The year 2019 ushered in new transfer pricing regulations in the Kingdom of Saudi Arabia (KSA), Qatar, Morocco, Tunisia and the United Arab Emirates (UAE). This created a significant administrative burden on multinational enterprises (MNEs) in 2019 and the trend is likely to continue into 2020 and beyond.
New Transfer Pricing Regulations Anticipated in 2020
Bahrain and Oman are likely to introduce transfer pricing regulations in 2020 having committed to the OECD Inclusive Framework (IF) minimum standards coupled with the desire to be removed from and/or stay off any international blacklists. By way of reminder, the IF four minimum standards are as follows:
- Action 5—Countering harmful tax practices
- Action 6—Countering tax treaty abuse
- Action 13—Introducing country-by-country reporting
- Action 14—Commitment to mutual agreement procedures
The EU published a list of “non-cooperative jurisdictions for tax purposes” in 2017 and this included Bahrain and the UAE (Oman was added in March 2019). Bahrain was removed from the so-called EU blacklist in March 2018 and the UAE was removed in October 2019. Oman remains one of only eight jurisdictions on the EU blacklist.
From a transfer pricing perspective, regulations in Bahrain and Oman will most likely take the form of country-by-country reporting (CbCR) requirements and not a masterfile and/or local file requirement at this stage.
Jordan has now signed the IF committing to implement the minimum standards; however, Jordan is also on the OECD harmful tax practice list (last updated in July 2019) and as such, the introduction of CbCR may not be a priority for 2020 (rather a focus on improving the overall tax system in line with OECD recommendations).
The MENA jurisdictions of Algeria, Kuwait, Lebanon and Libya have not (as of yet) signed the BEPS IF commitment which now includes 135 jurisdictions. This does not preclude these jurisdictions from introducing transfer pricing regulations; however, there is no international commitment to do so.
New Transfer Pricing Guidance Anticipated in 2020
New transfer pricing guidance is anticipated in the following areas in 2020:
- specific Egypt guidance on Intangibles and other key areas (the 2018 Egypt Transfer Pricing Guidance refers to this guidance which is at present being prepared);
- specific KSA guidance on advanced pricing agreements (this will provide MNEs operating in KSA with an important certainty option for complex/material intra-group transactions);
- general Qatar guidance on the 2019 Transfer Pricing Regulations.
A summary of Transfer Pricing Regulations/Guidance Anticipated in 2020 can be found here.
Transfer Pricing Compliance in 2020
MNEs have new transfer pricing compliance obligations in MENA in 2020 to include:
- transfer pricing disclosure forms in KSA and Qatar (to be filed in April 2020 for most MNEs that have December fiscal year ends);
- Egypt local files need to be submitted to the Egyptian Tax Authority (ETA) by June 2020;
- country-by-country reports need to be filed by December 31, 2020 for MNEs with turnover exceeding $850 million and headquartered in Egypt (the turnover threshold is lower for Egypt parented groups at $150 million), KSA, Qatar, UAE;
- country-by-country notifications for 2021 will need to be filed in 2020.
Transfer Pricing Audits in 2020
In addition to the above, we are seeing an increase in transfer pricing audits in Egypt and KSA (following the introduction of new guidance and regulations) and this should also be expected in Qatar, Morocco, Tunisia and other jurisdictions in which transfer pricing regulations have been introduced.
MNEs that are at risk of a transfer pricing audit include those who have the following:
- losses in local subsidiaries (particularly if this is ongoing);
- lean margins in local subsidiaries;
- business restructurings (particularly if flagged in the transfer pricing disclosure forms);
- profits in zero or low tax locations (e.g. UAE and Bahrain—particularly if flagged in a CbCR).
OECD GloBE Proposals in 2020
Finally, the OECD is due to publish the findings of the GloBE proposals by the end of 2020 and this will include among other items a recommendation for a minimum level of corporation income tax. This would have a direct cash tax impact for MNEs operating in the UAE and Bahrain; it is an important international development for MNEs operating in MENA to monitor.
Shiv Mahalingham is Head of Transfer Pricing, Deloitte MENA
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.