Current News

Corporate Governance Code in a country usually is a non-binding soft law, but it is still very important to every entrepreneur and investor because it entails the emphasis of business values in a country and business certainty that follows. This short article will briefly introduce some highlights of the corporate governance codes in China, Germany, and Netherlands.

China

China started with its contemporary corporate governance code as of 2001 and recently upgraded it in July 2018 in convergence to international standards due to more market accessibility presented to global investors. The newest governance code provides for encouragement of board diversity and establishment of Environment, Social and Governance requirements (ESG). The code also emphasized the importance and promotion of audit committee functions. Cash dividends distribution to shareholders is encouraged. Last but not least, a ‘Chinese Characteristic’ is in place in form of required establishment of a Party organization in companies to ensure political adherence.

Encouraging board diversity is designed to partly overcome the shortcoming of the uncertain independency of board members. Because the older version revealed a risk of lacking independent board majority. The ESG is set to promote green and society-friendly companies, which can be interpreted as going closer to the triple P bottom line: People, Planet, Profit. The main components of the ESG are requirements on information disclosure, evaluation and rate, and investment guidance. Enhancement on audit committee functions is one of the solutions to prevent and to fight against financial fraud. More cash dividends distribution to shareholders is highly recommended than other forms of dividends payment such as stocks. This move is to go further with shareholder protection, especially smaller shareholders, as the older version has shown insufficient protection on minority shareholders. Implementing the required Party organization within a company looks unique in the Chinese corporate governance code because no other codes have such a special government involvement.

Germany

Nowadays, many Chinese businessmen speak English. The knowledge on German corporate governance should not be underestimated because corporate governance in German looks quite different from the English-based disciplines. Having the distinction and some key points in one’s knowledge will help to predict business certainty. The current code is the 2017 version, and some notable updates and key points are presented below.

In the past years, German companies had a big deviation on the board structure suggested by the governance code which recommended two-tier structure consisted of a supervisory board and a management board. The compliance rate to this recommendation was barely 58% after the code introduced in 2002 with difficulties on supervisory board composition and management board compensation. In general, Germany adopts the principle of ‘comply or explain’ whereas reasonably explainable deviations are acceptable. But the current compliance on board structure suggestion reached 94% by the end of 2017. This change reflects a custom that many listed German companies are family-owned without the necessity of having two boards and the value that people take it very seriously about compliance even for soft laws. This current two-tier board structure is nowadays more common than English countries in which one board is still popular.

Another distinction is the role of employees in decision-making. Labour or employee representatives in German companies are a part of the decision-making process. Feedback or requests are sent to the boards by the representatives to voice for the employees. At present, work councils representing the rights of employees are introduced in companies. Employees are able to nominate a member or two of the supervisory board to safeguard their rights and conditions.

Netherlands

For Chinese businesses that have already been established in Germany, expanding into the Netherlands looks convenient and easy. What could be helpful is some notes on the corporate governance in the Netherlands, in particular in contrast with the German version. Apart from that, Dutch governance code also has its originality.

The Dutch corporate governance code is not a hard law but with some significant influences for listed companies in the Netherlands. Netherlands adopts the same principle of ‘comply or explain’ in conformity to the requirements contained in the code as Germany does. The two-tier board structure in Dutch public companies is quite common because the origin of two-tier board was dated back in 17^th centuries in the Netherlands itself. Even in smaller companies, a (quasi-) two-tier board structure is observed. The latest Dutch corporate governance code was updated in 2018. There is a notable shift of emphasis onto the long-term value creation of a listed company and stronger risk management. For instance, the long-term value creation should be realized by vesting more responsibility and involvement of the supervisory board in company remuneration policy. Such changes according to the new code should also be properly disclosed in their annual reports.

Importance of Corporate Governance Code

Why is the corporate governance code important to everyone? The first reason is that a governance code helps with the organization and management of a company, which will greatly contribute to the operations and development of a business. The second reason is to improve on the weakest link in a process, which is the human factors. The third reason is to bring up the level of trust of the public and foreign investors and trustworthiness of the company information. In other words, prevention of fraud is part of the purpose to develop a governance code national-wide and suggest listed company to adhere to it. The fourth reason is the reflection of national customs, cultures and values in the governance code that enables global investors to glimpse into the business atmosphere of a country in general. It is worthy of attention that the corporate governance code in a country often is applicable to listed companies only. Hence any plan to interact or join a private business in the above countries is suggested to follow local cultural values and industrial regulations.

