BEPS and the UAE Corporate Tax Regime
Background
Part 9 of the UAE Draft Public Consultation Document outlines the country’s plans to adapt to and implement changes in international tax law. In 2015, OECD announced the 15 measures taken in response to profit shifting and tax avoidance as part of the original Base Erosion and Profit Shifting (BEPS) project.
In brief, BEPS 2.0 comprises of two parts, or “pillars,” which are called “Pillar One” and “Pillar Two”. The primary objective of Pillar One is to standardise the remuneration of routine marketing and distribution activities and reallocate (a portion of) the consolidated profit of a multinational enterprise to the jurisdictions where sales take place. Pillar Two, on the other hand, suggests the implementation of a 15% minimum effective tax rate on global income of MNEs.
The UAE and more than 130 other countries reached a deal on BEPS 2.0 in October 2021. Over the last few years United Arab Emirates, has made concerted efforts to increase tax transparency and prevent harmful tax practices, as outlined in Pillar Two.
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How is UAE implementing commitment to Pillar Two in its proposed domestic CT regime?
OECD proposed a two-pillar approach to deal with the tax issues brought on by the increasing digitalisation of the economy namely: “Pillar One” and “Pillar Two”.
To comply with the requirements of Pillar Two, large multinational groups (such as those with consolidated revenues of more than EUR 750 million) are required to pay tax at least at the rate of 15% on their global income, irrespective of the jurisdiction they operate, regardless of the location of their headquarters. It is anticipated that the rules of Pillar Two will become effective in 2023.
According to the Public Consultation Document, the UAE is working with other G20 Inclusive Framework members to implement the Pillar Two proposals. Additional details on how the Pillar Two regulations will be incorporated into the proposed UAE CT regime will be announced as a part of the new Corporate Tax regime, which will be effective from June 2023.
Other International Reporting Obligations
Under the original BEPS project, large MNEs are required to compile a Country-by-Country (CBC ) report detailing financials regarding the allocation of their global income, business profits earned, taxes paid, and information on the economic activity in which the enterprise is engaged, across the various tax jurisdictions in which they operate.
The UAE implemented the CBC Reporting guidelines making it mandatory for UAE MNEs to implement them from the fiscal year beginning on or after January 1, 2019. Under the proposed UAE Corporate tax law, all current CBC reporting requirements and relevant regulations will continue to apply after the proposed UAE CT regime is implemented.
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Frequently Asked Questions on BEPS and the UAE Corporate Tax Regime
1. Does the Public Consultation Document specify the Implementation of the Global Minimum tax?
No, according to the Public Consultation Document, the UAE is working with other Inclusive Framework members to implement the Pillar Two proposals.
2. Do UAE entities need to comply with the CBC Reporting requirements after the Implementation of the proposed corporate Tax law?
Yes, all current CBC reporting requirements and relevant regulations will continue to apply after the UAE CT regime is implemented.
