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KPMG Difference Magazine / November 2013

SUSTAINABLE INNOVATION

Milk fiber A unique product

Beyond the Suits

Belgian Companies Invest in Innovation Physical Asset Management The Cumulative Impact of Regulation


What if textiles get a fresh start thanks to...milk? It’s surprising but true. Milk fibers are a sustainable solution and provide new opportunities for economic growth. Shirts made of milk fiber will be a reality in the near future. Is your company currently facing a transformation? Regardless of your sector, our specialists provide a multidisciplinary approach to help you efficiently identify and manage your Mergers & Acquisitions and Restructuring opportunities. Learn more at kpmg.com/be/milkfiber

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The KPMG difference

Contents November 2013

10

20 Responsible Editor: Patrick Simons, Avenue du Bourget Bourgetlaan 40, 1130 Brussels

This magazine and all of KPMG’s Thought Leadership can be accessed by using the KPMG app.

16 04 05 06 08 10 12 16 17 18 20 22 24 25 26

Word from our CEO Milk Fibers in Numbers The Cumulative Impact of Regulation Physical Asset Management Global Mergers & Acquisitions Predictor The Woman Behind the Fiber The “Making Of” Milk Fiber Belgian Companies Invest in Innovation Technical Perspectives from Tax Beyond the Suits Bookshelf Meet and Greet The Last Word

KPMG Expertise

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editorial

Embracing Transformation

T

his special first edition of The KPMG Difference will provide the most recent insights from our leading experts based on the five key KPMG attributes: expert, global mindset, forward thinking, value-adding and passionate.

The world is constantly and rapidly changing. Dealing with complexity has become a way of life. The evidence is in the unprecedented amount of regulatory change, in the shifting political and economic climate, in the rapid growth of some industries and shrinkage or complete disappearance of others, and in the lightning-speed evolution of technology.

Milk fibers are a tangible example of the quickly changing world in which KPMG continues to lead� Patrick Simons Senior Partner KPMG in Belgium

Predictability is a thing of the past‌ adaptability is the way of the future. Many industries are having to learn to adapt their entire business models or service offerings in order to survive and will need to continually adjust to stay competitive in the future. Finding trusted and reliable advisors who can help people and organizations adapt and succeed has become a business and personal imperative. Here at KPMG, we are dedicated to providing you with the advisory, tax and audit services you can count on. We are here to help you grow your business, address your risk environment and improve your performance. And we want to share this with you through a story; a story that tells how KPMG can help companies with their transformation. The story is about MILK FIBERS, an innovative and sustainable transformation that is one of the many tangible and innovative evolutions that characterizes our changing world. Anke Domaske, a scientist-fashion designer turned entrepreneur developed this environmentally sound alternative and by transforming milk waste into thread, she created a whole new value chain from farmer to consumer. Milk fibers are a tangible example of the quickly changing world in which KPMG continues to lead. Our capabilities, our knowledge, our approach, our expertise and our experience can help you succeed. We are here to help you work smarter and not harder. In this special edition we include: a groundbreaking study from our Financial Services team on the cumulative impact of regulations on the Belgian economy, current Merger & Acquisitions trends, insights on the opportunity to leverage real value from your physical assets and a tax update including the new fairness tax. These stories highlight what our experts are thinking on the latest emerging trends and how they can support you during your transformation regardless of where in the process you may be ‌ Enjoy.

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Trusted Advisor Campaign

Milk Fibers in Numbers A quick look at the numbers tells us a lot about milk fibers’ innovative approach and how they can help address macroeconomic challenges today and into the future.

1 40% The water demand gap predicted for 20301

3,255,620,000 liters of milk produced in Belgium (2011)3

1930 The year the original version of milk fibers was developed2

1 United Nations Environment Program (UNEP). (2011). Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication. UNEP, Nairobi. 2 Domaske, Anke. (April 2013). Telephone interview. 3 Rapport Annuel. (2012). Assemblé Générale de la Confédération Belge de l’Industrie Laitière, Leuven.

2

The number of years it took to develop the ecological version of milk fibers2

1

The number of liters of water it takes to produce 900 grams of fabric2

6

The number of liters of waste milk saved to produce one dress

1.4 kg the amount of waste produced per person per day in Europe (2010)2

The number of hours it takes to create fabric from milk2

5

The number of people on the research team 2

November 2013 | THE KPMG DIFFERENCE | 5


Expert

The

Cumulative Impact of Regulation

KPMG decided to analyze the effects of the current regulatory changes in an effort to provide clarity on their impact, both qualitatively and quantitatively, on the Belgian banking sector. The implications range from capital and liquidity requirements to corporate governance, from derivatives to the design of retail products, and from resolution to remuneration.

