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Managing Tax Affairs in Emerging Markets Jayne Stokes Khadija Idboujnane April 2014
General tax landscape
Copyright © 2014 Deloitte LLP. All rights reserved. 2 Countries rich with natural resources in the Middle East derive revenues from taxation of the Oil & Gas industry Other countries have a greater need for wider tax revenues Taxing authorities are evolving and continue to become more sophisticated –Move towards simplified tax regimes and reduced corporate tax rates –Increased implementation of withholding taxes (“WHT”) –Introduction of transfer pricing rules –Increase in the number of double taxation treaties Misconception there is no tax in the Middle East
Copyright © 2014 Deloitte LLP. All rights reserved. 3 WHTs are increasingly being introduced into legislation to increase taxing revenues on cross border payments 13 out of 15 countries in the Middle East region have WHT regimes –UAE and Bahrain are the exception New complexities to cross-border projects, but also opportunities for effective tax planning, including the application of Double Tax Treaties (“DTTs”) There are currently more than 500 DTTs agreed by MENA countries –The UAE has the highest with c.60 DTTs –Palestinian Ruled Territories and Iraq have the lowest with no DTTs concluded Increasing number of DTTs being agreed in the region –Qatar has agreed 12 DTTs in the past 18 months WHT and double tax treaties in the Middle East
Copyright © 2014 Deloitte LLP. All rights reserved. 4 Top rates of WHT in the MENA region Top Rate of Withholding Tax per country WHT Percentage Source: Deloitte Middle East Tax Handbook 2013
Copyright © 2014 Deloitte LLP. All rights reserved. 5 Transfer pricing (“TP”) in the Middle East –The new frontier – OECD based rules –Egyptian experience –Documentation requirements Challenging times ahead in the Middle East EgyptKuwaitQatarSaudi Arabia Formal TP rules exist, broadly based on OECD Guidelines, and require detailed documentation to support the arm’s length principle No formal TP rules, however, inter company transactions considered in some circulars 2011 law introduced TP principles into the tax code No formal TP rules, however, tax laws provide for prevention of tax avoidance
Considerations for Emerging Markets
Copyright © 2014 Deloitte LLP. All rights reserved. 7 Considerations for emerging markets Legislation Historical tax legislation; updates not consolidated in existing legislation Practical application not always consistent with legislative position Changes to legislation not well communicated to taxpayers Practical difficulties Manual processes Limited guidance on interpretation Unclear on process requirements Tax compliance and risks Rulings and decisions by Tax Authorities not binding Pay now, argue later principle Developing judicial system Shortage of skilled technical resource
Copyright © 2014 Deloitte LLP. All rights reserved. 8 Positive developments within the region
Copyright © 2014 Deloitte LLP. All rights reserved. 9 Positive developments within the region Developing awareness of taxpayers issues Demand for technical training for tax authorities Participation in working groups alongside taxpayers and tax professionals Tax authorities increasingly open to dialogue with taxpayers Increasing initiatives to modernise the processes (e.g. introduction of e-filing, e-payment) Collaboration between tax authorities of countries in the region to share best practices Increasing interest to expand the tax treaties network
Questions and answers
Copyright © 2014 Deloitte LLP. All rights reserved. 11 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates and related entities, shall not be responsible for any loss sustained by any person who relies on this presentation.
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