Here are some important tax compliance implications for GCC countries in 2022 that business entities should be aware of
Manoj Pandey
The key items Qatar will be focusing on in the tax year 2022 include global minimum taxes, VAT and tightening corporate tax compliances. They are just a few of the notable actions that have caught attention and will have major implications on tax compliances for Qatari multinationals.
In recent years, Qatar’s corporate taxation has changed. Qatari tax authorities are now focusing more on compliance, collecting tax returns, and tax collection, as opposed to five years ago. Previously, this approach was more focused on form than substance. However, it was never possible to see through the glass. This paradigm shift has occurred. Now, the approach is more substance than form. The structuring of transactions, especially cross-border, is viewed in substance to ensure that taxpayers are not evading taxes.
Qatar’s tax authorities have taken many steps in recent years to ensure compliance. These include the robust Dhareba portal for tax compliance and new Country by Country Reporting(CbCR) requirements. They also provide simplified tax returns for exempt entities. They also implement the BEPS Action Plan 2.0.
A quick overview of Qatar’s transfer pricing laws shows that all eligible entities must report related party transaction amounts to the tax authorities if they meet the prescribed threshold. This involves filing a transfer pricing statement along with the tax returns. Then, there is a separate requirement to file the master and local files and finally, the CbCR reports by large multinational enterprises.
It is important to note that non-eligible entities (i.e. those that do not meet the prescribed threshold) should also conduct transfer pricing analysis and benchmarking. This documentation will be necessary in the event that a tax authority initiates a transfer pricing assessment. This is a critical aspect that is often overlooked or ignored. However, the lack of a proper documentation and transfer pricing policy can have significant cost implications. Qatar’s low corporate tax rate (10%) means that transfer pricing authorities could likely look at transactions to determine if they are of substance. Companies should be vigilant. Tax authorities provide only a 30-day response time for tax audits. Companies need to take proactive steps in order to ensure compliance.
We want to share the lessons learned from last year’s first filing. We found that many cases had inadequate documentation. This required lots of back and forth discussions with clients to clarify the type of transaction, functions used, and the risk involved in determining the appropriate margins charged to related parties. There was no documentation, such as invoices, debit/credit cards, reconciliations in prices, agreements, etc. This made it difficult for tax consultants to explain the need to provide documentation and transfer pricing policies to both the taxpayer and the subsidiary companies that are based in different tax jurisdictions. There were also concerns about the availability of comparable companies to benchmark transactions. As there were few comparable companies, it was necessary to rely on the database of comparable Middle East and Africa companies. Due to the vast differences in economies and business environments, the database of comparable companies from Europe and the USA is not comparable.
Given the above, we recommend businesses strictly adhere to the transfer pricing compliance deadline of April 30, 2022. To avoid possible penalties or adverse tax adjustments from the authorities, the consultant must have sufficient time to analyze and benchmark the transaction.
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Manoj Pandey, COO and Senior Partner in Direct Tax at MBG Corporate Services, is Manoj Pandey