T

that many reforms go further than he reaction to the finanmere compliance. Regulations also cial crises has been similar Expert – KPMG have significant impacts on the finanaround the world. Global, offers clear European and national cial situation (balance sheet and insights based legislators and authorities have income statement), on the business on deep introduced a large number of new model, on the operating model and expertise. regulations and new taxations. The on the change capacity of banks. objective has been to make the The quantitative analysis focused on banking sector more stable and reduce risks. CRD IV/Basel III; the Belgian Deposit Guarantee Undoubtedly these new regulations/taxations Scheme and other Belgian Bank Contributions have a significant impact on the way banks can (Stability contribution, ‘Loan-to-deposit’ tax, continue to fulfill their core function. ‘Abonnement’ tax); the Financial Transaction Tax and Bail-in debt (crisis management frameIn light of these regulatory changes and in an work); the regulations expected to have the effort to provide clarity on their impact, KPMG biggest impact on bank’s financial situation (baldecided to analyze the effects, qualitatively and ance-sheet and income statement); and those quantitatively, for the Belgian banking sector. that are sufficiently quantifiable. KPMG identified a total of 31 focus areas of new regulations/taxations that, in the aftermath of the financial crises, have been, or soon will be, introduced in Belgium. The implications range from capital and liquidity requirements to corporate governance, from derivatives to the design of retail products, and from resolution to remuneration. By analyzing the different impact areas of new regulations/taxations through a qualitative survey of major Belgian bank managers, it was concluded

6 | The KPMG Difference | November 2013

It will naturally be up to each bank to determine the measures it deems best suited to address its challenges. However, this study shows that, generally speaking, Belgian banks are most likely to opt for a combination of actions that will focus on their return on equity and cost/income ratio, i.e. cost cutting, re-pricing loans, re-pricing ‘debts to clients’ and extra non-interest income generation. In order to achieve an average sector return of 8% on equity by 2016, the study deems the following mix of measures to be realistic1:

31

The number of focus areas of new regulations/ taxations that have been, or soon will be, introduced in Belgium.


• a structural net cost reduction of 10% achieved in year one; • extra non-interest income (fee business) generated at a rate of 2.5% per year; • re-pricing of ‘debts to clients’ by 25 basis points (assuming 30% of the portfolio is re-priced each year); • re-pricing of loans by 70 basis points (assuming 10% of the portfolio is re-priced each year); and • ‘liquidity transformation of assets’ (from non-liquid to liquid assets) for an amount of EUR 5.5bn applied in 2013. This combined scenario highlights the fact that new regulations that reduce risks and have a positive effect on the stability of the banking sector, have adverse effects on profitability and access to capital. Consequently, it comes at the cost of stimulating the economy. At the same time, more stability contributes to a fertile

business climate and increased public confidence in the industry. It is fair to say that globally we have reached a point where we need to re-evaluate the cost/ benefit relationship of additional regulations. This leads to a key question: If (as research shows), there is an indexation-point where the negative impacts begin to exceed the benefits, have we reached that point?

New regulations that have a positive effect on the stability of the banking sector, have adverse effects on profitability and access to capital.

The different stakeholders in the debate (political, financial, customers and supervisors) should take into account the cumulative impact of the multiple reform initiatives and of the uncertainty surrounding the many unresolved items on the regulatory agenda. Stakeholders must be conscious that additional regulation is not a ‘free good’. 1

Clearly this is not the only possible combination but one that seemed most realistic based on the results of the sounding boards.

November 2013 | THE KPMG DIFFERENCE | 7


Forward thinking

Global Asset Management

Competence Center “Companies often see Physical Asset Management as a small part of maintenance. But a specific Physical Asset Management strategy can mean significant benefits for companies, the data speak for themselves.”

M

eet the driving force behind KPMG’s Global Asset Management Competence Center (AMCC), Daniël Pairon. Daniël is a Partner at KPMG and the founder of the KPMG Global AMCC, located in Brussels, and he believes in the power of companies to manage their physical assets (like utilities, public infrastructure, but also process industries) to leverage specific value for their businesses, and he has the data, expertise and a great team to help them achieve it. As a pioneer of this increasingly sought-after service and the only big-four company in the world that is a patron of the Institute of Asset Management and with certified PAS 55 auditors, KPMG’s experience is unparalleled. Physical Asset Management is something still rather new. In fact, the ISO standards for the process are only just being finalized (expected release by early 2014). The KPMG Global AMCC has been actively involved in drawing up this new standard, with specific attention to financial-technical reporting, transparency and asset risks and control management. Daniël Pairon, a leading voice in the discussions to create these standards explains, “Companies often see Physical Asset Management as a small part of maintenance. But a specific Physical Asset Management strategy can mean significant benefits for companies, the data speak for themselves.”

Research from a recent study 1 showed that $1 trillion is the annual savings available from a 60 percent improvement in infrastructure productivity. Identifying key areas for these improvements is clear when we know that: four years is the average

8 | The KPMG Difference | November 2013

time it takes to obtain full permission to construct a power plant in Europe and that there are potential savings upwards of 15% available simply from streamlining infrastructure delivery or reprioritizing projects and picking more cost-effective alternatives. All this potential is wasted, as Belgian companies involved in airports, railways, pipelines, etc. have been less than energetic in implementing a sound Asset Management strategy. Getting Board meeting agendas to include ma­naging the entire asset life cycle is at the forefront of the Asset Management Competence Center’s vision. Asset owners in Belgium need to take action now. Not only does Physical Asset Management prepare for the challenges of climate change, increasing population density and shrinking resources, it is part of the new holistic approach to business that can help companies improve their bottom line today and far into the future. Daniël Pairon can count on a wonderful team of passionate experts in Physical Asset Management. Each member of the team brings his or her unique perspective (financial, operational and technical). This global AMCC team has contributed to the development of a unique software, which they apply across many industries to support companies, as they strive to optimize and achieve maximum possible benefits from Physical Asset Management. When these strategies are well applied, the likely positive impact is far reaching, affecting a company’s financial results, its reputation, its green footprint and its community impact. 1 Infrastructure productivity: how to save $1 trillion a year. (January 2013). McKinsey & Company. McKinsey Global Institute.

