We have a lot of non-domicile clients, which has been particularly hectic. Hectic because we did not know how the law was changing. It is all very unsatisfactory.'

PwC's tax partner, John Whiting, said: 'I would not say it was a panic. Certainly, there was a cadre of people who could see a 10% tax rate metamorphose into an 18% tax rate. Many took it on the chin. Others wanted to do something about it. Some wanted a straightforward sale, others put them [shares] into trust, others handed them over to the wife. This was definitely something much beyond what happened in other years. It was a prompt, or a flurry, for a lot of people to do something.'

now IASB attacked by pension advisers

The International Accounting Standards Board (IASB) has been criticised by pension advisers for its proposals to amend IAS 19, to bring the treatment of pension fund assets into line with those of sponsoring companies. IASB argued that its changes would introduce greater transparency into the reporting of pensions liabilities.

IASB said that IAS 19 at present is 'inadequate'. IAS 19 allows, said IASB, for the deferral of recognition of gains and losses that lead to misleading figures in the statements of financial position; provides multiple options for deferring recognition that undermine attempts to compare companies; and fails to provide clarity in the definition of benefit promises. IASB proposes to remove the options for deferred recognition in defined benefit plans and introduce new classifications of benefit promises.

Sir David Tweedie, the IASB's chairman, said: 'Accounting for pensions is a complex area of huge importance. The total liability for 80 of the top companies around the world alone is estimated to be around £700bn. In some cases, the pension liability even exceeds the market capitalisation of the company. The financial statement of a company must provide investors, analysts and companies with clear, reliable and comparable information on a company's pension obligations.'

But Mercer expressed concern over the practicalities of measuring pensioner liabilities. Phil Turner, principal at Mercer, said: 'Measuring pension liabilities according to how they arose is impractical. In many cases, the necessary information will not be available, and this approach will give rise to inconsistencies. For example, career average plans would have to account on a more prudent basis than final salary plans. Some companies' P&L statements will become dominated by returns on pension scheme assets during a year, making sensible analysis of their bottom line more difficult.'

introduction of IFRS 'mishandled'

The UK Treasury failed to properly manage its now delayed implementation of IFRS, the House of Commons Treasury Select Committee has concluded. When IFRS is implemented, it is 'highly likely' to lead to a breach of the sustainable investment rule, but the Treasury is not being transparent in its anticipation of this, say MPs.

Under the Government's sustainable investment rule, net debt must remain under 40% of GDP. It has been assumed that a large quantity of off-balance sheet private finance initiative liabilities will become part of the public sector net debt when IFRS is adopted. The Institute of Fiscal Studies told the committee that £30bn could go on-balance sheet as a result.

In its evidence to the committee, the Office for National Statistics (ONS) said it was unsure what impact IFRS would have on national accounts. 'It will depend on precisely how the new IFRS standards are applied in the public sector, and we do not yet know whether it will continue to produce similar results to the results you would get from applying national accounts,' it said in submission.

ONS admitted that its existing projections on keeping within the sustainable investment rule - which show the Government going within 0.2% of the ceiling in the year 2010/11 - are based on existing accounting standards. The Budget forecast for public sector net debt at the end of March 2008 was £534.5bn, 37.1% of GDP. On this basis, the sustainable investment rule could potentially be breached by up to 2% in 2010/11. However, the Government hopes that ONS will eventually decide that IFRS does not require more PFI contracts to go on-balance sheet.

The committee concluded: 'It seems highly likely that, following the move to [IFRS] for central government, the sustainable investment rule as currently defined and interpreted will be breached in 2009/10 as a result of the reclassification of PFI projects.' It added: 'We call for the Government to clarify in the 2008 Pre-Budget Report how it proposes to revise the sustainable investment rule in the light of implementation of [IFRS].'

A spokesman for the Treasury declined to comment on the Select Committee report, saying only: 'Following consultation with departments and the Financial Reporting Advisory Board on the technical work needed to implement this change, the Government now intends to move to IFRS from 2009/10 to minimise burdens and to ensure a smooth transition.'

in brief...

'Drop fair value', say EFRAG members
Three leading accountancy advisers to the European Commission have proposed dropping the use of fair value reporting. Carsten Zielke, Michael Starkie and Thomas Seeberg - all members of the European Financial Reporting Advisory Group (EFRAG) - say that the adoption of fair value has helped provoke the global 'credit crunch' and associated banking write-downs. They argued that a system of averaged market pricing over a period should be used instead.

Half of accountants unhappy with pay
More than half of accountants in the UK are unhappy with the benefits packages offered by their firms, according to a survey conducted by Reed Accountancy and Reed Finance. However, 83% of firms said they believed their staff were happy with their benefits. Some 56% of accountants said their employers did not provide sufficient skill training. Better benefits packages were the most popular attraction for moving to another employer.

Women 'put off audit roles in banks'
City internal audit roles are overwhelmingly going to men, according to a survey conducted by specialist recruitment agency Longbridge. It suggests that women are put off by the 'City boy' culture of banks and the 5% lower average pay women auditors receive than their male peers. Only one in four City auditors is a woman, the survey finds. The average male salary for City junior auditors is just over £50,000, while it is 9% less for women at £45,509.

Storm in a teacake
Marks & Spencer (M&S) may be able to recover the VAT element of its teacakes, following a European Court of Justice ruling. M&S is now potentially entitled to a refund of £3.5m from HM Revenue & Customs (HMRC), which had wrongly instructed M&S to levy VAT on the products. HMRC accepts that it made a mistake in ordering the teacakes to be treated as biscuits, which are standard-rated, rather than as cakes, which are zero-rated. HMRC is now arguing that repayment is unnecessary because it would 'unjustly enrich' the company, as the refund would not be passed on to customers. That argument will now be considered by the House of Lords.

Pension investments not reviewed
Trustees at 42% of UK pension schemes do not regularly review investments, a survey from scheme advisers, Mercer, has found. The research concluded that most fund trustees have no system in place to measure their success, while two-thirds of plans have no formal objectives. A mere one in four schemes has a written policy stating fund objectives.

'Accountant' may be legally protected
The Consultative Committee of Accountancy Bodies (CCAB) is involved in a survey to consider whether the term 'accountant' should be legally recognised and protected. The CCAB - made up of ACCA and the five other UK accountancy institutes - believes the move would protect clients from people calling themselves accountants who have weak or no qualifications. ACCA members strongly backed action and across the CCAB membership 93% supported legal protection.

£21bn in loans without credit checks
UK banks loaned £21bn last year on unsecured terms without income checks, according to a report from uSwitch.com, an online personal finance advisory service. uSwitch argues that the Banking Code should be amended to require lenders to make credit checks to reduce the likely level of bad debts on loans. Just 21% of borrowers provided proof of income.

US Government pays for internet dating
Federal credit cards have been improperly used by staff to charge millions of dollars to US Government accounts for internet dating, bespoke suits and personal lingerie, according to a report by Congressional auditors. Four in 10 purchases using the cards were not properly authorised. Despite this, the use of the cards saves the US Government US$1.8bn a year by reduced administrative costs. A separate report examining expenses claims by UK workers found that over £1bn a year is stolen from employers by staff making false or inflated expenses claims.