Global Connect Admin | Xuan Hao

The trade war between the United States of America and China is, after months of negotiating, still going on with no end in sight. When the US announced to increase their import tariffs on Chinese products, it negatively affected the Chinese stock market. But not only China is the victim of this trade war. It also holds consequences for the European market.

A quarter of the European companies that have ties with China, state that they are negatively affected by the trade war that is going on. And even a small part of this group is thinking of moving their fabrics that are placed in China, elsewhere. This is, however, a small group. 10% of the companies that experience a negative impact already moved or is thinking about this. These companies mostly end up in South-east Asia or eastern Europe to avoid the high import tariffs imposed by the US. A rapport that was presented by the European Chamber of Commerce in Peking showed that 38% of the 538 participants experienced the negative impact of the trade wars. 57% of this group stated that they did not experience the direct impact of the trade wars and 4% experienced positive results.

As stated before, the Chinese stock market suffers from the high import tariffs. But the European stock market also feels the impact after president Trump put the Chinese company Huawei on the blacklist. Google even shorted Huawei’s access to their Android platform, which means that Huawei lost their direct access to updates on the Android software. European and American companies announced that their deliveries would not end up in China, resulting in suppliers losing their assignments. The Scandinavian companies Nokia and Ericson, however, both profit from the ban that is put on Huawei.

Although the increasement of the import tariffs on Chinese products do not have a direct impact on the European companies working together with China, for a big part. This might change due to the long negotiation processes and deliberations. However, the future is uncertain and there might come an end to this trade war.

Global Connect Admin (GCA) was present at the 2019 Symposium of the Deutsch-Japanischer Wirschaftskreis (DJW). The theme of the event was Digitalisation and the situation of the fast ageing population in both Germany and Japan. The Symposium took place in the beautiful building of Nurnberger Versicherung and started off with a welcome by the president of the DJW: Herr Wiesheu, followed by Dr. Zitzmann (Chairman of the Board, Management Nurnberger Beteiligungs-AG) and eventually shifted to the ambassador of Japan in Germany: Mr. Takeshi. It was very clear that the aim of the Symposium was to learn from each other in terms of ageing societies and how each country is responding to this situation.

The first panel tackled the “Demographic change in Japan and Germany – Consequences for our economies”. The three panellist, Dr. Felix Lill (journalist, whom has worked in Japan), Mr. Naoki Matsumoto (Secretary and Attache of Labour at the Embassy of Japan in Germany) and Dr. Robert Mayr (CEO of Datev eG ) talked about similarities in the ageing population between Germany and Japan. The interesting part was that Dr. Lill showed graphs about the expenditures and savings of each age category. It showed that the older generation supported the younger generation by private money transfers. Mr. Naoki Matsumoto showed the response of the Japanese government and society to the ageing situation, which was surprisingly positive. The older generation in Japan was willing to work even after the age of 70, and many communities were created for the older generation to contribute to society by working. Online platforms were also used by the older generation to offer their services. Dr. Mayr spoke of automatization in jobs, mainly in the accountancy sector, where jobs have a 70% rate of being replaced by machines in the future. Although this was a scary thought, Dr. Mayr was positive that a certain solution could be found by developing the right software at Datev eG. The second panel was about “Chances for companies in Germany and Japan” with panellists Anne Christin Braun (Senior Marketing Manager at Digital Health Hub Lead/ZOLLHOF), Dr. Benjamin Nixdorf (Managing Director Europe at Zuken GmbH), Mrs. Andrea Schindler (Project Manager future learning at Continental Automotive GmbH) and Mr. Nobuhiro Tani (Manager and Robot engineer at OTC Daihen Europe GmbH). Questions were asked to the experts regarding change in management systems and how their companies and employees coped with certain changes (i.e. email systems) as well as the situation about a high percentage of job openings but a low percentage of people seeking jobs or that do not fit the criteria. The experts were convinced that specialist can also be made during the job (thus hiring someone that does not have all the qualifications), rather than seeking for a specific person. The skills that are required for a certain job can be learned by attending workshops and good guidance. At the end, Mr. Mathias Maul (Principal at MAULCO Digital Strategy) gave an inspiring presentation on “Impulses for implementation.” The key of this presentation was how people can easily think negatively about certain things or actions. Instead of thinking about a problem, think about a situation. Instead of thinking that something is impossible, try to think of it as a puzzle. After all the insightful panels and presentations, a networking session was held. A perfect ending to a successful Symposium.

