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2021 | OriginalPaper | Chapter

Middle East

Authors : Mourad Chatar, Jan Van Abbe, Alex Law

Published in: Intangibles in the World of Transfer Pricing

Publisher: Springer International Publishing

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Abstract

In line with global trends, the regulatory landscape in the Middle East region is evolving at a fast pace, and therefore, transfer pricing (“TP”) is becoming increasingly relevant. As a regional overview, the countries in the region can be categorized as follows:

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The key conditions are as follows: Expenses need to be incurred in the production of (taxable) income that is not explicitly excluded by law; they need to be supported by respective documentary evidence such as receipts and underlying contractual agreements; and they need to be actually incurred or accounted for in the financial statement of the relevant reporting period concerned. In practice, the tax deductibility of expenses is mainly challenged on the basis of lack of underlying or supporting documentation such as contractual arrangements or a lack of commercial justifications of the expenses.

General Authority of Zakat & Tax.

Deloitte was involved in assisting GAZT for the writing of the KSA Guidelines in 2018/2019

Chapter 7 of the KSA Guidelines.

Chapter 8 of the KSA Guidelines.

Chapter 9 of the KSA Guidelines.

Article 28 of Saudi Arabia Royal Decree No. M1/1425 (Article 28 of Saudi Arabia Cabinet Decision No. 278/1424).

Article 29 of Saudi Arabia Royal Decree No. M1/1425 (Article 28 of Saudi Arabia Cabinet Decision No. 278/1424).

From an accounting perspective, Iranian companies are required to prepare financial statements in accordance with Iran National Accounting Standards (“NAS”). The accounting of intangible assets is set out in NAS 17. The NAS are adaptations of IFRS and IAS. The Iran Audit Organization as the standards-setter is promoting convergence and full compliance with IFRS/IAS.

The relevant regulations can be found in Circular (10), (11), and (12). Also note that the Iran Audit Organization issued high-level transfer pricing guidelines in its Publication 128 (last updated in May 2010). However, the practical relevance of this is limited due to the lack of detail and its non-binding character. According to the Iran Commerce Code, companies are required to disclose related party transactions in their financial statements.

A mainland company may qualify for a general tax holiday scheme subject to certain conditions. A company established in a Free Trade and Industrial Zone (FTIZ) generally benefits from a 25-year tax holiday under the Law on Administration of Free Trade and Industrial Zones (Article 13).

The QFC was established to attract international banking, financial services, insurance and reinsurance, captive insurance, asset management and corporate head office functions within Qatar.

Due to lack of practical relevance, the QSTP will not be further considered in this chapter.

From an accounting perspective, according to the Commercial Law No. 11 of 2015, Qatar-based businesses are required to prepare financial statements “according to internationally accepted accounting rules,” which is commonly understood to mean IFRS.

The TP-related provisions can be found in Part 8 of the QFCTR Article 47 et seq. The basic rule is set out in QFCTR Article 48. The QFCTR further contains specific TP provisions on loans and guarantees and provides for the mechanism of primary, secondary, and corresponding adjustments.

For the State of Qatar see ITL Article 22 paragraph 2, whereby the tax department shall have the right to require “the presentation of any data, information or documents required for the assessment of tax.” Note that penalties may apply in cases of non-compliance.

An IIFA is defined “any Intangible Fixed Asset acquired from a Connected Person by a QFC entity and used (to any extent) to generate Taxable Profits by granting rights to use, license or otherwise exploit the Intangible Fixed Asset.” Where the IIFA is used for both generating taxable income and carrying on its business activity, then the IIFA should be split into two separately identifiable assets and should be separately amortized on a “basis which is demonstrated to the Tax Department as being just and reasonable” (see QFCTR Article 24).

The general deductibility rules for Qatar can be found in ER Article 5 paragraph 3 and QFCTR Article 21 paragraph 1.

For the State of Qatar see ER Article 3 paragraphs 1 and 2; for QFC see QFCTR Article 10 paragraphs 1 and 3b. The source is established based on case law, from which the “operations test” is generally used to determine whether trade or business income is sourced in Qatar.

