Base Erosion and Profit Shifting Actions in UAE

With the aim to strengthen the international position and enhance its cooperation with the international community with regards to relevant changes to improve tax transparency and tax regime, the U.A.E. has joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) and has committed to implementing the 15 BEPS measures out which following 4 BEPS minimum standards need to be implemented in the immediate to short term span:

  • Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance
  • Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances
  • Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)
  • Action 14: Making Dispute Resolution Mechanisms More Effective

Action 5: Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance

It seeks to counter harmful tax practices and improve transparency between jurisdictions through Spontaneously Exchange of Information with other jurisdictions on tax rulings issued on the following specific topics:

  1. Rulings relating to preferential tax regimes, to ensure that taxpayers benefitting from a preferential tax regime have “substantial Economic activity” in the relevant jurisdiction   Note: Current tax framework in the UAE does not have an IP-related preferential regime, therefore no immediate action required.
  2. Unilateral advance pricing agreements or other cross-border unilateral rulings in respect of transfer pricing and Cross-border rulings providing for a downward adjustment of taxable profits, to ensure that there are no mismatches in how two ends of a transaction are priced and no profits go untaxed resulting in base erosion or profit shifting.
  3. Permanent establishment (PE) rulings, to ensure that information about the non-existence of or attribution of profit to a PE in the country issuing the ruling should be used in assessing the appropriate global profit of the entity.
  4. Related party conduit rulings, to ensure that information on the arrangement/structuring including transparent entities may be used in assessing the appropriate profit of the entity. And.
  5. Any other ruling agreed by the Forum on Harmful Tax Practices.

Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)

It sets the rules regarding transfer pricing documentation to enhance transparency for tax administration and enumerate three-tiered standardized approach to transfer pricing documentation consist of:

  • Local file
  • Master File
  • CbC Reporting of multinationals

However, CbC Reporting is only required as a part of minimum standard.

CbCR need to be filed in the jurisdiction where the ultimate/ surrogated parent entity of the group is resident, and will be shared between the relevant jurisdictions through automatic exchange of information.

As per Action 13, the multinational groups with consolidated revenues of at least AED 3.15 billion (approximately USD 855 million/ Euro 750 million) per annum, require to file CbCR through its ultimate/ surrogated parent entity.

Amit Mehta
Assistant Director

Tag: BEPS, OCED, TAX