Key areas of focus in financial services in the Asia Pacific Region 

Hi, my name is Chris Abbiss. I lead our Financial Services Tax function here in Asia Pacific based in Hong Kong, the focus particularly on China. I think you've got to segment the industry and it does include insurance, banking and funds. There is one common theme that goes across the industry and that is transit pricing. With countries facing deficits, particularly those in the northern hemisphere, there is a continual battle to try and get your share of a tax revenue for your country. So we are seeing a lot more heightened awareness of transit pricing where transactions are booked, what services are performed and are they properly remunerated throughout the region and this is being driven down a lot from the northern hemisphere where a lot of these organizations are based.

I think within those industries there are the unique issues. The banks for instance are facing quite a lot of regulatory reform. It's not finished yet and the reaction of regulators in the Asia Pacific region to some of the reforms and some of the reactions and forced actions that are being placed upon banks in the northern hemisphere are still working its way through. It's likely to see more localization or domestication, perhaps subsidization of banks which again raises transfer-pricing issues particularly around their capital structures, particularly around liquidity, but are particularly around booking of transactions which will change I think from where they've been in prior years.

The funds industry's got some particularly interesting issues to deal with. More particularly, what can you do in a country before that country decides to tax you. And also in the past, the funds industry has had certain ways in which it can access some investments which have reduced the amount of tax on repatriations like dividends or interest, but also have sheltered any gains they might make on sale of a company in a country or assets in a country in some cases from tax. We're seeing quite a change start to occur in Asia Pacific.

So I think that's the landscape as we are now. Going forward I don't see that changing a lot. I think they'll be three things that weigh on that landscape. Transfer pricing will continue to be part of it. Clearly the fiscal deficits in a lot of countries in the northern hemisphere and they are going to be leading the charge on trying to get as much of their fair share of tax, perhaps more than their fair share than what they've had in the past.

Asian countries are going to have to play in that same pool to make sure they protect their share. So I think that definitely worth something going forward. I think starting to emerge and perhaps even in the current is operational taxes. Clearly, countries have a lot of taxes which are directly applied to income. There's all sorts of transaction taxes. There's VATs, we tend to call them GSTs in a lot of the countries out here in Asia which don't apply easily to the financial services industry and these taxes are very difficult to deal with and that's an area I think where there's going to be increased FICAs and you're going to see reform in this area. Clearly China has signaled that it's looking at a VAT to be implemented in the future. How it's going to apply to financial services is uncertain but there's nothing more certain that it's likely to affect them even if the main start of the business is excluded.

Peripheral businesses will be included like they were in my hometown New Zealand, Australia, Singapore as examples. So that's clearly an area. I think another area that's going to develop over time is just the reaction to the regulatory reform I referred to earlier. That's going to develop over time and there are going to be rules around that which are going to have a tax impact. The change we're seeing in Europe and in the U.S. of a little more mood around social responsibility towards tax, perhaps penalizing those that were helped during the financial crisis and being asked to pay it back. These sorts of issues are starting to create a mood amongst tax authorities and I think that is a mood that will pervade out here. I think you're starting to see it in Australia and New Zealand. In the rest of Asia it's different stages of following better law but I think clearly we're going to see more of a lack of acceptance of traditional techniques of making sure one's taxes minimized to the best of one's ability.