KPMG: International Covid-19 tax developments
KPMG reports on tax developments in response to the coronavirus:
GCC specific updates
1) Oman deposited its instrument of ratification for the Multilateral Convention (MLI) for implementing tax treaty related measures to prevent Base Erosion and Profit Shifting (BEPS)
On 26 November 2019, Oman signed the MLI for implementing tax treaty related measures to prevent BEPS. Royal Decree 43/2020 was issued on 31 March 2020 ratifying the MLI.
On 7 July 2020, Oman deposited its instrument of ratification for the MLI with the OECD’s Secretary-General, Angel Gurría. For Oman, the MLI will enter into force on 1 November 2020.
Once the MLI has entered into force, the next important milestone would be its ‘entry into effect,’ which differs for withholding taxes (WHT) and for taxes other than WHT. After MLI has entered into effect for Oman, claiming benefit under a tax treaty covered by the MLI is likely to become more difficult for foreign tax payers, as they will have to prove that obtaining benefit under such a treaty was not one of the “principal purposes” of any arrangement or transaction.
Likewise, inclusion of a mutual agreement procedure (MAP) under a tax treaty is mandatory, as per the MLI. This is quite positive, as it should expedite the dispute-resolution process involving potentially huge tax demands that can be settled through a MAP.
Please find additional information here.
2) Oman signs the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA)
On 16 July 2020, Oman signed the CbC MCAA for exchange of Country-by-Country (CbC) reports with the relevant jurisdictions. Oman has not yet implemented CbC reporting requirements under its domestic tax law. Amendments to Oman income tax law have been proposed. It is expected to include provisions related to preparation and submission of CbC with the Oman Tax Authority.
Under the CbC provisions drafted in line with the BEPS Action Point-13, all large multinational enterprises (MNEs) are required to prepare a CbC report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which they operate. This CbC report is shared with tax administrations in these jurisdictions, for use in high-level transfer pricing and BEPS risk assessments.
More information may be found here (PDF 120 KB)
3) Shura Council approves the draft Oman VAT Law
The Shura Council has approved the draft Oman VAT law and referred it to the State Council. According to news reports, the Shura Council has also approved the recommendations of the Economic & Financial Committee of the Shura Council, which relate to:
- Timing of the introduction of VAT to coincide with Oman’s GDP achieving a specified growth rate;
- Relief/exemption for medium- and low-income groups from the impact of VAT; and
- Allocation of a part of the tax revenues to support medium- and low-income groups.
The members of the Shura Council are believed to have had mixed views on the percentage of the annual growth rate (currently suggested at 3% per annum), and the threshold for income groups intended to qualify for the relief/exemption. (Currently, it has been suggested that this will apply for those with a monthly income of less than OMR 900.)
As a next step, the State Council is required to make a decision on the draft VAT law, by approval or amendment, within 15 days from the date of the referral. Once the State Council approves the draft VAT law, it will be submitted to His Majesty the Sultan, with the recommendations of both the Shura and the State Councils. The views of the Shura and State Councils are recommendatory in nature, not binding.
Please find additional information here.
4) Oman Tax Authority publishes the Excise Tax Executive Regulations
Effective 15 June 2019, the Oman Tax Authority (OTA) introduced excise tax on alcoholic beverages, carbonated drinks, energy drinks, pork and pork products and tobacco and tobacco products. Royal Decree No. 23/2019 (Excise Tax Law) providing for levy of excise tax was issued last year in March 2019.
The OTA has now published the Executive Regulations to the Excise Tax Law vide Tax Authority Decision No. 51/2020 (Excise Tax Executive Regulations). These, among others, provide more detail on:
Procedures for excise tax registration and deregistration
Conditions for setting up and operation of excise tax warehouses for excise tax suspension
Other situations qualifying for excise tax suspensions
Excise tax exemptions and refunds
Procedure for excise tax inspections and audits
Excise tax dispute resolution, including objections and appeals
The Kingdom of Saudi Arabia (KSA)
1) GAZT updates the Tax Ruling Request guideline
The Kingdom of Saudi Arabia’s General Authority of Zakat and Tax (GAZT) has updated its previously issued Tax Ruling Request guideline. Under the Tax Ruling Request process, any person registered with GAZT for income tax, excise tax or for VAT purposes may submit a tax ruling request to GAZT.
