Home Office: Economic Crime and Corporate Transparency Bill 2022
The Economic Crime and Corporate Transparency Bill 2022 (Bill) was introduced in the House of Commons on September 22, 2022. The Government describes it as effectively the second part of a legislative package to prevent the abuse of UK corporate structures and tackle economic crime, following on from the Economic Crime (Transparency and Enforcement) Act 2022, which received Royal Assent in March 2022.
The Bill has three key objectives:
- Prevent organised criminals, fraudsters, terrorists and others from using companies and other corporate entities to abuse the UK’s open economy. The Bill will reform the powers of the Registrar of Companies (Registrar) and the legal framework for limited partnerships (LPs) in order to safeguard businesses, consumers and the UK’s national security.
- Strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.
- Support enterprise by enabling Companies House to deliver a better service for UK companies, and improving the reliability of its data to inform business transactions and lending decisions across the economy.
The main elements of the Bill include the following:
- Broadening the Registrar’s powers so that the Registrar becomes a more active gatekeeper over company creation and custodian of more reliable data concerning companies and other UK registered entities such as limited liability partnerships (LLPs) and LPs (including new powers to check, remove or decline information submitted to, or already on, the register).
- Introducing identity verification requirements for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar.
- Providing the Registrar with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies.
- Tackling the abuse of LPs (including Scottish LPs), by strengthening transparency requirements and enabling them to be deregistered.
- Amending the Register of Overseas Entities to maintain consistency with change to the Companies Act 2006.
- Creating powers to quickly and more easily seize and recover cryptoassets, which are the principal medium used for ransomware.
- Creating new exemptions from the principal money laundering offences to reduce unnecessary reporting by businesses carrying out transactions on behalf of their customers and giving new powers for law enforcement to obtain information to tackle money laundering and terrorist financing.
- Enabling businesses in certain sectors to share information more effectively to prevent and detect economic crime.
- Allowing the Serious Fraud Office (SFO) to use its powers under section 2 of the Criminal Justice Act 1987 at the ‘pre-investigation’ stage in any SFO case.
We will be producing a more detailed briefing on certain of the provisions in the Bill in due course.
(Home Office, New crackdown on fraud and money laundering to protect UK economy, 22.09.2022)
(The Economic Crime and Corporate Transparency Bill 2022, 22.09.2022)
FRC: Thematic Review - Deferred Tax Assets
On September 21, 2022 the Financial Reporting Council (FRC) published the results of a Thematic Review it has conducted into deferred tax asset accounting and disclosure. This updates the findings on tax disclosures discussed in the FRC’s October 2016 Corporate Reporting Thematic Review: Tax disclosures (the 2016 review).
For a selection of 20 companies from a cross-section of industries (across the FTSE 100, FTSE 250, and others listed on the Main Market of the London Stock Exchange and with period-ends ranging from December 31, 2021 to April 2, 2022), the FRC considered the basis of recognition of deferred tax and the related disclosures under IAS 12, ‘Income Taxes’ in their annual reports. The FRC also assessed whether the evidence supporting the recognition of deferred tax assets for losses appeared to be sufficiently robust, and consistent with the annual report and accounts as a whole. In addition to the specific requirements of IAS 12, the FRC considered the guidance set out in the public statement: ‘Considerations on recognition of deferred tax assets arising from the carry-forward of unused tax losses’, issued in July 2019 by the European Securities and Markets Authority (‘the ESMA public statement’). The FRC believes this represents best practice, and it is consistent with the FRC’s expectations. It highlights the need to assess thoroughly the nature and extent of evidence supporting the recognition of a deferred tax asset and, whenever relevant, provide high-quality disclosures.
The FRC’s principal findings in relation to disclosure were as follows:
Specificity of convincing evidence
- Most loss-making companies gave only boilerplate disclosures about the nature of evidence used to assess the recoverability of net deferred tax assets.
- Better disclosures referred either to specific improvements in profitability expected to occur in the forecast period, or to the loss having been the result of a one-off event.
Judgements and estimates
- There was minimal disclosure of the specific nature of key judgements, and major sources of estimation uncertainty, in relation to deferred tax assets.
- Very few companies disclosed sensitivities to changes in assumptions or the range of possible outcomes within the next financial year.
- A small number of companies specifically disclosed that the potential effect of climate change on the recoverability of deferred tax assets had been considered.
- There were some good examples of informative, transparent tax disclosures, reflecting the requirements of IAS 12 as well as the expectations set out in the ESMA public statement and the 2016 review. Examples included: disclosure of the expected period of recovery of deferred tax assets, and geographical analysis of tax disclosures.
- However, a few companies omitted disclosures required by IAS 12 or disclosed material deferred tax balances, or movements in balances, that were not explained in the accounts.
- The underlying assumptions used in companies’ estimates of future taxable profit should be consistent with their impairment, viability and going concern forecasts (subject to some specific differences). Some companies noted that this was the case, and the FRC did not identify inconsistencies in assumptions when they did not.
- In a limited number of cases, the FRC identified inconsistencies between the disclosures in relation to deferred tax and other tax disclosures and/or the narrative tax disclosures included in the strategic report.
The FRC encourages companies to consider the findings within the report and its expectations when drafting their upcoming annual reports and accounts. In particular, the FRC expects companies to:
- Disclose company-specific information about the nature of convincing evidence supporting the recognition of deferred tax assets when there is a recent history of losses.
- Base forecasts of future taxable profit on assumptions that are consistent with other forecasts used in the preparation of the annual report and accounts (subject to some specific differences).
- Reassess the level of recognition of deferred tax assets when there are material changes to the deferred tax liabilities in the same taxable entity and tax jurisdiction.
- Disclose company-specific information about deferred tax judgements and estimates, including relevant sensitivities and/or the range of possible outcomes in the next 12 months.
- Explain the extent to which climate change risks have been reflected in deferred tax judgements and estimates, consistent with the degree of emphasis placed on those risks in the narrative reporting.
- Provide disaggregated information about material components of the tax expense and deferred tax balances.
- Provide transparent and informative tax disclosures that are consistent across the annual report and accounts.
(FRC, Thematic Review – Deferred Tax Assets, 21.09.2022)
OECD: Public consultation on draft revisions to the G20/OECD Principles of Corporate Governance
On September 22, 2022 the OECD Corporate Governance Committee launched a public consultation on revisions to the G20/OECD Principles of Corporate Governance. The overall objective of the review is to update the Principles in light of recent evolutions in capital markets and corporate governance policies and practices.
OECD and G20 countries have identified a range of priority areas to take into consideration during the review, including the management of environmental, social and governance (ESG) risks, digitalisation and corporate governance, gender diversity on company boards and in management, the role of board-level committees in corporate governance, changes in corporate ownership and concentration, and the role of institutional investors and stewardship, among others. An important overarching aim of the revision is to support strengthened corporate sector resilience and to improve companies’ access to finance from capital markets.
Comments are requested by October 21, 2022. Revised Principles are to be published in 2023.
(OECD, Public consultation on draft revisions to the G20/OECD Principles of Corporate Governance, 22.09.2022)