Malta has to be prepared to take advantage of the outcome of Brexit, since it is competing against a number of countries vying to attract businesses that might consider leaving the UK, the head of Grant Thornton International (GTI) said.

Ed Nusbaum noted that some companies have already started to leave the UK but that no one knows what is going to happen, creating an unprecedented level of uncertainty.

GTI’s role in this context is to help clients with scenario planning, analysing all the possible outcomes and the optimum solution for each of them.

“We are supportive of governments, but this is politics – and politics, as we have seen in every country around the world in the past couple of years, is unpredictable. This is uncharted territory. It is impossible to predict exactly when it will happen and how negotiations will go.

It is impossible to predict exactly when Brexit will happen and how negotiations will go. We remain optimistic and hope that emotions do not become the driving force

“We remain optimistic and hope that emotions do not become the driving force, and that common sense will rule,” he said.

Mr Nusbaum was in Malta last week for a meeting of around 40 country and regional managers of the auditing and advisory firm, the world’s fifth largest professional services network, which has member firms in 130 countries employing a total of 42,000 staff.

GTI, like other audit and advisory firms, has to help its client tiptoe through the minefield of regulation that threatens the unwary and the unwitting with fines and sanctions.

Has regulation and compliance gone too far?

“That is a difficult question. We saw with the financial crisis that it is good to have good regulation – not only over the financial sector but over all the different sectors. But the issue is getting the right balance. I think we do at times go too far and you are seeing a pull-back of some of the regulations in some jurisdictions and some countries.

“Regulation is required to ensure that companies are completely transparent and compliant with laws, from environmental to financial ones. Rules are needed to protect investors and consumers while also stimulating the entrepreneurial spirit and, for example, encouraging businesses to move to Malta to invest here, and from here to other countries.

“But in some sectors it was time to back off so that entrepreneurs and businesses could thrive. There is no question that the Trump administration is trying to reduce red tape and bureaucracy to encourage a more entrepreneurial spirit – this was one of the platforms on which he won.

“For example, there are very strict laws in the healthcare and environmental sectors, but these can be reduced while still protecting the environment, consumers and investors.”

Another area being closely watched in the US is the tax rate. The US has one of the highest corporate tax rates in the world, and reducing that tax rate – if Trump were able to do that, by no means a given even with a Republican Congress – would stimulate business.

“The corporate tax rate in the US is higher than most countries in Europe, let alone Malta. Reducing the rate would have a positive impact on keeping businesses in the US, and we see companies merge just to get out of the US jurisdiction. Obama tried to stop this through regulation, while Trump is trying to do it in a more pro-business way,” Mr Nusbaum said.

He acknowledged that there would always be differences between jurisdictions – China, India, the US, the EU, Japan, the rest of the Americas – as this was “just part of globalisation”.

“The EU and the US will continue to be strong trading partners and to share information. In some areas, regulation will move even further apart: there are areas where the US is much stricter than the EU, and vice versa. We have to see how it works out over time, but the Trump administration has been very clear that it wants to reduce the regulations and make it easier for business to thrive.”

Although he had only been in Malta for a few days, Mr Nusbaum had been fully briefed about the attacks from Germany and through Malta Files trying to portray Malta as a tax haven.

“People are picking on Malta but there is a lot of infighting in Europe about the race to have the lowest taxes to attract business. And now that the UK is leaving the EU, Prime Minister Theresa May is also proposing to reduce taxes.

“Every country is fighting to keep and attract businesses by offering tax relief on specific credits or to have lower tax rates. I think the world will remain extremely complicated from a tax standpoint: look at companies like Apple in Dublin, which thought it was complying with the rules with the consent of the Irish government and ended up in trouble with the EU, facing major levies!

“From Grant Thornton’s perspective we try to present clients with different scenarios to help them navigate the maze of extremely complicated tax laws. There is often not a right and wrong answer, either. Sometimes you need to look at various options and the risks associated with each. The only good thing for us at Grant Thornton is that generates work for us,” he shrugged.

This might make it sound as though Grant Thornton has an easy role, but a cursory look through the headlines of the past months shows that a number of the Big Four firms – and not just their clients – have also been fined. Isn’t it making it very hard to give advice when it is not clear where the goalposts will be?

The problem is that firms do not only need to take into account the law but also the moral obligation to pay taxes and how they will be perceived in the market place, which is incredibly difficult to predict.

Every company wants to reduce their taxes but they have to evaluate the complicated risks associated with that

“You can see this with companies like Starbucks, which was complying with the laws but was still accused of having a moral obligation to pay more tax,” Mr Nusbaum said. “Fortunately Grant Thornton has had a good record. The key is transparency and honesty from an advisor standpoint; but we have to be extremely alert and help our clients understand all of the issues. Every company wants to reduce their taxes but they have to evaluate the complicated risks associated with that. One of the good things about Malta is that there is a good sense of transparency within the economy here.”

Another of the big issues that audit firms face is their role in preventing crime. Is there now the need for auditing to become forensic, and would clients be willing to pay for it unless it were imposed?

Mr Nusbaum paused momentarily before admitting that while the audit process needed to be expanded, there had to be the right balance between cost and benefit.

“As you rightly asked, clients would not be willing to pay for it, so it really would have to be done through a regulatory environment, either through a company’s board or audit committee wanting it, or through the regulators – international or local.

“In specific cases, where a problem has been identified, it is the responsibility of the board of directors, the audit committee and the auditors to insist on forensic procedures.

“We have seen this in IPOs in China and other countries where there is risk, and a normal audit would not be enough. One of the things that is changing over the next few years is the expansion on the auditor’s report to talk about risk. Some of these issues started in Europe but they will become a global standard.

“As auditors I don’t think we should run from the responsibility. It is clear that we are not going to find every fraud that there is out there, just as the police are never going to stop every crime,” he said.

He was optimistic, however, that technology would play a major role, noting that they were already able to look at considerably more transactions than in the past.

Grant Thornton has already invested over $70 million in new audit tools, with people from 15 countries working on it.

“Half this money was spent purely on technology, working with Microsoft. Over 250,000 courses were taken by our people using online training: you couldn’t even have been able to do this 15 years ago; the technology was not there.

“This will change how we audit, and give us the opportunity to do more digging. That does not take us quite to forensic levels but it does allow us to evaluate thousands of transactions in a way we could never have done before.”