Digital Readiness - CSJ HKICS The Journal Of The Hong .

President’s MessageDigital readinessOn behalf of the Institute, I would liketo thank everyone who participatedin our 21st Annual Corporate andRegulatory Update (ACRU) held earlierthis month. The event will be reviewed innext month’s journal, but here I would liketo thank the speakers – both regulatorsand professional practitioners – whoparticipated in the sharing sessions.Thanks are also due to our sponsors, panelchairs and our Institute’s Secretariat fortheir contributions to the event.This year, however, I think special thanksshould also go to our ACRU audience. Dueto the COVID-19 pandemic, and for thefirst time in its history, ACRU was heldas a webinar. This is, of course, no smallchange to the usual format, but ACRU’ssuccess is an excellent demonstration,not only of the essential role thatdigital technologies will be playing inour personal and professional lives inthe post-COVID world, but also of theimportance of digital readiness. Not onlywas attendance at this year’s ACRU on apar with previous years, but also, judgingby the deluge of questions we received inthe Q&A sessions, the ACRU audience wasable to engage with the event in the sameway that they would have done in an inroom setting.This point leads me aptly to the themeof this month’s CSj. Technology is aJune 2020 04regular topic for this journal, butfrom time to time we also devotean entire edition to it. This month’sjournal will update you on the role oftechnology in crisis management, inknow your client and customer duediligence compliance for corporateservices providers, and in improvingand upgrading the global tax system.I would add to these perspectives thatdigital literacy and readiness havebecome essential skills for governanceprofessionals. Technology represents amajor opportunity for members of ourprofession, allowing us to spend lesstime on administrative tasks and moretime on the interpretive aspects of ourrole – providing better governanceadvice to boards facing increasingcomplexity and challenges.This month’s theme is also timely asCOVID-19 has led to a major shift inour attitudes to technology. The digitaltransition was already under way beforeCOVID-19 of course, but the pandemichas provided the well-directed nudgewe needed to really embrace the digitalfuture. Work-from-home arrangements– something that tended to be regardedwith suspicion if not downrighthostility by many organisations – havesuddenly become a core part of businesscontinuity. A similar pattern can beseen in attitudes to remote learning,virtual meetings and contactless digitalpayments. Many technologies, which preCOVID-19 may have been regarded asnice-to-have, have become must-haves.I don’t want to overstate the case;remote working is not an option foreveryone and there are still risks thatneed to be recognised in going digital –cybersecurity and data privacy being twoof the most prominent such risks – butthere can be no question that technologyis now more central to the strategy andoperation of organisations in Hong Kongthan ever before.Before I go, and staying on the COVID-19theme, I would like to highlight theadditional relief measures our Institute isnow providing for members, graduates,students and Affiliated Persons in viewof the current pandemic. Council hasdecided to extend the current 10%discount on Enhanced ContinuingProfessional Development (ECPD)webinars/seminars offered to members,graduates, students and Affiliated Personsto 30 September 2020. Moreover, we willbe applying a 10% discount to annualsubscription and renewal fees for thefinancial year 2020/2021 for Institutemembers, graduates and students. Fulldetails can be found on page 41 of thismonth’s journal.Stay safe and well during these uncertaintimes.Gillian Meller FCIS FCS

President’s ��咨询顾问职能——员和学员 ��给予 10% ��，同时也要感谢 ACRU ��初举办的第 21 届企业规管最新发展研讨会 (ACRU)。下月会刊 （(CSj)） ��构曾此外，今年也应向出席 ACRU 革，此次ACRU ��绪度的重要性。今年 ACRU ��问题来看， ACRU 和联席成员参加强化持续专业发展 （(ECPD)） �遇。借助科技，我们可予 10 % 折扣的政策延长至 2020 年 9月 �学馬琳 FCIS FCSJune 2020 05

Cover StoryTaxation of theplatform-based economyAs economies shift into intangibles as drivers of economic value, is the present global taxsystem fit for purpose? Dr Jag Kundi, a Hong Kong–based scholar-practitioner active inthe FinTech space, looks at the role that blockchain can play in improving and upgradingthe global tax system.June 2020 06

