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Similar to Increasing regulatory complexity for technology companies
Increasing regulatory complexity for technology companies
- 1. Increasing regulatory complexity fortechnology companies
- 2. © Grant ThorntonLLP. All rights reserved. 2 Learning objectives • Identify significant drivers of technology industry transformation • Discuss the new domestic and international regulations affecting technology companies • Associate common issues and concerns that Information Technology companies face as they comply with existing and new laws, policies and directives • Recognize proactive steps technology companies can take to shape public policy
- 3. © Grant ThorntonLLP. All rights reserved. 3 Agenda • Regulatory landscape and current issues • Recent trends in corporate compliance • Technology tax considerations
- 4. © Grant ThorntonLLP. All rights reserved. 4 The economic and social impacts technology impacts and the pace of disruption are accelerating • 1st ,2nd ,3rd and 5 of top 7 Fortune 50 companies by market cap are all Technology companies • McKinsey estimates up to an $11T impact of emerging tech by 2025 • Disruptive Technologies including XaaS, IoT, AI roiling industry • The lines among industries are blurring • Sharing economy is pushing Technology into new regulatory arenas • And traditional industries into Tech regulatory arenas • Information Tech, Media and Telecommunications • Growing digital divide
- 5. © Grant ThorntonLLP. All rights reserved. 5 The political, legal, regulatory landscape is getting more complicated as government struggle to keep pace • Beginning of a broader clash over who gets to shape the agenda • Restrictions reflect a lack of trust in the technologies and create fragmentation and often legal uncertainty, slow/limit adoption and complicate supply chains • Geographic complexity - Federal, State and International • International – primary impacts in Europe, China, India • Tech companies have historically been reactive until threatened • Winners and losers each side of issues makes Industry consensus difficult • Complexity risks favoring larger companies and stifling entrepreneurship Government plays an important role removing moving policy barriers, limiting needless burdens and minimizing untended consequences
- 6. © Grant ThorntonLLP. All rights reserved. 6 What are the issues? • Data – PII, data residency, transnational data flows protect personal data and provide assurances • Industry specific contracts - HIPPA, FMSA • National security versus privacy debate • Europe and the US have fundamentally different views - EU/US Privacy Shield now in place • Revenue recognition regulations changes – new rules and "as-a-service" impacts • Security concerns exacerbated by new architectures - Cloud, IoT, Mobility • Employment – immigration, labor laws, conflict minerals, slave labor, diversity, pay equity • Taxes – ecommerce, residency, international revenue, competing regimes • Open standards and accessibility – net neutrality, public spectrum, censorship • Trade – IP/copyright, service and investment barriers, buy national and closed bidding • Intellectual property • Environment
- 7. © Grant ThorntonLLP. All rights reserved. 7 • FBI v. Apple Inc.- Encryption, Privacy, Cybersecurity • Apple v. European Union- Tax Evasion, country-specific tax loopholes • Germany v. Facebook -Privacy, Data Collection • Microsoft v. United States - Data privacy laws, digital information stored internationally, Stored Communications Act, Electronic Communication Privacy Act • Google v. the EU - Antitrust Laws • Federal Trade Commission v. AT&T - Broadband, Telecom Company, Net Neutrality, Customer Data Privacy/Protection • Schrems v. EU Data Protection Authority - Safe Harbor Agreement • Frontier Communications v. West Virginia - Broadband, Telecom Company What are the impacts?