Please note that for companies under the State of Qatar regime, the share of taxable profits attributed to Qatari or other Gulf Co-operation Council (GCC) nationals may be exempt from tax. For the QFC regime, a concessionary rate of 0% may apply to the taxable profits of QFC companies when they are broadly under 90% or more Qatari ownership and provided certain conditions are met.

This section aims to provide practical guidance on a selection of topics. It is not meant to be comprehensive. While the UAE is referred to, the focus is mainly on the Emirate of Dubai. Pure legal topics such as IP protection have not been commented on. The UAE has an IP framework that is broadly aligned with international standards.

It is possible to allocate a higher percentage of the profits to the foreign shareholder (e.g., up to 80% in Dubai) subject to the respective arrangement. The legality and enforceability of contractual agreements that allocate 100% of profits to a foreign shareholder is uncertain.

The principal law applicable in mainland is Federal Law No. 2 of 2015 Concerning Commercial Companies (“Companies Law”). The free zones mostly have corresponding laws.

Without going into detail, the legal forms and key features are broadly similar to their counterparts in other developed countries. The incorporation process may take comparatively longer.

For example, the concept of re-domiciliation is recognized in the free zones such as Dubai International Financial Center (“DIFC”), and Abu Dhabi Global Markets (“ADGM”) as well as Dubai Creative Clusters Authority (“DCCA”). While the DIFC and ADGM are free zones focused on the financial industry, the DCCA targets the creative industries, such as technology, media, and communications.

For mainland companies, the competent licensing authority is the Dubai Department of Economic Development (DED). In the free zones, licenses are issued by the relevant free zone authorities. The respective regulations provide for a wide range of different licenses and sublicenses that would have to be reviewed in detail. The licensing requirements can become complex in practice.

For example DIFC or Dubai Multi Commodities Center (DMCC).

There are no mandatory mapping or ERP system requirements and the bookkeeping can be prepared and maintained in English.

For mainland companies refer to Companies Law, Article 27. The free zone regulations have similar provisions.

For example, companies located in the DIFC shall be exempt from prescribed taxes for a period of 50 years from the date of the enactment of the aforementioned law, i.e., until year 2054. Law No. 9 Article 14 (2004).

Although not a tax per se, end of service gratuities apply to expatriates.

The key documents are: Trade license; lease contract or title deed for office/business premises, Articles and Memorandum of Association, copy of the passport, valid UAE residence visa and Emirates ID of the authorized signatory included in the trade license, most recent audited financial statements and certified bank statements from a local UAE bank for the last 6 months.

In principle, TRCs are not granted to branches of foreign companies. Pure holding companies without a physical presence are unlikely to be in a position to obtain a TRC. TRCs will generally only be issued after 1 year of operations. The absence of a UAE resident director, audited financial statements and/or a bank account showing actual transaction would usually lead to a rejection. Limited substance and lack of commercial rationale can be other reasons for a denial.

The fact that UAE-based companies are not subject to tax should not lead to a denial of treaty benefits. A strict application of the “liable to tax” condition as provided for under Art. 4 of the OECD Model Tax Convention and corresponding provisions in the DTAs would in principle exclude all UAE-based companies from any double taxation protection which would not be in line with the purpose of the DTA and also not supportable under the OECD Commentaries on Articles of the Model Tax Convention. In this regard, we note that many of the UAE’s treaty partners abstain from including the “liable to tax” clause in the relevant DTA (e.g., India, Switzerland, the Netherlands, etc.). Nevertheless, there are also notable examples of treaty partners that tend to view UAE-based corporates as subject to tax due to the theoretical applicability of the tax decrees mentioned and grant treaty access despite the “liable to tax” clause (e.g., Turkey).

Circular Letter. (2006, August 16). Iran.

Direct Taxes Act, Iran.

Executive Regulations. (2011, June). Qatar.

Federal Law No. 2. (2015). UAE Commercial Companies Law.

Income Tax Law, Qatar.

ITL, Qatar.

Iran National Accounting Standards.

QFC Tax Regulations.

Title: Middle East
Authors: Mourad Chatar
Jan Van Abbe
Alex Law
Publisher: Springer International Publishing
Book: Intangibles in the World of Transfer Pricing
Print ISBN: 978-3-319-73331-9

Electronic ISBN: 978-3-319-73332-6

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-3-319-73332-6_35

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