Executive summaryOn 11 May and 16 May 2018, the Organisation for Economic Co-operation and Development (OECD) announced that Bahrain and the United Arab Emirates (UAE), respectively, have joined the Base Erosion and Profit Shifting (BEPS) Inclusive Framework (BEPS IF). This brings the total number of countries and jurisdictions participating in the BEPS plan to 116.1
Detailed discussionThe BEPS IF which was endorsed by the G20 Finance Ministers in February 2016, was designed and agreed to by the OECD following a call from G20 leaders for increased inclusiveness in international tax rules.2 As member jurisdictions of the BEPS IF, Bahrain and the UAE are now BEPS Associates and will be able to work alongside the OECD and G20 countries on developing standards on BEPS-related issues and the implementation of monitoring processes.
Most importantly, as BEPS Associates, Bahrain and the UAE are now committed to implementing the minimum standards of the BEPS plan as follows:
18 May 2018
Global Tax Alert
Bahrain and the UAE join BEPS Inclusive Framework
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Measures against harmful tax practices (Action 5)The BEPS project has placed priority and renewed focus on requiring substantial activity for any preferential regime and on improving transparency, which may require more detailed disclosures on Bahraini- and UAE-based entities.
Model provisions against treaty abuse (Action 6)As Bahrain and the UAE grow their tax treaty network, implementing Action 6 will increase the focus on preventing treaty abuse through implementing measures that meet international standards, including potentially signing the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI). To date, signatories and parties of the MLI total 78 jurisdictions, with a further 6 countries expressing an intention to sign the MLI.3 As a result, Bahrain, the UAE and their tax treaty partner countries’ tax authorities are likely to scrutinize more closely compliance with the requirements in cases of application of treaty benefits to ensure that there is no abuse.
Transfer pricing documentation and Country-by-Country Reporting (CbCR) (Action 13)BEPS Action 13 requires, as a minimum standard, compliance with CbCR. While Bahrain and the UAE currently do not have transfer pricing rules in place, it is likely that these jurisdictions will issue, at the least, stand-alone legislations to govern CbCR.
Enhancing dispute resolution through the Mutual Agreement Procedure (MAP) (Action 14)As BEPS Associates, Bahrain and the UAE will have to work closely with other jurisdictions to monitor the implementation of the minimum standard on dispute resolution under the BEPS plan. This will complement the other BEPS minimum standards and facilitate taxpayers’ access to effective and expedient dispute resolution mechanisms under bilateral tax treaties.
ImplicationsAs BEPS Associates, Bahrain and the UAE will work with other participating jurisdictions to facilitate a consistent and level playing field across the international landscape. As such, legislative amendments are likely to occur. Taxpayers will also be subject to reporting and compliance requirements in Bahrain and the UAE and may therefore wish to review their structures and arrangements to facilitate compliance with the new international standards.
Businesses should keep abreast of new regulations or legislation that countries like Bahrain and the UAE may implement with respect to the BEPS IF.
Endnotes1. The updated list of members of the BEPS Inclusive Framework may be found here.
2. http://www.oecd.org/ctp/beps/background-brief-inclusive-framework-on-beps.pdf.
3. See Signatories and Parties to the MLI as of 22 March 2018.
Global Tax Alert 3
For additional information with respect to this Alert, please contact the following:
Ernst & Young Middle East, Bahrain• Ivan Zoricic [email protected]• Shankar P B [email protected]
Ernst & Young Middle East, Abu Dhabi• Tobias Lintvelt [email protected]
Ernst & Young Middle East, Dubai• Guy Taylor [email protected]• Venice Segarra [email protected]
Ernst & Young LLP, Middle East Desk, Houston• Gareth Lewis [email protected]
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