Dubai: Multinational companies operating in the UAE and Oman will have tax implications from the recent agreement among 130 countries and jurisdictions to a framework for reform of the international tax rules, according to KPMG.
The UAE and Oman are amongst the 130 countries agreed to the Organisation for Economic Co-operation and Development’s (OECD) framework for the two-pillar global tax reforms.
“The UAE and Oman are amongst the 130 Inclusive Framework members that have agreed to the announcement and therefore have signaled their intent to adopt the proposals. As a result, both pillars will impact groups operating in these countries,” said Shabana Begum, Partner, Head of Transfer Pricing, KPMG Lower Gulf.
What is the two-pillar plan
The new two-pillar plan to reform international taxation rules is aimed at ensuring multinational enterprises pay a fair share of tax wherever they operate. The framework including the implementation plan is expected to be finalised in October this year.
The two-pillar package aims to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.
Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there.
Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.
According to KPMG, following the OECD announcement on July 1 2021, the next steps will include the formal finalisation and adoption of the rules, which may result in changes to domestic legislation.
Over the next few months, it is expected that the OECD will provide further guidance regarding implementation, and we may see that the Middle East tax authorities will also provide guidance on their enactment of the rules.
“Groups and companies operating in the UAE and Oman should be aware that while these are global corporate tax rules, their impact on a local level could be very real. They may have a significant impact on the corporate taxes reported and paid by groups operating in the UAE and Oman. Businesses operating here will also likely face new tax compliance and financial control responsibilities,” said Begum.
The shift in the scope of Pillar One means the proposals will impact the world’s largest 100 companies. Where the companies already have a presence in either the UAE or Oman, they will still need to undertake a Pillar One analysis to identify their in-country revenues and understand what additional tax may be due. Where no taxabale presence exists in either country, there are still likely to be new tax liabilities and reporting requrements due, which will have to be accounted for locally.