Middle East Tax Newsletter

Welcome to the January edition of our tax newsletter, bringing you news on global and regional tax developments. 

OECD: Transfer pricing guidelines for multinational enterprises and tax administrations

The Organisation for Economic Cooperation and Development (OECD) on 20 January released the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022.

According to the OECD release, the transfer pricing guidelines provide guidance on the application of the “arm’s length principle,” which represents the international consensus on the valuation, for income tax purposes, of cross-border transactions between associated enterprises.

Please read detailed tax flash.

KPMG report: Implicit guarantees in transfer pricing

In February 2020, the OECD 2020 published the final version of the transfer pricing guidelines on financial transactions. Ever since, tax authorities are scrutinizing financial transactions and especially guarantees and implicit guarantees. Therefore, it is crucial to understand how implicit support works and how it affects transfer prices.

Please read the report prepared by KPMG member firm in Switzerland for more details. 

Cabinet Decision no. 105 of 2021 on the Procedures of Administrative Penalty Installments and Waivers

The Federal Tax Authority (FTA) introduces administrative penalties installments and waivers as per Cabinet Decision no. 105 of 2021 on the Procedures of Administrative Penalty Installments and Waivers.

Summary of Cabinet Decision no. 105 of 2021

Administrative penalties installments

The FTA introduces a new scheme that allows taxpayers to settle the tax administrative penalties through installments.

Where a taxpayer wishes to settle their administrative penalties through an installment plan, a request should be submitted to the FTA, and the FTA will approve such requests when all of the following conditions are met:

• The request is submitted for unpaid penalties only;
• The unpaid penalties requested for installments is not less than AED 50,000;
• Tax amounts related to the administrative penalties submitted for installments should be completely paid;
• The unpaid penalties requested for installments shall not be disputed in front of the Tax Dispute Resolution Committee (TDRC) or the Federal Court.

Administrative penalties waivers

The FTA has also introduced the administrative penalty waiver scheme under which a separate request shall be submitted to the FTA. The FTA may approve the request and grant the penalty waiver under the following conditions:

• Administrative penalties submitted for waiver shall not be related to tax evasion cases.
• Penalty waiver requests shall be submitted within the timeframes instructed by the FTA.
• The applicant’s request may be related to any of the following:
  • The death or sickness of the authorized signatory or the sole owner of the company, where death or sickness is a main reason that the company is unable to settle the tax administrative penalties.
  • Death, sickness, or resignation of a key employee whose absence has led to the inability of settling the penalties.
  • Introduction of restrictions, precautionary or preventive measures by local governmental bodies that led to the inability of settling the penalties.
  • Proof that a failure has occurred in the payment or communication systems of the FTA, which led to an inability to settle penalties.
  • Proof that the tax administrative penalty has been issued because of a restriction of liberty or freedom of the sole owner or the authorized signatory.
  • Proof that all tax dues have been paid as per VAT law, but from the tax portal of another registrant.
  • Where the taxpayer has declared bankruptcy and all tax dues and payments related to the period before going bankrupt have been cleared previously, and that insolvency or bankruptcy is not for the purpose of tax evasion.

Read our tax flash for detailed review.

Oman Tax Authority publishes the Oil & Gas Sector Value Added Tax (VAT) Guide

The Oman Tax Authority (OTA) has issued the VAT Guide on the Oil & Gas Sector. The Guide aims to explain the VAT treatment of transactions in this sector. Among others, the Guide clarifies the following:

• Scope of zero-rating of supply of crude oil, oil derivates, natural gas and related goods and services
• Scope of upstream, mid-stream, down-stream, and transportation and storage activities
• VAT treatment of upstream activities, mid-stream and down-stream activities
• VAT treatment of transactions related to the government
• VAT treatment of transactions between JV partners
• VAT treatment of transactions between operators
• VAT treatment of procurements by an operator (including transactions with affiliates)

Please read the tax update for more details

OTA publishes the General VAT Guide and Consumer VAT Guide

The OTA has issued the General VAT Guide in Arabic to set out the general principles of VAT in Oman and provide an overview of VAT procedures and compliance obligations in Oman and how to comply with them.  

The OTA has also issued the Consumer VAT Guide in Arabic to educate consumers about the application of VAT on supply of goods or services in Oman.

OTA publishes decision on determination of license fee for excise tax warehouses

Oman allows excise registered businesses to apply for a license to operate an excise tax warehouse.  The OTA has issued a decision setting out the basis for determination of the license fee on application for a license to operate an excise warehouse. The amount of the fee generally is based on the value of the bank guarantee submitted by the business at the time of the application to establish or renew an excise tax warehouse.  

Please read the tax update for more details

Oman Ratifies Tax Treaty with Qatar

Oman ratified the income and capital tax treaty with Qatar on 19 January 2022 vide Royal Decree No. 4/2022. The Arabic text of the tax treaty has been published in the official Gazette. The tax treaty has not yet entered into force. In November last year, Oman and Qatar had concluded the tax treaty in Doha.

Tax Treaty between Oman and Slovak Republic has Entered into Force

The Oman - Slovak Republic Income Tax Treaty has entered into force on 15 November 2021.The tax treaty was concluded in March 2018 and was ratified by Oman on 8 June 2020 followed by its ratification by Slovak Republic on 24 August 2021.  

The tax treaty generally applies from 1 January 2022.

Oman Tax Authority opens new branch in Nizwa

Within the framework of developing the services provided by the OTA and for the purpose of facilitating the taxpayers, the OTA has now opened its second branch office in Ad Dakhiliya Governorate in the Wilayat of Nizwa on 23 January 2022. The first branch office was opened in the Wilayat of Sohar in the North Al Batinah Governorate in October last year.

It is expected that the OTA will open few more branches in other governorates as well.

National Bureau for Revenue (NBR) issues Transitional Rules Mechanism Examples

Following the issuance of the VAT Rate Change Transitional Provisions Guide and updated VAT FAQs, on 29 December 2021 the NBR shared Transitional Rules Mechanism Examples with taxpayers. The publication outlines various illustrations which are intended to explain the application of the VAT rate increase transitional provisions. Click here to access the Examples of Transitional Rules Mechanism published by the NBR Click here to access the recent Tax Learnings published by the KPMG Bahrain tax team about the key issues with application of VAT rate change transitional rules.

For more details follow the tax newsletter prepared by KPMG member firm in Bahrain.

Bahrain Country by Country (CbC) notification and reporting update

The Ministry of Industry Commerce and Tourism (MoICT) has sent an email to Bahrain companies on their CbC notification and reporting obligations indicating that the filing window will be open until 28 February 2022. Ministerial Order (MO) No. (28) of (2021) concerning the Country by Country (CbC) Reporting issued in early 2021 states that CbC obligations apply for financial years commencing from 1 January 2021 with the first notification due at the end of December 2021, which now appears to extended to 28 February 2022. However, recent correspondence from the MoICT has stated that they consider the first reporting year to be 2020 (ie the CbC information that needs to be reported by the 28 February 2022 deadline is for the year ending 31 December 2020). The MoICT has also stated that they have directly approached the entities that have to file the CbC notification and report.

Click here for more details highlighted by the Bahrain member firm.