Daniël Pairon

A physical asset is a material item with an economic value such as cash, equipment, inventory and properties owned by the business. Asset-intensive industries: the utilities sector (e.g. power generation, water treatment), as well as the infrastructure sector (e.g. motorways, airports, trains).


Putting the AMCC to work

Forward Thinking – KPMG looks ahead to innovate and challenge conventional thinking.

Context

A listed global science-based company asked the KPMG Global Asset Management Competence Center for help in improving its Equipment Reliability processes. The goal of the project was to minimize the total operating cost of assets based on its Business Strategy and to reduce the maintenance related production losses (reliability) while maintaining asset integrity. Approach and Scope of Work

Broad involvement of all stakeholders (operations, management and IT employees) in the project KPMG Global AMCC supported operations and steering of the client’s businesses by helping define and manage asset management project efforts for the implementation of standard business processes. This approach focuses on the history and life cycle of the assets and leading practices in businesses and organizations. Outcome

The project allowed the client to increase its process efficiency and the effectiveness of the equipment reliability processes. Additionally, the client substantially reduced its overall maintenance costs and capital expenditure.

KPMG Global Asset Management Competence Center SYSTEMATIC

KPMG Global Asset Management Competence Center

HOLISTIC

SUSTAINABLE

SYSTEMIC

INTEGRATED OPTIMAL

Advice based on experience helping asset-intensive organizations. KPMG AMCC is a patron of the Institute of Asset Management and a PAS 55 accredited auditor. KPMG is an active delegate of the PC251, the committee that drafted the new ISO standard on Asset Management (ISO 5500X).

RISK-BASED

November 2013 | THE KPMG DIFFERENCE | 9


Global Mindset

Global Mergers & Acquisitions Predictor

Watching the trends in mergers and acquisitions tells us a lot about the health of the economy. That is why every six months KPMG provides insights on what’s new in the world of M&A.

Global Mindset – KPMG strives to provide perspective and apply our global thinking to a local level.

10 | The KPMG Difference | November 2013


T

he Mergers & Acquisitions Predictor analyzes the M&A appetite and capacity to provide a general sense of the international M&A trends for the coming months. This summer, the results showed that deal appetite among the world’s largest corporate companies is higher than it was 12 months ago. In the shorter term however, global uncertainty over macroeconomic factors continues to hamper confidence. In contrast, in the Belgian market, confidence amongst stock-quoted companies has increased over the past half year. M&A appetite went up across all segments. This is the second

9%

14% Capacity

(net debt to EBITDA ratios)

Since june 2013

consecutive half year improvement in appetite for deals by the 60 largest Belgian quoted companies. The strongest appetite improvement over the past half year was shown by the small cap segment (23%). Belgian’s largest corporates exhibited an increased appetite for deals when compared to June 2012 as forward P/E ratios were up 9%.

Despite higher debt levels than the rest of Europe, Belgian companies have shown an increased appetite for M&A since the beginning of the year. We expect this M&A wave in Belgium to continue in the next half year.” Yann Dekeyser – Partner KPMG Advisory

We put our transformational expertise to work for our clients from M&A transactions to post-deal support. Here is what they thought of the results:

The Toyo Ink Group – closing the deal Toyo Ink Group is a Japanese leading provider of printing inks, packaging materials, polymer and coatings with operations spanning the Americas, Asia and Europe. They have roughly 7,000 employees worldwide. The KPMG Corporate Finance, Transactions Services and M&A Tax teams worked with Toyo Ink Group on a key acquisition in their growth. By relying on their deep sectoral knowledge, global reach, M&A expertise and credentials the KPMG teams supported Toyo Ink Group in the valuation analysis, bidding strategy, due

diligence and transaction negotiations to successfully acquire Arets International, a Belgian manufacturer of UV-cure inks and varnishes. These products are well positioned in the pursuit of eco-friendly alternatives and will contribute significantly to Toyo Ink Group’s sustainable growth in the future. With this initiative, the Toyo Ink Group plans to expand the aggregate annual scale of the UV cured product group from the present 120 million Euros to 240 million Euros within 3 years.

We successfully completed this project because of your support, and I thank you all greatly. Although there was time zone difference between Japan and Belgium, KPMG and the lawyers cooperated quickly. It was a great team.” Satoru Takashima Corporate Officer – The Toyo Ink Group

Amlin Europe – post-deal transformation success Amlin Europe is a leading non-life and corporate insurer with operations in The Netherlands and Belgium on marine, property, liability, fleet insurance and Financial Products (Captives). The Management Consulting team of KPMG Advisory worked with Amlin Europe to help set up the new finance department, stabilize its operations and assist with various aspects of the ongoing finance activities. In a time of challenging transformation, the Management Consulting team of KPMG Advisory came alongside, bringing their broad experience in finance, change management and experts from

a wide range of subject matters to get the job done. Thanks to their support, the disentanglement from the former parent company and reintegration of the finance activities were preformed successfully. Furthermore, the temporary Finance Department structure implemented during the project phase has been rolled over into a stable and permanent organization. Thanks to this collaboration, Amlin Europe is ready to take on the next challenges in their competitive industry and move towards their further expansion in continental Europe.

