As a member of the Inclusive Framework on BEPS, Qatar is likely to adopt the Pillar Two Rules, with a placeholder inserted in the Income Tax Law vide the amendment Law No 11 of 2022. The detailed rules and implementation timelines, however, are yet to be published. We understand that the Qatar Central Bank has requested a highlevel comment from the Banks regarding the impact of BEPS 2.0 on their operations and their preparedness in this regard. It is important to note that in the absence of a qualified domestic minimum top-up tax, foreign jurisdictions with constituent entities of Qatari parent entities may have the right to collect top-up taxes on Qatar sourced profits.
Based on publicly available information, we understand that at least six (6) Qatari headquartered banks would be in-scope entities. Additionally, under the amended IAS 12 requirements, in-scope entities are required to make a disclosure that states that in periods in which pillar two legislation is enacted or substantively enacted, but not yet in effect, an entity discloses known or reasonably estimable information that helps users of financial statements understand the entity’s exposure to pillar two income taxes arising from that legislation. The time to act is now
Pillar Two aims to ensure fair taxation with a 15% Global Minimum Tax. Adapting to these rules may require Tax leaders/ CFO’s in Banks to navigate complexities and enhance their financial data capabilities and the skill sets that they need to effectively deal with the challenges of Pillar 2.
Abhishek Jain
Director, Tax
KPMG in Qatar
Director, Tax
KPMG in Qatar
Key Takeaways
- Pillar Two is designed for multinational entities with a minimum consolidated turnover of Euro 750 million. Its primary goal is to ensure a minimum effective jurisdiction tax of 15%, discouraging tax competition and introducing an independent Subject To Tax Rule (STTR) for a 9% minimum tax on specific treaty-based payments.
- While there is a relief from deferred tax accounting implications arising out of Pillar 2, for current tax, in-scope MNEs should review the legislative status of the Pillar 2 rules in all countries where they have operations for the purpose of financial statements disclosures for FY 2023, even though the rules may become effective in FY 2024 or later.
- The Pillar 2 rules are very complex and the data requirement challenges are significant, which may not be addressed by existing financial or other systems. In-scope MNEs should start reviewing this aspect to identify gaps.
The adoption of Pillar 2 by Qatar could potentially mean the end of the exemption enjoyed by large resident MNE banks and would result in the profits of the in-scope MNE banks being subject to an effective minimum tax rate of 15 percent. This would have a significant impact on the bottom line and shareholder returns. Banks may also need to review their loan books and stress test the impact of Pillar Two on counterparty positions.
Anand Krishnan
Director, Tax
KPMG in Qatar
Director, Tax
KPMG in Qatar