Cover StoryThis article will consider how taxationon digital economies is limited in itsscope, effectiveness and collectability. Thislast point of collectability is a real threatto governments around the world as thedigital economy knows no borders orsovereign territories. There are big impactson an economy if tax is not collectedcorrectly. These risks would cover: loss of revenue for governmentexpenditure impacting on reducedpublic services delayed interest payments ongovernment bonds, which couldmake sale and holding of governmentbonds less attractive, and depreciation of the national currencythereby impacting international trade.The role of the blockchain will alsobe considered as a way of potentiallyimproving and upgrading the tax system.Is the present tax system fit forpurpose?In today’s world, taxes may be consideredas a necessary requirement for anycivilised society to function. Originallythis was not the case. Tax was used asa ‘temporary’ means by governmentto finance war. Every war from ancienttimes to today was paid for by some kindof tax, from the time of Alexander theGreat to the American Revolution. Youcould argue that if you want to end war,end taxes!Tax is one area that impacts us all. Thefamous quotation ‘Nothing can be saidto be certain, except death and taxes’attributed to Benjamin Franklin in 1789actually has its roots earlier in The Cobblerof Preston by Christopher Bullock (1716)who wrote ‘Tis impossible to be sure ofanything but death and taxes’.Taxation in a ‘bricks and mortar’ basedeconomy is relatively simple. The physicalpresence or permanent establishment testwould be applied and the tax calculated.As a local citizen, individual or corporate,being physically located within a definedterritory would be the basis for calculatingtax – this became known as a territorialbased tax system, that is, one in which agovernment would usually only tax incomeearned in that territory. Gibraltar, HongKong, Singapore and Macau are examplesof territorial-based tax systems.An alternative taxation system called‘worldwide taxation’ simply aggregates allincome, regardless of where earned, andtaxes it as one lump sum. The US is anexample of a worldwide taxation system.The pros and cons of either system are notthe focus of this article, as both dependon the physical location of the individualor corporation for the basis of their initialtax assessment.This approach worked well for the taxationof tangible assets and physical goodswithin physical borders as indicators ofeconomic value – who owes/owns what. Aslong as the underlying assets were tangible,that is observable and measurable, it wasperfect for tax authorities to use this asthe basis for financial record-keeping andthereafter for tax assessment.Consider the industry developmenttimeline below (see Figure 1) and seehow the time periods between eachsuccessive period of industrialisationare being squeezed. The whole pace hasquickened dramatically with the shiftto a digital world where the offlineworld is now becoming more and moreconnected online. Originally the processwas evolutionary in nature taking, time forprogression; today it is more revolutionaryin nature, due to rapid and disruptivechange. The digital world has impacted/disrupted nearly every industry frommedia, communication, entertainment,education, finance and logistics. Todayphysical reality is being displaced by virtualreality and augmented reality.Industry 4.0 has a host of enablingtechnologies that promises to usherin a golden era in the digitisation ofmanufacturing. Enabling technologiesinclude: Internet of Things (IoT) cloud computingHighlights the old model of investing in tangible assets (plant, property and equipment) isquickly being replaced with the concept of being lean, agile and ‘asset-light’ rather than fight the digital economy, government could turn to technology asan ally to improve the tax system when the financial details of every transaction become traceable, theownership of assets and money can be easily determined and tax due thereoneasily and automatically calculatedJune 2020 07

Cover StoryFigure 1: Industry development timlineIndustry 1.0MechanisationIndustry 2.0Mass productionIndustry 3.0Robotics &electronicsIndustry 4.0Smart factories,IoT, AI & MLLate 18th centuryEarly 20th centuryLate 20th centuryEarly 21th century artificial intelligence (AI) and machinelearning (ML) data analytics, and advanced smart robotics.Industry 4.0 will take what was startedin Industry 3.0 with the adoption ofcomputers and automation, and enhancethis with smart and autonomous systemsfueled by big data and machine learning– all intangible. As everything is beingdone faster, cheaper and at scale, thesetechnological innovations are drivingmarginal costs to near zero, making goodsand services priceless, nearly free andabundant and no longer subject tomarket forces.The challenge here for national taxsystems will be based on a numberof factors: absence of physical presence strong dependence on intangibleassets In the 21st century, value is beingdefined, created and shared across digitalplatforms and much of this value isintangible in nature – such as big data.As part of their digitalisation, companieshave been quick to transform part or allof their business operations to a platformwhere the exchange of value can be donewith less friction. The platform-based economyAs the tech consultancy firm Applico(ww

The Hong Kong Institute of Chartered Secretaries (Incorporated in Hong Kong with limited liability by guarantee) 3/F, Hong Kong Diamond Exchange Building, 8 Duddell Street, Central, Hong Kong Tel: (852) 2881 6177 Fax: (852) 2881 5050 Email: ask@hkics.org.hk (general) cpd@hkics.org.hk (professional development)