The Management Consulting team of KPMG Advisory has been a solid partner to assist us with the challenges of our transformation process.” Joost Tyvaert – Finance Manager Belgium – Amlin Europe

November 2013 | THE KPMG DIFFERENCE | 11


Interview Milk Fiber

The

W

man Behind the Fiber

Anke Domaske took a moment out of her busy schedule managing Qmilch to answer a few questions about her innovative product.1 KPMG: What was the source of your inspiration? Anke Domaske: It all started because my stepdad suffered from cancer, and he had a textile allergy. Therefore, we were looking for a chemical-free fabric. Textiles are all over the place, but we couldn’t find any. So I was looking for alternatives. I found these milk fibers that had been produced in the 1930s, so the milk fibers concept is not what is new. But when I read more about it I found out they used formaldehyde and that the whole process was very chemical intensive and took up to 60 hours. It was not eco-friendly at all and it was not a sustainable or natural fiber. Our idea is different. We found a way to use natural ingredients and renewable resources and create a stable product. It is purely scientific. Everything is molecules and we connect these molecules to harden the fiber. As the water evaporates on the molecular level the result is stable. Now we don’t need these chemicals anymore.

The overall process is comparable to cooking. It’s like taking flour, some butter, then mixing it. By pushing that dough through a nozzle you get spaghetti. In this case though, the holes in the plate are microscopic. You get a result that is very close to silk because it’s a protein fiber. Finding a water insoluble product was hard! We were only two people at the beginning, and I had never studied inventing or creating textile fibers. So it really required a lot of reading and testing. And a little bit of luck. We had to have no fear – we just did it.

KPMG: What is unique about the Qmilch fiber Anke Domaske: It is a biopolymer that consists of 100% natural ingredients. This is different from other products, which will be ‘bio-based’. It is extremely environmentally friendly: • it only takes 2 minutes to produce, • it is produced at low temperature 1  Domaske, Anke. (April 2013). Telephone interview.

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Anke Domaske’s passion is what led her to this innovative solution.

• there is no waste produced at all and • it uses a waste product from the dairy industry.

In addition it has outstanding features making it incomparable to any other products. When I started I wanted an antibacterial product.. Usually for a textile to be anti-bacterial, there has to be silver or zinc oxide imbedded in the product. But this fiber has a unique combination of amino acids and so it is naturally antibacterial.

It is the most basic fiber but it has these hidden properties that are incredible. There are so many great things nature can give to us that we don’t know.”

It is amazing! I was so happy when I got the results of the tests. It is the most basic fiber but it has these hidden properties that are incredible. There are so many great things nature can give to us that we don’t know. I think that is very sad. There are so many things that our grandmothers used to know that we just

don’t use anymore. I run across things all the time, and I think ‘Oh that is so cool, why is nobody doing this?’ So here is one opportunity to use a great natural product.

KPMG: How do you balance the scientific side of your work with the design side of your work?

Anke Domaske : I don’t even really know because I have done it my whole life. I grew up with it. My great grandmother designed clothing so I grew up with sewing. And at the same time, I was so interested in science. I participated in a lot of science competitions. When I was 10 my idol was Robert Koch, the German Louis Pasteur. I found science so interesting. My first science project was to explore the cleanliness of telephone booths. So I was running from one phone booth to another looking for bacteria. I have done this my whole life. And I actually feel like Design and science have a lot in common. In

November 2013 | THE KPMG DIFFERENCE | 13


Interview Milk Fiber

KPMG: How did you overcome the challenges along the way? Anke Domaske: The real challenge is to keep going even if you have setbacks or if you see that something does not work. I am more the kind of person who sees what can work. You need to go step by step. And it takes a lot of hard work. Of course there are setbacks. But I learned that you have to go to sleep at night and everything is ok the next day. This way you can just keep going. There is always going to be a solution to the problem. You just have to look for it. That’s my motto.

KPMG: Do you see yourself as part of a movement of European Innovators?

I want what every business owner envisions for the future - for my company to develop and grow and my product to make it to the market and make a difference.”

science you have to be creative on the process. And sewing can be technical-you have to draw and have a pattern. As a young adult I travelled to the United States and worked on a dairy farm and then to Japan where I got the idea for a t-shirt fashion line. By then, I was 19 and I had to decide what are you going to do with your life? I needed to come up with Plan B and so that is when. I started to study micro-biology. I always thought I would have to decide. The day will come that you will have to decide but that day never came…

KPMG: Is there one side you prefer? Why? Anke Domaske: No – But I would not consider myself as a fashion designer or a scientist. I like the mix. That’s me. I would really consider myself to be an entrepreneur. That is what I always liked. I sold cherry blossoms on the side of the road when I was three years old and earned my first money. It’s inside of me to have a company and to create something of my own. So that is how I see myself. 14 | The KPMG Difference | November 2013

Anke Domaske: Yes, I think there is so much more to come in the field of new materials, and eco-friendly, sustainable processes and innovation. I am curious to see what else will come from other innovators. There are so many great ideas in Europe. And I think they need all the support they can get. Sometimes the biggest challenge is getting these ideas to the market. I run across these great inventions, and I think, I would buy that, but I can’t. There have to be some changes so that these great inventions can get the attention they need to get big. Revolutionizing an already existing process is a critical driver for technological and economic progress.

