The tax ecosystem of the GCC countries was once considered quite simplistic. It had minimal requirements for corporates and individuals alike. However, in the last few years, the GCC countries have seen a significant shift in their tax landscape. Part of this radical change came in January 2018, when Saudi Arabia and the UAE opted to introduce VAT. In April 2021, Oman became the latest entrant to the list; following in the footsteps of the other three members — Saudi Arabia, the UAE, and Bahrain.

Further, the COVID-19 crisis has hastened changes globally within tax frameworks and brought more alignment among tax authorities. A good example of this would be the G7 tax deal whereby in principle, the G7 group has agreed to work closely to stop the world’s biggest companies from avoiding tax by moving operations between countries.

Kuwait has acknowledged the changes happening in global and regional markets with regard to taxation and has introduced more streamlined regulatory policies. For instance, becoming stringent about matters related to Common reporting standards (CRS) and Foreign Account Tax Compliance Act (FATCA) reporting, streamlining the process of obtaining no objection letters (NOLs), and recently, giving options to obtain an advance NOL on a ‘case-by-case’ basis.  However, as Kuwaiti companies expand within the Middle East and internationally, they are increasingly facing challenges to adapt to the regulatory policies in each of these new markets.

It would be fair to say that tax leaders today cannot function like their counterparts of yesterday, and tax has become a boardroom issue requiring key focus within an organization.

It would be fair to say that tax leaders today cannot function like their counterparts of yesterday, and tax has become a boardroom issue requiring key focus within an organization.

Tax risk, transformation, and the new reality

The 2021 CEO Outlook Pulse Survey found that CEOs have started putting more emphasis on the tax function’s role in the successful pursuit of organizational goals. According to the survey, 500 CEOs in 11 key markets ranked tax risk second in the list of growth barriers over the next three years, closely followed by cybersecurity risk. KPMG tax leaders have suggested for a long time now that executive teams need to place this issue more firmly on their radar. Now, it’s decidedly there, and tax transformation and digitization could further assist in the successful detection of risks and achievement of organizational goals.

The key areas for corporates to look at include:

Tax policy and procedures, and voice on the board:

While it is happening in major multinationals in developed tax jurisdictions, we are yet to see tax departments of corporates in the region develop formal tax policy and procedures setting out clearly the process for compliance, the person responsible, and the need for tax sign-off on key business decisions. This has resulted in unexpected tax liabilities and penalties for companies and may continue to do so with the ongoing introduction of taxation in the region. Tax should be an agenda item of the board to ensure it gets its due attention and material issues are discussed on a timely basis.

Resourcing of tax function/Upskilling of current tax staff

Changes in tax legislation globally and the automation of processes by tax authorities worldwide, means both the adequacy of resourcing and upskilling of the current staff within the tax function are critical to ensure the function remains relevant today. A tax-focused people strategy needs to be developed to ensure all tax KPIs and targets are met.

Adopting digital technologies:

With the financial reporting systems of major multinationals on cloud and most tax authorities moving to an e-filing/e-tax management model, the need to digitize and have an integrated tax system to manage various compliance deadlines and share data with the tax authorities efficiently is now a ‘need’ rather than a ‘good to have’. We are seeing certain tax authorities, including some in the region, moving to a real-time integrated tax system which would mean seamless data sharing between corporates and tax authorities. Managing the tax risks and data shared with tax authorities today is only possible with appropriate tax tools.

Tax risk mitigation — how can tax leaders help

CTOs and tax leaders now need to be part of executive committee and board meetings and regularly connect with their CEOs to keep them informed about key tax risks and ensure the tax function views are considered while making business decisions and the risks arising are managed proactively. Tax risks, if not managed appropriately, can easily become a reputational risk, a much more damaging business risk in today’s integrated world.

Moreover, setting up tax processes, upskilling tax staff, understanding tax technology, data analytics, and communications will be significant for future tax compliance and strategic decision-making, to ensure the tax function continues to add value to an organization. Tax leaders can help mitigate tax risks by:

  • keeping abreast of the changing regulatory and reform framework and ensuring their CEOs and business leaders are briefed;
  • seeking constant engagement with tax authorities to make responsible tax decisions; and
  • maintaining an understanding of the evolving business environment and providing timely tax analysis to help their CEOs make better-informed business decisions.

Tax legislation and tax authorities will keep evolving and this, in turn, will also change the way the taxes are being managed by the corporates. In short, tax is an area that needs to be considered before making any key business decisions to ensure the corporate remains compliant and avoids undue penalties/liabilities or loss of reputation.