The First Conference of the Belt and Road Initiative Tax Administration Cooperation Forum was held in Wuzhen, Zhejiang, China during 18th to 20th April 2019, themed as “enhancing taxation cooperation and improving business environment”. The Forum was organized by the Chinese State Administration of Tax, participants are representatives from 85 countries or regions, 16 international organizations, research institutions and multinationals. Four main results were announced at the end of this Forum, namely establishing the One Belt One Road Tax Administration Cooperation Mechanism (consisted of the Council and the Secretariat) , founding the Confederation of Tax Administration Capacity Promotion, announcing the Wuzhen Declaration for enhancement of mutual cooperation, and compiling a Two-Year Action Plan for the Tax Administration Cooperation.

© Photo by rawpixel.com from Pexels

The Two-Year Tax Administration Cooperation Action Plan, or the Wuzhen Action Plan 2019-2021 orients on the topic “construing the growth-friendly taxation environment. Some highlights from the specific plans are as follows:

1. The Tax Administration Cooperation Forum will be held annually as the permanent platform for communication and exchange of information between all Council members.
2. All members are to conduct taxation certainty research and manage tax matters with the rule of law.
3. Speed up the dispute resolution processes regarding tax issues and minimize disputes by introducing periodical measures.
4. Every Council member is encouraged to establish training institutions for tax administration capacity educations, for instance, Mainland China, Macau China and Kazakstan have already established their own tax affairs academy for a One Belt and One Road.
5. Clarify the necessity of certain information and documents regarding tax and taxation for reducing the unnecessary workload.
6. Research actively and design strategies and methods to digitize tax administration.
7. Every Council member should join one or more working teams for the actual coordination, organization and supervision of the execution of the Action Plan. Each working team will be found by the end of June 2019 and a work plan must be submitted to the secretariat before 1st Nov. 2019. An interim progress report is required from every working team in 2020 and a final evaluation report before the Third Forum in 2021.

China has entered into double tax treaties with 111 countries and regions by the end of 2018. An OECD Multilateral Taxation Centre was established in Yangzhou by China as its efforts to promote international taxation cooperation, insofar 22 programs have been offered to officials from some 50 countries. This First Forum on Tax Administration Cooperation is promoting a more concrete tax cooperation mechanism in addition to the existing taxation networks, which has been highly appraised by the OECD and representatives of the participating parties.

Global Connect Admin B.V.

Xuan Hao

On the 1^st of January 1993 the internal market was established, meaning all border control between EU members became redundant. However, the information and statistics on trade between the EU members remained, and the European Union came with the Intrastat: a system that collects data and information on the trade in goods between EU member states. For the Netherlands these statistics are very informing since 71% of their trade consists of export to EU countries. But there are certain guidelines to deliver sufficient enough data for the INTRASTAT. These guidelines are made by statistics bureaus in the EU members states. For the Netherlands that would be the CBS: Central Statistics Bureau. For each EU member state there is a different statistics bureau where companies will give their data for statistics in cooperation with tax bureaus in their countries. The information reports are strictly mandatory based on the EU 638/2004. As a company everyone needs to be aware of when the information needs to be reported. Every statistics bureau in every country has their own guidelines and are made available on their websites.

The information on trade and statistics needs to be delivered to the central bureau of statistics in the EU member state, by the company itself. But it also happens that some companies outsource their documenting on trade and statistics. This work can be done by administration offices or expeditors. Providing such statistics can be complicated or too much work for a company. Nowadays it becomes more popular to outsource ones trade information and statistics on the INTRASTAT network. The most important aspect of course is that the information and statistics are reliable, true and as detailed as possible.

But why are tax agencies involved?