KPMG: What is your vision for the future? Anke Domaske: My first vision is to set up my production plant by the end of this year. That is my main focus right now. We already have the facilities, so when you go inside you can see how the plant is set up. You look up and you can see fibers coming out of the machine! That is currently my biggest dream. I want what every business owner envisions for the future – for my company to develop and grow and my product to make it to the market and make a difference. I would potentially like to have more production facilities and to set up all the networks around it. A network for the waste milk and even expand the research past milk towards other biopolymers like it. And to expand its application for other products, like chemical-free toys for example. It’s a gift to have this company. It is so wonderful to see everyday how our product could be used. Talking to people and getting such overwhelming responses. Running into open doors- it can’t get any better than that. It’s a great blessing what we have got.


TÊtière

What if textiles get a fresh start thanks to...milk? It’s surprising but true. Milk fibers are a sustainable solution and provide new opportunities for economic growth. Shirts made of milk fiber will be a reality in the near future. You need to innovate while improving performance? Our specialists are here for you. They can advise you on improving processes and help you chose the most suitable business model to maintain your competitive advantage. Learn more at kpmg.com/be/milkfiber November 2013 | the KPMG Difference | 15


Trusted Advisor Campaign

The “Making Of”

Milk Fiber

Milk fibers are created through an innovative process that requires less water and none of the chemicals required for other textiles. This is how we can derive an eco-friendly fiber from milk. Producing an environmentally friendly fiber

1|

Take sour milk, a raw material that is otherwise wasted and unmarketable.

2|

Process it naturally until it becomes the most basic protein in the milk, a protein called casein.

3|

Push it through a machine with microscopic holes to produce a smooth thread.

4|

Use it just like regular thread.

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What is the difference? • It is hypoallergenic. • It feels like silk to the touch. • It requires no special care because of its natural protein base. • It is biodegradable in the long run. • It provides a balance between the 3Ps.

Profit

(new opportunity)

People

(worker friendly environment)

Planet

(sustainable solutions)

Population and consumption are fast increasing. The earth’s resources are being depleted accordingly. KPMG Sustainability supports smart organizations in meeting the demands of such a reality.” Mike Boonen Sustainability Partner KPMG in Belgium


innovation Tétière

Belgian Companies Invest in Innovation Innovation investments are on the rise. But we need to keep this focus if we want to see sustainable economic growth and safeguard Belgium’s competitive position in Europe and around the world.

I

n Belgium, there are several efforts aiming to promote innovation. Policies, like the Flanders in Action Plan, the Brussels Regional Innovation Plan of 2007-2013 and Creative Wallonia, have had some positive impacts. As a result, innovation investments are on the rise. But we need to keep this focus if we want to see sustainable economic growth and safeguard Belgium’s competitive position in Europe and around the world. 1

These figures show where Belgian companies are investing the most in the five main innovation investment areas. The highest are in acquisitions of machinery and training and the lowest are in external acquisitions for R&D and other knowledge.

Break down of investments

20%

Acquisition of other external knowledge

31% External R&D

1 Bruno, Nelly and Van Til, John. (2011). Mini Country Report/Belgium- Thematic Report on Innovation. under Specific Contract for the Integration of INNO Policy TrendChart with ERAWATCH, Brussels

Belgium’s strength is in its open, excellent and attractive research systems and its linkages between entrepreneurs and innovators. However, if Belgium wants to go from an innovation follower to an innovation leader, areas for improvement include financing and support for its intellectual assets.”

56%

In house R&D

60% Training for innovation activities

61% Acquisition of Machinery

Source: Comparing Innovation Performance of EU Member States. (2013). European Commission, Brussels.

November 2013 | the KPMG Difference | 17


Value adding

Technical Perspectives from

Tax

The new tax fairness may require action from your finance department. Here our KPMG tax experts provide an overview and easy guide to understanding and implementing the principle features of this tax.

New Fairness Tax The fairness tax was introduced through the to tax, after application of all available tax law of 30 July 2013 (Belgian official gazette of 1 deductions. August 2013) and will apply as from assessment The fairness tax is levied for the taxable period year 2014. The main objective of this new tax is to for which dividends are distributed. The concept serve as a sort of minimum taxation for large com- of ‘dividends’ also includes the repayment of the panies that pay little or no corporate income tax in company’s capital, issue premiums and participation certificates (if they qualify as Belgium. Introduced as a separate dividends). However, the liquidation corporate income tax, it increases Value Adding – gains, repurchase gains and re-qualthe tax burden of multinational comKPMG provides ified interest are not included. The panies investing in Belgium, but only practical ideas dividends, which are taxed at 10% if they pay dividends to their (Belgian to real business in the context of the transition or foreign) shareholders. Below is an challenges. regime for liquidation gains, must overview of the principle features of also not be taken into account when this fairness tax. applying the fairness tax. 1. Fairness tax: a separate taxation The fairness tax was introduced as a separate There are three steps that must be taken in order taxation within corporate income tax. It is inde- to calculate the taxable base of the “fairness tax”: pendent of, and applied in addition to, other cor- 1. Determine the positive difference between porate income taxation(s). This separate taxation the gross amount of distributed dividends and the is, like the corporate income tax, not deductible. final taxable result, which is subject to corporate income tax. 2. Rate: 5.15% 2. The taxed reserves constituted no later than The rate amounts to 5.15% (5% with a 3 % crisis assessment year 2014 are excluded from the taxsurcharge). The tax payer should make tax prepay- able base. The result of the first step is reduced ments; otherwise there will be an increase due by the distributed dividends originating from preto a lack of or insufficient advance tax payments. viously taxed reserves. The Last in-First Out (LiFo)-method is used so that previously taxed 3. Taxable base: the fairness tax will only be reserves are first taken from the last reserves. due if the amount of declared dividends is Only reserves constituted until assessment year higher than the final taxable result. The final 2014 are considered to be good reserves and will taxable result is the amount that is subject be deductible from the taxable base.