- 8. © Grant ThorntonLLP. All rights reserved. 8 How are technology companies reacting? • Chief Legal Officer is now in inner circle, part of the senior leadership team, and engaged in business and operations strategy • Companies are actively engaging in lobbying and government relation and taking principled stances • According to The Hill, Google spend “roughly $8.04 million on Washington advocacy between January and the end of June.” • Companies are increasing practicing jurisdictional arbitrage based on the regulatory framework– deciding where and how to operate in order to come under the jurisdiction of more lenient or more attractive incentives • 'Sand-boxing" by geography to meet local regulations, ie data centers in Germany Inaction can represent the greatest risk
- 9. © Grant ThorntonLLP. All rights reserved. 9 While you're here Connect with me online… Start a conversation on Twitter Message me on LinkedIn Request a meeting
- 10. © Grant ThorntonLLP. All rights reserved. 10 Recent trends in corporate compliance
- 11. © Grant ThorntonLLP. All rights reserved. 11 Embraer • Embraer SA to pay more than $205 million to resolve FCPA violations (Oct. 24, 2016) • Bribery charges in Dominican Republic, Saudi Arabia and Mozambique • Accused in India of hiding payments
- 12. © Grant ThorntonLLP. All rights reserved. 12 ISO 37001 Background • International Organization for Standards (ISO) • ISO is an independent, non-governmental international organization with a membership of 163 national standards bodies • Brings together experts from around the globe to develop voluntary, consensus-based, market relevant International Standards that support innovation and provide solutions to global challenges • ISO publishes International Standards but does not certify if a company is compliant with the standards
- 13. © Grant ThorntonLLP. All rights reserved. 13 Requirements To Comply with ISO 37001 The organization must implement a series of measures and controls in a reasonable and proportionate manner to help prevent, detect, and deal with bribery, including: • Anti-bribery policy • Management leadership, commitment and responsibility • Personnel controls and training • Risk assessments • Due diligence performed on third parties and business associates • Financial and contractual controls • Reporting, monitoring, investigation and program review • Corrective action and continual improvement
- 14. © Grant ThorntonLLP. All rights reserved. 14 ISO 37001: Certification Process • Third party conducts certification audit, valid for three years • On-site audit of Company's overall anti-bribery management system. Audit will include the following: testing for policies and controls, conducting interviews, and making observations, confirming required elements are in place • Annual Surveillance Audit to evaluate improvement efforts
- 15. © Grant ThorntonLLP. All rights reserved. 15 ISO 37001: Impact of Certification Too early to determine companies and regulators will react due to the recency of the release. Potential benefits include: • Potential for Credit from DOJ/SEC: Adheres to The FCPA Resource Guide, principal "Continuous Improvement: Periodic Testing and Review". • Good Governance: Although being certified in and of itself will not absolve a company of all wrongdoing in the event of an incident, it demonstrates that the organization has taken a proactive approach towards anti-bribery. • Market Differentiator: Ideal for working with third parties in regions with elevated corruption risk and limited local enforcement. Companies may start to require their third parties in these high-risk geographies to have the certification. • Industry Leader: Opportunity to benchmark against leading practices that are consistent with ABAC laws and regulations.
- 16. © Grant ThorntonLLP. All rights reserved. 16 Technology Tax Considerations
- 17. © Grant ThorntonLLP. All rights reserved. 17 What are the issues? • When do you consider your company to be "doing business" within a country or state? • How often do you (re)-evaluate your product/service offerings to determine if they qualify as a product (sale of a license, digital good) or an "as a service" offering? • Is your company issuing it's own currency (e-commerce) or is it making use of other non-government backed currency for daily transactions?
- 18. © Grant ThorntonLLP. All rights reserved. 18 When is your company "doing business" in a foreign country or state? • India's GST to take effect as early as 2017 • Current understanding will have zero rating for exports but imports would be taxed the same as domestic goods and services • Does your company have international operations? • Does your company have and make use of affiliated entities based in foreign countries to fulfill contracts? • Does your company make use of non-affiliated entities in foreign countries to fulfill contracts?
- 19. © Grant ThorntonLLP. All rights reserved. 19 When is your company "doing business" in a foreign country or state? • European Commission to Nix VAT Exemption for Online Sales • Imported goods sold online are currently exempt from the VAT if they cost less than 22 euros. Due to companies outside the EU falsely marking expensive goods below the 22 euro threshold. Many mobile phones and tablets have been sold tax free. (1) the extension of the existing MOSS to intra-Community distance sales of tangible goods and services other than electronic services as well as to distance sales of goods from third countries; (2) the introduction of a simplified arrangements for global declaration and payment of import VAT for importers of goods destined for final consumer where VAT has not been paid through the MOSS system; (3) the removal of the existing intra-Community distance sales thresholds which are a cause of distortions in the single market; (4) the removal of the existing VAT exemption for the importation of small consignments from suppliers in third countries which disadvantages EU sellers; (5) the introduction of common Community-wide simplification measure including a VAT threshold for intra-Community distance sales of goods and electronic services to help small start-up e-commerce businesses as well as simplified rules for the identification of customers; (6) allowing for EU sellers to apply home country rules in areas such as invoicing and record keeping; and (7) greater coordination between Member States when auditing of cross-border businesses who use the VAT system to ensure high compliance rates.
