Global tax issues for Qatari investors
The global tax environment is going through an unprecedented period of change. Businesses in Qatar, which have operated in a low or even tax-free environment locally and benefited from attractive tax planning opportunities overseas, are not immune to these changes, writes Ian Anderson.
Arguably the most significant development is the on-going initiative by the Organisation for Economic Co-operation and Development (OECD) to challenge what was perceived to be an unacceptable level of aggressive international corporate tax planning. The Base Erosion and Profit Shifting (BEPS) project aims to combat the artificial shifting of profits from multinational groups to low tax jurisdictions, and the exploitation of mismatches between different tax systems so that little or no tax is paid.
Tax authorities in the Gulf Cooperation Council (GCC) have already had to deal with the reporting responsibilities of the American Foreign Account Tax Compliance Act (FATCA). No doubt influenced by this, the OECD, together with the Group of 20 nations (G20), developed a global Common Reporting Standard (CRS) for the automatic exchange of financial information between tax authorities in different countries. To date, 61 jurisdictions have agreed to start exchanging information under the CRS from 2017. Qatar, Saudi Arabia and the United Arab Emirates have all committed to implementing the CRS at a later date.
Qatari investors with operations in Europe may also need to consider the impact of on-going European Union (EU) state aid enquiries. In 2014, the European Commission launched in-depth investigations into tax incentives given to Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade, and Amazon in Luxembourg. Shortly after these investigations were opened, over 340 multinational companies were exposed for securing secret deals with the Luxembourg tax authorities in order to save billions of dollars in taxes.
Leaked documents showed some companies paying an effective one percent rate of tax on profits moved from higher tax jurisdictions to Luxembourg through the use of private tax rulings. The European Commission has since committed to scrutinising these papers and has extended its investigation to all 28 EU member states, specifically investigating whether the tax incentives breach EU “state aid“ rules.
There is now a notable risk that Gulf-owned businesses that have secured a favourable tax ruling in the EU could be affected. If a tax ruling is found to constitute unlawful state aid, the recipient could have to repay to the state in question, the difference between the tax charged and the tax it would have paid without the ruling. Interest may also be charged. The amounts to be repaid could be very substantial.
It is therefore imperative that Gulf-owned businesses whose effective tax rate in any EU country has been reduced by a ruling should consider the potential impact of the state aid challenges and whether their existing investment structures need to be revisited.
In all likelihood, policy decisions in Qatar, and the wider GCC, will be influenced by these global tax initiatives, potentially impacting the terms of existing tax treaties, and certainly leading to greater disclosure and reporting obligations. Businesses that do not plan and monitor their international investments could risk unexpected and potentially significant tax exposures.
Ian Anderson is a senior consultant at international law firm Pinsent Masons.