Tax ruling is an interpretative decision issued by the GAZT to the taxpayer upon their request. This decision is set to interpret the Kingdom’s tax provisions while looking at the specific activities or transactions undertaken by the taxpayer requesting the ruling.
It is to be noted that GAZT is not bound to issue a ruling in response to every request submitted. Therefore, it would take into consideration, amongst several factors, the complexity of the matter, whether sufficient guidance has already been put in place and the ultimate benefit of issuing a ruling.
Please find additional information here (PDF 1.4 MB)
2) Extension of Saudi Customs Self-Correction Program for three months
The Saudi Arabia General Customs Authority (Saudi Customs) introduced a self-correction program, to run from 1 January 2020 until 30 June 2020. This would enable importers to declare and pay customs duties on any historic non-compliance with the KSA customs legislation. Due to the ongoing Covid-19 pandemic, the program has been extended for three months until 30 September 2020.
Applying for self-correction within the specified conditions and timing allows the taxpayer to pay only the outstanding customs duties and taxes. They will not be subject to any additional penalties.
Additional information may be found here.
3) Extension of waiver of penalties for tax filing and payment for three months
The GAZT has extended its waiver of penalties for all tax filing and payment for a further three months as part of its efforts to mitigate the impact of the Covid-19 pandemic on the economic activities of the Kingdom. GAZT announced, through a notification on its website, that the waiver will be extended until 30 September 2020. This is an extension of the IFSAH initiative’s waiver of penalties for Zakat, income tax, withholding tax, vat, and excise tax, which ran from 18 March 2020 until 30 June 2020.
The extension includes a waiver of penalties for taxpayers who need to submit or amend their tax declarations on condition that they pay their pending dues and submit or amend their documents by 30 September 2020. Penalties will also be waived in case of late registration to the GAZT system if the taxpayer registers, submits and pays all dues by the new deadline.
GAZT also announced that the taxpayers can request approval of installment plans in case taxpayers are unable to pay their dues by 30 September 2020. Penalties will be waived for past dues until 30 September 2020 but will resume on 1 October 2020.
Please find more information here.
4) New VAT return format
On 21 July 2020, the GAZT released a new VAT return format on its website to reflect recent changes that came into effect on 1 July 2020, raising VAT from 5% to 15%. The new format includes multiple changes to the general ledger of the return form, mainly in the applicable rate of VAT.
The categories of “standard rated sales subject to 15% VAT” and “standard rated domestic purchases subject to 15% VAT” have been added to the form, while “standard rated sales at 5%” and “standard rated domestic purchases at 5%” remain as subcategories to cover contracts subject to transitional provisions, which will be applicable until the earlier of:
- expiry of contract;
- renewal of contract; or
- until 30 June 2021.
The form allows the applicant the option to choose whether they have sales or purchases subject to the previous standard rated 5%, and by clicking “yes” the form allows them to declare these sales or purchases.
Two other categories were updated: “imports subject to VAT paid at customs” and “imports subject to VAT accounted for through reverse charge mechanism”, which are now both rated at 15% VAT.
1) Violation for non-submission of economic substance return
On 3 June 2020, Bahrain’s Ministry of Industry, Commerce and Tourism (MOICT) issued a list of activity codes (PDF 99 KB) which the MOICT considered to be relevant activities, as prescribed under the Ministerial Order No. (106) of 2018 concerning Economic Substance (ES) requirements in Bahrain.
An entity which had one or more of the activity codes in its commercial registration was obligated to comply with the ES requirements, including the submission of ES Return within three months from the end of financial year. For entities with financial year ended 31 December 2019, the MOICT granted an extension until 30 June 2020 for submitting the ES Return.
The MOICT has now started to issue violations against entities that failed to submit their ES Return by the deadline. These entities are urged to submit their ES Return as soon as possible before the MOICT imposes stiffer sanctions or penalties.
Please find more details, read here