- 20. © Grant ThorntonLLP. All rights reserved. 20 When is your company "doing business" in a foreign country or state? • US States becoming overtly aggressive concerning their ability to impose Nexus. • Alabama Income Tax Nexus– • More than $50,000 of property in Alabama, or • More than $50,000 of payroll in Alabama, or • More than $500,000 of sales in Alabama, or • More than 25% of total property, or total payroll, or total sales in Alabama.
- 21. © Grant ThorntonLLP. All rights reserved. 21 When is your company "doing business" in a foreign country or state? • US States becoming overtly aggressive concerning their ability to impose Nexus. • Alabama Sales Tax Nexus – The seller retail sales of tangible personal property sold into the state exceed $250K per year based on the previous calendar year's sales • South Dakota – SB 106 requires remote sellers with no physical location in South Dakota to remit sales tax and follow all procedures of the law, as if they have a presence in the state, if they meet one of two criteria in the previous calendar year or the current calendar year
- 22. © Grant ThorntonLLP. All rights reserved. 22 How often do you evaluate your product/service offerings to determine their proper classification? • Sale of Software License • Digital Good • Cloud Computing ("as a Service" platform)
- 23. © Grant ThorntonLLP. All rights reserved. 23 Is your company issuing its own currency (e-commerce) or is it making use of other non-government backed currency for daily transactions? • Amazon Coins – 100 Coins = $1 but you can save up to 25% by pre-purchasing coin • Digital Wallets – Most common in gaming but are migrating to other services and tangible goods • Crypto-Currency – Looked into the advantages for purposes of either reduced cost to move money or for safety when transactions occur in high risk areas?
- 24. © Grant ThorntonLLP. All rights reserved. 24 While you're here Connect with me online… Start a conversation on Twitter Message me on LinkedIn Submit an RFP
- 25. © Grant ThorntonLLP. All rights reserved. 25 Disclaimer This Grant Thornton LLP presentation is not a comprehensive analysis of the subject matters covered and may include proposed guidance that is subject to change before it is issued in final form. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this presentation. The views and interpretations expressed in the presentation are those of the presenters and the presentation is not intended to provide accounting or other advice or guidance with respect to the matters covered. For additional information on matters covered in this presentation, contact your Grant Thornton, LLP adviser.
- 26. © Grant ThorntonLLP. All rights reserved. 26 Thank you
Editor's Notes
- #5 I will argue, though I'm biased that Technology has the most signifant impact on business, second only to the economy As evidence Today the 5 most valuable companies in the US are all technology companies (by market cap)– none of which existed 20 years ago Apple, Alphabet, Microsoft, Facebook, and Amazon And with Tech's role driving the sharing economy, there are increasingly coming under regulations already in place for those industries union labor contractors – 1099 vs employee taxing regs for hotels – existing regulations such as rent-stabilized or coop-nanned homes, insurance requirements for transportation HIPPA and ACA rules drones and FAA regulations self driving cars – tech companies not subject to same regs as auto companies cypto-currency And with Tech's role driving the sharing economy, there are increasingly coming under regulations already in place for those industries union labor contractors – 1099 vs employee taxing regs for hotels – existing regulations such as rent-stabilized or coop-nanned homes, insurance requirements for transportation HIPPA and ACA rules drones and FAA regulations self driving cars – tech companies not subject to same regs as auto companies cypto-currency And this pace of change is accelerating. - See McKinsey chart The technology industry itself is rapidly blurring into other, traditional industries. Some of you may have may have heard me say this before, but it bears repeating. Digital transformation has already happened: World's largest taxi company is tech cco. that owns no taxis – Uber Largest accommodation co. is a tech co that owns no real estate - Airbnb World's largest media company creates no content - Facebook Largest phone co has no telco infrastructure – Skype World's most valuable retailer has no inventory – Alibaba World's largest movie house has no cinemas - Netflix World's largest software cos. write no apps – Apple and Google Fastest growing banks have not actual money – SocietyOne