18 | The KPMG Difference | November 2013


Be sure to go to our website to sign-up... up for regular tax updates and events. “The session included strong explanations in accessible terms and good practical examples.” A recent participant at a KPMG tax event.

3. Make the link with the reduction of the taxable result through “harmful” tax attributes (i.e. previous tax losses and the NID of the year). The result achieved after the first and second step will then be multiplied by a percentage reflecting the proportion between, on the one hand the ‘harmful’ tax attributes and, on the other hand, the taxable result of the taxable period (result after the first operation: sum of reserves, disallowed expenses and dividends, excluding exempt writeoffs, provisions and capital gains). This is how the final taxable base for the fairness tax is calculated. It cannot be limited or reduced in any way. The fairness tax will also be due in cases where the parent-subsidiary directive applies (participation of 10% or more). The government has submitted the fairness tax to the European Commission. 4. Tax payers: the fairness tax does not apply to companies that qualify as SMEs. The separate taxation only applies to large companies as defined by article 15 of the Companies Code (to be determined on a consolidated basis). The fairness tax also applies to non-resident companies (i.e. companies with a Belgian permanent establishment).

Other Tax News Capital gains on shares still exempt from corporate tax in some cases Capital gains on shares that were formerly fully exempt from corporate tax will, from the 2014 assessment year onwards, be taxed at a rate of 0.412%. This applies to shares in companies under a normal tax regime which have been held for at least 1 year in full ownership at the time of realization (minimum holding period introduced as from 2012). This tax is due regardless, since the capital gains may not be compensated for by a tax deduction (e.g. tax losses, notional interest deduction, etc.). Small and medium-sized enterprises as defined in the Belgian Companies Code are, however, exempt from this capital gains tax.

November 2013 | THE KPMG DIFFERENCE | 19


Tétière PASSIONATE

Beyond the Suits At KPMG our experts are the serious diligent types. That is how they get you the leading insights you need. But we are more than that. Here is how.

20 | THE KPMG DIFFERENCE | November 2013


Tétière

Joining the Fight Against Cancer In this day and age, few are the people whose lives have remained untouched by cancer. That’s why we, at KPMG, think it is important to play our part in the fight against this disease to support scientific research. This year again, we joined the “Kom op tegen Kanker” 1,000 km cycling tour.

The event brought together 80 volunteers in 9 different community projects. Thanks to its resounding success for the KPMG teams and the community organizations involved, a second phase is planned later in the year which will keep the relationships and collaboration going strong.

Electric Cars for a Brighter Future

A winning team of sports-minded KPMG employees gave their all during the Ascension weekend and cycled 1000 kilometers raising a total of 15,040 for this great cause. We are already revving up for next year’s challenge. Stay tuned for more kilometers and Euros for the cause.

Make A Difference Day Each year, Make a Difference Day (MADD) gives KPMG employees a chance to put down their calculators and pick up paintbrushes, rakes, hammers and wheelbarrows.

The KPMG network in Belgium has taken a further step to reduce its mobility carbon footprint by way of a pioneering project called CarE. The project revolves around the expansion of the KPMG car fleet by two new 100% electric pool cars, which can be used by all employees when travelling short distances Passionate – to clients and other work-related At KPMG we appointments (e.g. seminars). want our work to have a positive impact on our communities and change things for the better.

Every six months the cars will be replaced by two other cars to allow us to become fully acquainted with the current choice in green mobility, new developments and advantages. ■

Some of the advantages are: • 100% electric cars do not run on polluting fossil fuels • Their CO2 emission is historically low and almost reduced to zero • Thanks to lithium-ion technology, they do not consume any energy when they are not being used and even recuperate energy when using the breaks.

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Bookshelf

Bookshelf Through our cutting edge Thought Leadership, our experts provide an inside look at the latest trends and what they mean for you and your business. Here is a just a sample of some of our recent publications. More are available via our KPMG app.

The Global Automotive Retail market The most recent developments in the automotive retailing sector are focused on shifts toward emerging markets. But what can these changes do to update the business model to match the shifts in the market. The publication presents an in-depth analysis of past developments in the global car sales market, and the outlook for all major auto retail markets up to 2020: • The shift in demand towards growth regions will reach unprecedented rates by 2020, with China the undisputed leader. • Many former emerging markets may well have evolved into ‘establishing’ markets (the stage between emerging and fully established), but due to prevailing disparities they will still be some way from being established by 2020. • Although the established markets of North America and Western Europe will not be able to compete with the growth rates of establishing markets, they will still be the most important global sales regions after China. The full report can be accessed by using the KPMG app.

