Highlighting some of the important tax compliance implications in the GCC country in 2022 that business entities need to watch out for
Global minimum taxes, VAT, and a tightening of corporate tax compliances are some of the key items that are expected in Qatar during tax year 2022. They comprise some of the noteworthy actions that have caught the world’s attention, having huge implications on tax compliances, especially for multinational enterprises operating in Qatar.
Corporate taxation in Qatar has been evolving in the recent past. Compared to five years ago, Qatari tax authorities have been stressing more on compliance, collecting information, tax returns and tax collections. Previously, the approach could be described as more ‘form over substance’ where looking through the glass was never a consideration. However, this approach has undergone a major paradigm shift where now it is more ‘substance over form’ approach, where the structuring of transactions — especially cross-border transactions — are looked upon in substance to ensure that the true intention of the taxpayer is not to evade any taxes.
In recent years, the tax authorities in Qatar have taken a series of steps to ensure compliance. These include the robust Dhareeba online portal for tax compliance, new Country by Country Reporting (CbCR) requirements, simplified tax return for exempt entities, transfer pricing laws, and BEPS Action Plan 2.0 implementation.
A quick recap on the transfer pricing laws in Qatar shows that eligible entities who meet the prescribed threshold are required to report related party transaction values to the tax authorities. This starts with the filing of a transfer pricing declaration along with the tax return, followed by a separate requirement to file the master file and local file and then at last, file the CbCR report by the large multinational enterprise.
Here, it is important to note that currently non-eligible entities, i.e., those that fall within the prescribed threshold, should also undertake some level of transfer pricing analysis and benchmarking and maintain proper documentation in case a transfer pricing assessment is initiated by the tax authorities. While this important aspect is often overlooked or neglected, not having documentation and transfer pricing policy in place can have huge cost implications. Given Qatar’s low 10 per cent corporate tax rate, it is probable that transfer pricing authorities may look through transactions to find substance over form and hence, companies need to be vigilant. Furthermore, tax authorities give only 30 day’s response time in the case of tax audits; hence, companies must take proactive measures to ensure compliance.
We would like to draw attention of the readers from the learnings gained during the completion of the first filing process last year. We observed that in many cases, the documentation with related parties were not up to the mark and required lots of clarification and back and forth discussion with clients to understand the type of transaction, functions employed and risk assumed in determining the adequacy of margins charged to the related parties. The challenges further included the absence of documentation altogether, such as agreements, invoices, debit/credit notes, reconciliations in prices and other supportive documents. This led to tediousness on the part of tax consultants in explaining the need for documentation and transfer pricing policies to not only the taxpayer, but to also the subsidiary companies based out of different tax jurisdictions. There were also issues around availability of comparable companies to benchmark the transaction, as there were very few comparable companies available for comparison and hence, reliance was made upon the database of comparable companies in the Middle East and Africa region. The database of comparable companies from Europe or the USA are not comparable due to vast difference in economies and the business environment.
In light of the above, we recommend that businesses strictly adhere to transfer pricing compliance as the filing deadline of April 30, 2022 is fast approaching. Adequate time must be given to the consultant to analyse and benchmark the transaction to protect companies from possible penalties and adverse tax adjustments in the authorities’ tax audit.
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— Manoj Pandey is COO and Senior Partner – Direct Tax at MBG Corporate Services