1. THE INTERNATIONAL TAX SPECIALIST GROUP DUBAI 28 April 2014

2. TAX RELIEF IN A HOT CLIMATE: THE U.A.E. TAX TREATY NETWORK David Russell QC

3. The UAE tax background No federal tax Income tax in 5 of 7 Emirates In practice restricted to banks and oil companies No personal taxation

4. UAE objectives in DTAs Stimulation of foreign direct investment Encourage business ventures Enhancement of co-operation Encouragement of tourism Encouragement of bilateral trade Part of wider engagement in international arrangements to combat money laundering, terrorist financing and improve capital market regulation

5. Drivers in DTA negotiations: UAE UAE federal structure Protection of returns of outbound FDI –Dividends –Interest –Royalties –Capital Gains Sovereign Funds

6. How UAE able to achieve its DTA Network? Has avoided features now defined as harmful tax competition No “ring fencing” or externally directed tax design features Lead Partner in OECD/MENA Dialogues, including Tax Treaty partnership Longstanding commitment to transparency and proper corporate governance, especially DFSA

7. Drivers in DTA negotiations: OECD “Harmful tax competition” Limitation of Benefits Exchange of Information Mutual assistance

8. Outcomes 1992 OECD Model Convention provides basic template Petroleum taxes outside most treaties Sovereign funds and private investors better protected than under many DTAs Articles 7, 8, 14 to 21 resolve most trading issues Significant areas of uncertainty.

9. The Treaties No comprehensive local list readily available until recently, and even then some uncertainties IBFD details out of date and no English translations of some treaties Ratification details with IBFD also out of date Officially said to be 50, but this includes some which may not be in force

10. Application Basic Rule is Article 2 of OECD Model Convention Doesn’t apply to Malaysia, New Zealand, Pakistan

11. Residence “Liable to tax” formula causes some debate – Indian experience Formula used in Belarus, Belgium, China, Czech Republic, Indonesia, Italy, Pakistan, Poland, Thailand, Tunisia, Turkey DTAs Other formulae also confusing: “resident for the purposes of its taxation law” Very restrictive definition in some treaties, e.g. Canada, Netherlands – and note special exclusion for Netherlands

12. Dividends, Interest, Royalties Treaties fall into 3 categories: –Residence based taxation –Participation exemption (dividends) –Low withholding rates GOC exemptions –Note participation levels

13. Articles 10,11 and 12 Problems Debt Instruments – Does “Interest” cover Islamic finance models? “Beneficially entitled” – what about a waqf

14. Capital Gains Gains on immovables, and movables associated with a PE or fixed base, generally taxable according to source. Other gains (including on shares in companies holding such assets) generally taxable in country of residence Note exception for shares in land rich companies in Belarus, Canada, China, India, Mozambique, Philippines and Spain Special rules for France, Korea and Turkey

15. Residual Income Most treaties follow OECD model in allocating this to country of residence. Note the exceptions: New Zealand, Pakistan, Seychelles, Singapore, Thailand tax locally sourced income Article 22 equivalents do, however, protect third country income from tax

16. Limitation of Benefits US very keen on concept First country to accede to its views was Australia in 1982 Most UAE treaties don’t contain such a provision Note the exceptions: Canada, Germany, India, Korea. Special provision for Luxembourg

17. Exchange of Information Most treaties follow 1992 OECD Model Convention In practice this means UAE won’t be providing much information – see e.g. Article 26 of China DTA Note exceptions: Netherlands, New Zealand, Spain Special form of Pakistan DTA article

18. Suggested UAE objectives Include local taxes Define “resident” more clearly, and use general residence criteria Address problem of free zone companies Avoid restrictions based on “special regimes” Use residence basis of tax for dividends, interest and royalties Avoid land rich capital gains provisions Avoid Limitation of Benefits provisions Avoid new Exchange of Information rules

19. Opportunities MENA Region – lack of Limitation of Benefits provision in all MENA DTAs makes UAE a highly attractive RHQ location from a tax perspective Of MENA high tax countries, only Iraq and Jordan not covered by a DTA with UAE

20. Opportunities (cont.) Europe – Austrian treaty No tax on dividends unless shareholding connected with an Austrian PE, interest or royalties No Limitation of Benefits provision (although Austria would regard a “brass plate” UAE company as abusive) Relative freedom of operation of Austrian company through Europe

21. THE END