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Sustainable Soy

People are the Real Numbers Human Resources’ current approach to analytics remains anchored in the present and in the past. However, when applied properly, HR analytics can show connections, correlations and even causality between HR metrics and other business measures – all of which can be used to inform HR strategy and actions. As a result, HR leaders will need to hire a new generation of HR specialists to make the most of the new data they are able to collect. Historically, statistics and data analysis has not been a core requirement of HR roles, but to get it right, HR teams will need people who have deep quantitative analysis skills. In addition, HR experts need to create a clear ‘line of sight’ between HR activity and their organization’s bottom-line profitability; HR analytics can provide a tangible link between people strategy and organization’s performance. To help HR experts, the KPMG Strategic Workforce Framework provides a platform that identifies the key people issues and develops an overall people agenda that supports an organization’s strategy. This framework includes five main categories for the HR team to review and consider: Connections, Compliance, Cost, Capacity and Capability.

The full report can be accessed by using the KPMG app.

Increasing the production of certified soy will help to address the industry’s environmental and social challenges.

Soy is one of the world’s most important and profitable agricultural commodities. But it is also controversial because its production is associated with significant environmental and social problems including deforestation and poor working conditions. The production of soy is soaring as global population growth and increasing wealth in the developing world drive demand. Demand from the animal feed sector is also a key driver, as is the growth of the biofuel industry, driven by some countries’ commitments to biofuel use.

Why responsible soy matters

• Increasing the production of certified soy will help to address the industry’s environmental and social challenges. • Sourcing certified soy will help to reduce reputational and commercial risks faced by soy end-users such as food companies and manufacturers of animal feed and biofuels.

HR analytics can provide a tangible link between people strategy and organization’s performance.

KPMG member firms are active in assisting clients – including corporates, policy-makers and NGOs – with the development of sustainable supply chains, and have particular expertise in soft commodities. Our member firms help clients to understand the economics of certification systems and to address the broader challenges of developing sustainable supply chains in a resource-constrained world. The full report can be accessed by using the KPMG app.

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KPMG EXPERTS

Meet and Greet KPMG experts are dedicated to sharing their expertise with you. Here we highlight some of the recent and upcoming key events where you can and have had a chance to rub elbows with the authors and thinkers behind it all.

When are the other IFRS trainings scheduled? On September 19, a team of KPMG’s top financial services experts shared their insights on IFRS changes. Over 150 participants gained insights on how to prepare for the regulatory changes facing their businesses.

Pictured here (from left to right): Koen De Loose, Advisory Partner, Ann Duchene, Advisory Senior Manager, Frans Simonetti, Audit Senior Manager, Peter Geeraerts, Advisory Senior Manager, Colin Martin, Partner at the KPMG network in the UK and Kenneth Vermeire, Audit Partner.

Other Insights

The second European Congress on Asset Management

Value creation through physical asset management is possible. On October 17, in collaboration with the Institution of Engineering and Technology, KPMG hosted an event, gathering leading experts on Physical Asset Management and providing opportunities to gain insights on how to directly apply these practices in the business environment.

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In all sectors, changes in the regulatory framework are a part of the new reality. KPMG experts host events all year long to provide you with the latest and how it will impact your business. This fall the topics focus on IFRS and various tax updates.


retail

The Last Word Big data provides a new playground for savvy marketers in the retail sector.

T

wo terms nicely sum up just how much data is ‘Measuring’ consumer behavior floating around the world these days. A popular concept in consumer markets circles is “shopper • ‘zettabyte’ - a one followed by 21 zeroes which marketing.” This is a strategy that interprets and interrupts some analysts think is the amount of informa- (or positively influences) the path to purchase in store. Even tion, in bytes, now on the internet. though shoppers are generally trying to avoid impulse pur• ‘data puking’- a phrase that, while not elegant, sug- chases and manage budgets, snap decisions taken in the gests that a lot of this information is undigested and aisle are still huge drivers for high-margin items. unwelcome. You know more about your customers That’s why retailers have to understand than ever before. But how much of consumer behavior in the store. Analytics Groupe Casino, the French your data is actually helping your botcompanies use data taken from existing supermarket giant has developed in-store security cameras to track customa smartphone app which lets tom line? customers compile a shopping ers. The data can help them to discover list before they visit the store, Retailers in particular, will be only too how they move around a store, how and pushes offers based on their aware of both phenomena. The developmuch time they spend in certain places preferences. Casino’s long-standand the rate of time spent to purchase. ment of Enterprise Resource Planning (ERP) systems opened up the possibiling pricing technology gets rid of discrepancies between stores ity of distributing business information At the cutting edge of in-store data, (or between shelf and till) in an across stores and even continents. The things are getting even more granular. instant, and allows the chain to advent of the internet led to an expoEmployees can be asked to wear tiny wi-fi react quickly, and roll out changes boxes to track their movement and align it nential increase in the amount of cusin an instant, when its rivals shift to customer patterns to create new shift tomer information and insight available. their price points. Tesco is followrosters that ensure no area is ever understaffed in a busy period. Weather sensors ing in its footsteps with an app that Impact of social media show the effect of heavy rain or baking gives customers the fastest route sun on customer behavior. around a chosen store based on But social media may be the straw that their shopping list. broke the camel’s back. Twitter’s global penetration among internet users is Keeping up with the data around 10%. But already 177 million tweets are sent every day. But the hardest part of the data puzzle can be aligning what you learn from your customers with With social media, a relatively small number of people what you already know. Traditional ERP systems just aren’t account for a disproportionate amount of content, so it’s designed to deal with the amount of data now being proeasy to overreact to bad mood music. With new social duced, or present it in ways that are readable and useful to media channels making the potential amount of brand-rel- either marketers or the finance department. Providers such as evant information almost limitless, it is tempting to simply Oracle and SAP are coming up with big solutions for big data. give up in the face of the flood and stick to old fashioned sales metrics and time-honored intuition. Yet, certain com- It sounds like a playground for savvy marketers. And in some panies are learning how to manipulate a new generation of ways it is. But the cloud on the horizon is the customers data to their advantage. themselves. They also have information, especially about price, which could lead too many retailers into a race for the At its most profound, customer insight can help shape bottom, as they slash prices to react to the threat of real-time product development, pricing and branding. But it requires data. That gets even harder when retailers haven’t joined up proper skill. Retailers can spot trends, take a certain point pricing and stock availability across their own channels. A conof view and give them some direction to engage with con- sumer backlash against sharing data has yet to materialize on sumers who communicate via social media. By equipping a significant scale. Retailers can collect all the zettabytes they themselves to prosper in spite of the noise, retailers can want; inevitably, they must generate their consumers’ trust in order to succeed. turn threats into opportunities.