The whole INTRASTAT network is based on the registers of participants in Trade between EU member states. The tax bureaus provide certain registers to the bureaus of statistics in order for the statistics bureaus to check whether the information and the statistics that were provided are reliable and correct. What is very important is that the VAT number is used. However, the VAT numbers are protected and will not be published for the public eye to see. And the other way around, the statistics bureau will not provide the tax bureaus with certain information regarding the trade statistics. Any valuable information is protected.

When does a company need to participate?

Participation is mandatory when the trade to European member states is 1 million euro and the import is 800.000 euro. When only the import is higher than the required amount, and not the export, the statistics bureau only asks for the import statistics. When a company needs to participate, they will be notified with a letter form the statistics bureau.

As earlier stated, Intrastat can be a lot of work for a company. Do you have any questions about the Intrastat? Please feel free to contact us directly to see what GCA can do for you.

Dutch telecom giant KPN has claimed a forthcoming partnership with the controversial Chinese company Huawei for the construction of its 5G network. KPN has signed a preliminary agreement with Huawei to initiate preparations on updating the mobile radio and antenna network, which is nevertheless subject to change complying with future Dutch government policy.

Huawei is ‘controversial’ in this context because it is thought by the western countries to be too close to the Chinese government. This partnership received a great deal of criticism from Dutch Parliament Members and the US ambassador to the Netherlands. A majority of the House of Representatives recently said that Huawei should be excluded from the construction of the Dutch 5G network which is such a crucial infrastructure.

Dick Schoof, head of intelligence service AIVD, warned that China could ‘influence, stop or know exactly what happens within the Netherlands’ by carrying out the 5G construction in the Netherlands. The Unites States is particularly concerned that Chinese companies will gain a dominant position of the 5G market in Europe.

Under such pressure, KPN said on last Friday (26^th Apr.) that it intends to select a western company to work on the critical core of its 5G rollout. This approach seems more like a compromise between the economic interests brought by Huawei and the pressure from the public concerning national security. Nevertheless, it has come to the public attention that the Dutch government is currently looking for a new strategy addressing economic interests and opportunities brought by China and is due to publish its approach next month.

Negotiation in the West is incorporated into college curriculum because theories have been established with real cases. China has its own negotiation style and principles; no explicit theory has been defined but common observations. The concept of trust is nevertheless existing in both Western and Chinese contexts with difference meaning. The 21st China-EU Summit and the 9th Business Forum between China and Eastern Europe have taken place early this month. Encouragement of business and trade will lead to more negotiations between Chinese and European companies and businessmen. It might be helpful to talk about the concept of trust in China in comparison to it in Europe.

Trust in Europe is established by rules and laws in a broad perspective. Companies are trustworthy because of their observance to the laws and local rules. The supplements to this trust are the quality of the goods or services and the implementation of customer satisfaction nowadays. All these will add up to the good reputation of a company which makes a company trustworthy. It is hence very crucial for Chinese companies to consider this interpretation of trust in approaching European counterparts. For Chinese companies having branches or subsidiaries in Europe, it is another delicate question of balancing the different interpretations of trust.

China in general takes a different perspective on trust, which is strongly influenced by its culture of ethics and morality focusing on people and relationships. Trust is formed when the ethical and moral aspects are fulfilled. For instance, buying products from acquaintances who are doing related businesses is a signal of trust, because this shows that the buyer cares about the seller’s business by buying product from seller exclusively when in such need. In return, the products that the seller delivers to the buyer is of guaranteed quality and safety. This could subject to abuse of such trust for personal gain, but good maintenance of such trust by both sides will receive high level of respect.

Another example is the euphemism in language when negotiating in business. Chinese culture considers the values of long-term cooperation and friendly relationships more important than counting every penny or pushing one term for the current case. Hence a compromise is most likely to be reached if Chinese companies intend to look for further collaborations with the same company that they are negotiating now. These underlying values could also be reversely used as a signal for successes or failures if the negotiation attitude from the Chinese companies tends to be open and disputable or firm and pushy.

Around the negotiation, the proactiveness in responding to messages and propositions of Chinese companies also could tell the general approach of a project or a cooperation possibility with foreign companies. Less or late responses entail a greater possibility that this project could be postponed or even cancelled. Another remark is that not every Chinese or European is the same, specific decisive factors should be discovered by the parties involved beforehand for a better start of talking.