GCC may ‘closely consider’ project to curb perceived tax avoidance by MNCs
GCC countries are expected to “closely consider” a project that aims to curb perceived tax avoidance by some multi-national companies, according to an international tax expert.
Under intense public pressure and unprecedented media focus, leaders of the G20 countries tasked the Organisation for Economic Co-operation and Development (OECD) to come up with a plan on how to curb perceived tax avoidance by some global MNCs, explained Sajid Khan, tax partner at PricewaterhouseCoopers (PwC).
This, he said, gave rise to the Base Erosion and Profit Shifting (BEPS) project, which comprises of some 15 action plans. The OECD gave itself two year to complete its recommendation on the BEPS project. The timeline finishes this month after which the project will move into implementation.
One of the action plans aims to ensure how the implementation of the project recommendation will be accepted by the countries around the globe, which shows the political will of global leaders to see BEPS making a real change.
While the OECD and G20 countries are intrinsically linked to the project, non-member developing countries will also be impacted, said Khan, who was part of many mergers and acquisitions tax services and worked on a range of technical advisory projects in the UK and Qatar among other places.
He leads the PwC Middle East firm’s efforts on BEPS initiative and was a keynote speaker at the 12th Annual Technical Conference of Association of Tax Authorities of Islamic Countries (ATAIC) that Qatar hosted recently.
“The OECD and G20 have been conscious that if the BEPS recommendations are only implemented in G20/OECD member countries, it will not achieve the desired changes to the global tax system. This is why OECD proposed a ‘multilateral instrument’ within the BEPS actions, which aims to accelerate the uptake of BEPS recommendations in non-member states. Therefore it is anticipated that the region including Qatar and other countries will embrace many changes and recommendations resulting from the BEPS project,” Khan told Gulf Times in an interview.
The BEPS project is one of the most significant steps taken in decades to alter the global tax landscape, he said. it will give a new direction to global tax competition between nation states and will also pose a dilemma for developing economies, i.e. how to balance the conflicting needs of attracting foreign investment versus raising tax revenues.
As BEPS moves into the implementation phase, international tax compliance costs will rise including requirement to provide more detailed business information to tax authorities, Khan pointed out.
“MNCs will have to review their business models and structures to check their compliance with BEPS. The planning, approvals, legal entity changes and operational adjustments will need management time and resources. “Even while the OECD work on BEPS was in progress, there was a noticeable aggressive shift in the behaviour of the tax authorities around the globe and it is likely that post-BEPS there will be increased scrutiny of tax payers’ affairs resulting in many more tax audits,” he said.
Some countries, Khan said, have already taken unilateral actions and issued new tax laws aimed at tackling tax avoidance well before the approval of BEPS recommendations by the G20. MNCs will also have to consider the “reputational impact” of their tax policies.
It is fair to say that MNCs will have to sufficiently strengthen their tax functions and tax risk management policies to operate in the changed tax environment.
In the wake of current low oil prices and rising budget deficits, Khan said it will be interesting how BEPS will impact countries in the Middle East region, particularly the GCC (Gulf Cooperation Council) countries, which also includes a G20 member like Saudi Arabia.
“Many GCC economies have posted budget deficits and once again the diversification of government revenues, shifting the reliance away from hydrocarbons and role of taxes has currently moved up the discussion agenda,” Khan said.
It is anticipated that some of the pending tax reforms (e.g. introduction of new taxes like VAT) may be accelerated and there is likely to be increased pressure on the tax authorities to increase the tax revenues in some countries.
Similar to other developing nations, the GCC countries will continue to require MNCs to participate in developing mega-infrastructure projects and other relevant industries. However, the MNCs are likely to come under scrutiny with regards to their tax affairs.
“Saudi Arabia is a member of G20 and many other GCC countries have participated in OECD proceedings as observers. Therefore I anticipate that BEPS recommendations will be closely considered by GCC countries,” Khan added.