November 2013 | THE KPMG DIFFERENCE | 25


KPMG EXPERTise

KPMG Expertise

Improving Performance > Transformational Program > > > > > > > > >

Management & Post-Merger Integration Financial Management & Accountancy Advisory Services Physical Asset Management Business Intelligence & Analytics Strategy & Operations Talent & Human Capital Management CIO Advisory Intelligent decision support Tax Efficiency & Optimization Advice Internal Audit Assurance

W

e have the expertise to shape a client’s response to opportunities and challenges right across the deal cycle. Many large organizations have turned to us for risk consulting, helping them to navigate through their most complex issues, shaping the thinking from board to operational management,

26 | The KPMG Difference | November 2013

Addressing Risk > Internal Audit, Risk & Compliance > Forensic > Financial Risk Management > Actuarial Services > Sustainability > IT Risk Management & Investigations > Tax Compliance > Tax Technology > Revenue Audit Assurance

transforming risk to their advantage. We help you to make better decisions, reduce costs, build more effective organizations and develop appropriate technology strategies. At KPMG, we provide value-adding services that drive and support your boardroom decision making.

Grow your Business > Transformational Growth Strategy > Due Diligence > M&A Support > Valuations > Debt Financing > Restructuring > Technology Enabled Business Transformation > Tax Structuring > Sustainable Audit Assurance

Our broad advisory skills, combined with our knowledge in audit, tax and regulatory expertise allow us to link your challenges to industry issues and technologies that can help you face the future. We are here to help you achieve lasting transformation.


What if textiles get a fresh start thanks to...milk? It’s surprising but true. Milk fibers are a sustainable solution and provide new opportunities for economic growth. Shirts made of milk fiber will be a reality in the near future. How do you address the risks linked to innovation? In innovative and ambitious projects, our experts can help you manage your operational, financial and IT risks both in the short-run and in the long-run. Learn more at kpmg.com/be/milkfiber


Contact Milk Fibers in Numbers Erik Clinck Partner KPMG Bedrijfsrevisoren/ Réviseurs d’Entreprises T: +32 (0)3 821 18 55 E: eclinck@kpmg.com The Cumulative Impact of Regulation Koen De Loose Partner KPMG Advisory T: +32 (0)2 708 43 17 E: kdeloose@kpmg.com Physical Asset Management Daniël Pairon Partner KPMG Advisory T: +32 (0)3 821 19 41 E: dpairon1@kpmg.com M&A Predictor Yann Dekeyser Partner KPMG Advisory T: +32 (0)3 821 18 64 E: ydekeyser@kpmg.com

Fairness Tax Dirk Van Stappen Partner KPMG Tax and Legal Advisers T: +32 (0)3 821 19 18 E: dvanstappen@kpmg.com Capital Gains Dirk Van Stappen Partner KPMG Tax and Legal Advisers T: +32 (0)3 821 19 18 E: dvanstappen@kpmg.com Meet and Greet Natalie Rombouts Brand and Events Manager KPMG Support Services T: +32 (0)2 708 49 56 E:natalierombouts@kpmg.com The data behind the sale Ludo Ruysen Partner KPMG Bedrijfsrevisoren/ Réviseurs d’Entreprises T: +32 (0)3 821 18 37 E: lruysen@kpmg.com

kpmg.com/be

The information contained in this magazine is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This magazine is also available in Dutch and in French. © 2013 KPMG Support Services, een Belgisch Economisch Samenwerkingsverband (“ESV/GIE”) en lid van het KPMG netwerk van © 2013 KPMG Support Services, a Belgian Economic Interest Grouping (“ESV/GIE”) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Belgium.


THE KPMG Difference - November 2013 (in English)