UAE: BEPS Action Plan 13

The globalization and digitalization have resulted into global business opportunities, cross border trade and emergence of many Multinational Enterprises (MNEs) who have centralized and integrated many of their supply chain functions at regional and global levels. In this process of globalization many MNEs have also adopted ways of minimizing their tax burden by creating structures in no or low tax regimes, shifting profits, using deductible payment methods, and by benefiting from double taxation treaties between the countries. This tax planning has resulted in loss of tax revenue for many governments, the OECD estimates that various governments lose anywhere between US$ 100 – US$ 240 Billion a year due to avoidance of tax by these Multinational Enterprises who take advantages of tax rule gaps between the countries. 

In general, tax administration in one country may not have access to the specific information on the MNE Group and may be unable to determine where the profits are reported for tax purposes. The lack of data makes it difficult for the authorities to carry out transfer pricing assessments on transactions between linked companies. Changes to the transfer pricing reporting requirements and the changes to the domestic law obliges the parent company to file in their home country a Country by Country Report to the tax authorities about every country of their operations, how much revenue generated, profits earned, tax paid and accrued, number of employees, where the assets are located and variety of other information. 

The OECD has also developed a new analytical database on individual Multinational Enterprises and affiliates where the Tax authorities will share the relevant information with the jurisdictions where the Multinational Enterprise operates pursuant to the tax treaties allowing tax authority to see the big picture and global profile of the MNE. 

In May 2018, the UAE has joined the BEPS inclusive framework and committed to implement four BEPS minimum standards which also include County by County Report. The UAE Government has issued Regulation of the Submission of Reports by Multinational Companies under Cabinet Resolution no. 32 of 2019 in April and Cabinet Resolution no. 44 of 2020 Organising Reports Submitted by Multinational Companies. These resolutions which are applicable for financial years beginning on or after 1st January 2019, defines Multinational Enterprises Group (MNE Group) which has a total consolidated group revenue equal to AED 3.15 Billion or more during the financial year immediately preceding the reporting financial year and also has two or more entities which are tax residents for tax purpose in two different jurisdictions. The regulations require the Ultimate Parent Entity (UPE) of such MNE Group with taxable presence in UAE to file a CbC notification and a CbC Report on behalf of the group with the Ministry of Finance. The CbC notification is required to be filed before the end of the MNE Group’s financial year and the CbC Report is also required to be submitted within 12 months of the end of the MNE Group’s financial year. 

Filing CbC notification may not be that challenging but preparing and filing CbC Report is definitely going to be very challenging for the UAE based Ultimate Parent Entities who will be filing the CbC Report for their MNE Group with the Ministry of Finance in UAE for the first time. Companies should start preparing now what is going to take them to comply the transfer pricing policies from the global operations perspective. 

A Group’s transfer pricing is closely related to the entire business operations, understanding the transfer pricing means understanding the entire business and the whole value chain of the group’s operations and where and how the group makes profit/ generate income. If the people involved in transfer pricing policies have a clear understanding and knowledge of decision-making process and everything related to the business, they would be certainly able to articulate how their transfer pricing policies are in compliance with the rules.

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