Why should CEOs care more about their time?

CEOs wield a tremendous amount of influence, not only within an organisation, but as a representative of the organisation to those outside of it. Each meeting they attend, each direct report they hire, and every attendance at a company event are given great weight and meaning for both senior executives and regular employees alike. Their presence at a table with members of an external organisation, which might include lawyers, PR meetings and media appearances also set a tone and message to both their own and the external organisation.

Above all, however, a CEO’s priorities are reflected in the relationships they choose to build within the organisation. Building all of these relationships and executing these tasks involve time, a CEO’s most precious resource, at which they must become adept at aggressively and proactively managing. Even for Tom Gentile, who spent 20 years as a senior executive at GE prior to becoming the CEO of Spirit AeroSystems, a $7 billion aviation supplier, effective time management can be overwhelming.1

“All of a sudden you have board responsibilities, investor responsibilities, and many more media responsibilities. They take an inordinate amount of time. The requests keep coming in, and the schedule fills up so much faster.”

As time is also a limited resource, the CEO must develop a strategy for time management that builds these critical relationships for his or her success – and the success of the organisation – with an eye towards being able to achieve goals in the long-term. That may mean spending more time with one department or department head than another, or deciding to spend time giving interviews to the media instead of spending that time with product and development.

Let’s not forget that in their relationship-building, CEOs also face a precarious balancing act: On the one hand, they must understand the regular employee’s reality and avoid operating within a bubble; on the other, they must simultaneously build important strategic relationships with senior leaders who may quite possibly advance to become senior executives – or even replace the CEO one day.

In addition, they must also realise that at the end of the day, the board is responsible for ensuring the CEO is performing his or her job effectively. Not only will building individual relationships and taking full advantage of each member’s individual perspective and expertise help the CEO to succeed at the job, but it will also enable the board to succeed. This mutually beneficial relationship of the board and CEO, when built and managed effectively, can benefit the entire organization.

Patrick Lardi, Member of the Board of directors of ST Real Estate and of Fidinam Australasia Real Estate

 

New Transfer Pricing Law in Hong Kong

Hong Kong has formally adopted a transfer pricing (“TP”) regulatory regime and TP documentation requirements into Hong Kong legislation. On 13 July 2018, the Inland Revenue (Amendment) (No.6) Ordinance 2018 (the “Amendment Ordinance”) was gazetted to codify the TP principles, implement certain measures under the Base Erosion and Profit Shifting (BEPS) package and align the provisions in the Inland Revenue Ordinance (Cap. 112) with OECD requirements.
The key elements of the Amendment Ordinance are summarized as follows:
A. The Arm’s Length Principle

The Hong Kong Inland Revenue Department (“IRD”) is empowered to adjust profits or losses where a transaction between two related parties differs from the transaction that would have been entered into between unrelated parties, in which has created tax advantage.

For domestic related party transactions (“RPT”) which does not generate actual tax difference and not for tax avoidance purpose, are exempted from the new rules.

B. Thresholds for documentation requirement

Hong Kong entity is required to prepare Master File and Local File for accounting periods beginning on or after 1 April 2018 when both tests below are met:

(1) Business size test (any two of the following are met):
i. Total annual revenue exceeding HKD400 million
ii. Total value of asset exceeding HKD300 million
iii. Average number of employee exceeding 100

(2) RPT (other than qualified exempted domestic transactions) size test (any one of the following are met):
i. Annual amount of buy-sell transactions of tangible goods exceeding HKD220 million
ii. Annual amount of transaction in respect of financial assets / transfer of intangible assets exceeding HKD110 million
iii. Annual amount of other transactions exceeding HKD44 million

C. Deeming provision on income from intellectual property (“IP”)

Section 15F was newly introduced for taxing the income so derived by the person from the use of or a right to use such IP outside Hong Kong where its associate, a Hong Kong tax resident, has contributed to the development, enhancement, maintenance, protection or exploitation of the IP.

D. Permanent Establishment (“PE”)

If any non-resident who has a PE, will be deemed to carry on a trade, profession or business in Hong Kong, the income attributed to the PE will be chargeable in Hong Kong.

Definition of PE

A non-Hong Kong tax resident has a PE in Hong Kong if:
i. It has a fixed place of business in Hong Kong through which its business is carried on (e.g. a place of management, a branch, an office, a factory, a workshop, a place of extraction of natural resources or a construction site); or
ii. Building site having regard to activities of the taxpayer under the same or connected activities and its closely related person; or
iii. It has a dependent agent in Hong Kong which habitually concludes contracts in the name of the non-Hong Kong tax resident; or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification

(Note: follow Article 5 of respective DTA of Hong Kong, and has narrower scope than the DTA PE definition)

E. Advance Pricing Arrangements (“APA”)

A formal APA regime is provided to assist the Hong Kong taxpayers to enter bilateral APAs with more tax jurisdictions.

In view that the Amendment Ordinance is the first TP rules enacted in law, there are still many uncertainties on the practical application, the IRD is expected to promulgate more guidance. All parties should continue to keep close eyes on the developments and carefully assess if and how the new TP law apply to them.

Yan Hong, Tax advisor of Fidinam (Hong Kong)