- #6 Now for today's detailed discussion. For all the reasons just discussion – growing portion of the economy, disruptive force, tech operating in traditional industries, pervasive in our daily lives driving economic winners and loser – the tech industry has drawn the attend of governments and regulators around the world Governments struggle to keep pace with the rate of innovation Complex as multiple jurisdictions are involved from local to multiple globals While technology is not classically a regulated industry such as FS or Utilities, or healthcare, we are rapidly moving in that direction And already have it in certain subsectors such as Telecommunications. As tech increasingly is viewed as a "utility" as access is increasingly viewed as a "must" to compete an a barrier in the economic divide this will grow
- #7 a broad range of issues and concerns from privacy and security to unfettered and equal access to taxation to sovereign rights to immigration and environmental concerns affecting all our TIP sectors and subsectors And serve as a drag on the pace of growth and potentially innovation
- #8 and a sampling of recent actions reflect the breadth and significance of these concerns the most recent is a more traditional concern, but one that is likely to increase in frequency, is antitrust. AT&T proposing to buy Time Warner in a vertical integration Raising concerns about net neutrality and pricing l everage As lines continue to blur between technology and other industries, we will see more of this Apple and the US gov't – privacy and national security at odds Facebook and Germany – personal privacy highlighting the differences in attitudes among countries Microsoft and US gov't – privacy and security and the complications od data stored outside the US
- #9 In the early days of the tech industry the approach was to ignore government – other than as a marketplace, then to respond defensively when challenges, and reluctantly and tentatively begin to engage in policy and lobbying efforts – MS set up a Washington office as a result of US antitrust case years ago CLOs are now front and center as business advisors And companies are incurring additional costs – in this example setting up additional data centers within countries. This favors the large, wealthier companies, as the smaller, emerging companies cannot afford to do so Raising the potential cost of "doing nothing"- no longer an option
- #12 a broad range of issues and concerns from privacy and security to unfettered and equal access to taxation to sovereign rights to immigration and environmental concerns affecting all our TIP sectors and subsectors And serve as a drag on the pace of growth and potentially innovation
- #13 Other ISO Standards (Examples): Occupational Health and Safety Social Responsibility Risk Management
- #14 Speaker note – This is very consistent with what DOJ and SEC have said they expect so nothing too surprising. Will be harder for countries where ABAC compliance isn't a priority.
- #15 - provide evidence in the event of a criminal investigation that you have taken reasonable steps to prevent bribery - Because the standard is new, it is unclear what value the certification will hold
- #21 The Act sets forth detailed definitions of property, payroll, and sales, for purposes of these thresholds. Each year, taxpayers should monitor the dollar-based thresholds, as they will be subject to annual adjustments (rounded to the nearest $1,000), based on a 5% or more change in the Consumer Price Index. Since the thresholds apply at the entity-level, the Act will impact tax filings of not only business entities and nonresident individuals, but also owners of certain pass-through entities (including trusts) doing business in Alabama. Thus, if either the property, payroll, or sales of a pass-through entity (or trust) exceeds a threshold amount, then an owner (or beneficiary) will be subject to Alabama income tax on its share of the entity's (or trust's) Alabama income.
- #22 , and the seller conducts one or more of the activities as stipulated in AL Code Section 40-23-68 including: maintains, occupies or uses an office, place of distribution qualifies to do business or registers with the state to collect tax, employs or retains under contract any representative, agent, salesman, canvasser, solicitor or installer for the purpose of selling, delivering, or the taking of orders for the sale of tangible personal property or any taxable services, solicits, pursuant to a contract with a broadcaster or publisher located in the state, solicits orders for tangible property by mail, solicits, pursuant to a contract with a cable television operator located in the state, solicits orders for tangible property by means of telecommunication or television shopping system which is intended to be broadcast by means of broadcasting to consumers in the state. south Dakota The remote seller's gross revenue of sale of tangible property, any products transferred electronically, or services delivered into South Dakota exceeds $100,000 The remote seller has 200 or more separate transactions tangible property, any products transferred electronically, or services delivered into South Dakota.