https://www.linkedin.com/feed/update/urn:li:activity:7018077263757754368
On 9th December 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (pdf)(Corporate Tax Law or the Law) to enact a new corporate tax (CT) regime in the UAE. Though the tax will trigger on financial year starting on or after June 1, 2023, one important aspect of the law that will immediately become effective once it is published in the official gazette is GAAR- General Anti-Abuse Rule. Entities need to be aware of the same in case of any changes being made to structure, related party transactions and other key elements to ensure that the purpose of the change is not solely / with an objective to gain tax advantage.
Anti-abuse rules (AAR): Scope and Intention
Chapter 15- Artcile 50 of the Federal Decree Law No. 47 contains the provision with respect to Anti- Abuse Rules (AAR). AAR essentially follows the ‘substance over form’ principle. The intention of AAR is to disregard a transaction or an arrangement designed mainly with the objective of obtaining Corporate Tax (CT) advantage.
Applicability:
This Article applies to a transaction or an arrangement if, having regard to all relevant circumstances, it can be reasonably concluded that:
a) the entering into or carrying out of the transaction or arrangement, or any part of it, is not for a valid commercial or other non-fiscal reason which reflects economic reality; and
b) the main purpose or one of the main purposes of the transaction or arrangement, or any part of it, is to obtain a Corporate Tax advantage that is not consistent with the intention or purpose of this Decree-Law.
Corporate Tax Advantage:
A Corporate Tax advantage includes, but is not limited to the following:
a) A refund or an increased refund of Corporate Tax.
b) Avoidance or reduction of Corporate Tax Payable.
c) Deferral of a payment of Corporate Tax or advancement of a refund of Corporate Tax.
d) Avoidance of an obligation to deduct or account for Corporate Tax.
Implications:
The Authority may make a determination that one or more specified Corporate Tax advantages obtained as a result of the transaction or arrangement are to be counteracted or adjusted. If the Authority takes such a decision, the Authority must issue an assessment giving effect to the determination, which may include:
a) allowing or disallowing any exemption, deduction or relief in calculating the Taxable Income or the Corporate Tax Payable, or any part thereof;
b) allocating any such exemption, deduction or relief, or any part thereof, to any other Persons;
c) recharacterising for the purposes of this Decree-Law the nature of any payment or other amount, or any part thereof; or
d) disregarding the effect that would otherwise result from the application of other provisions of this Decree-Law, and
e) can make compensating adjustments to the Corporate Tax liability of any other Person affected by the determination made by the Authority.
Determination – Factors to be considered
For the purpose of determining whether this Article applies to a transaction or arrangement, the following must be considered:
a) Manner of the transaction: The manner in which the transaction or arrangement was entered into or carried out.
b) Nature of the transaction: The form and substance of the transaction or arrangement.
c) Timing of the transaction: The timing of the transaction or arrangement.
d) Result of the transaction: The result of the transaction or arrangement in relation to the application of this Decree-Law.
e) Change in financial position of the taxpayer: Any change in the financial position of the Taxable Person that has resulted, will result, or may reasonably be expected to result, from the transaction or arrangement.
f) Change in the financial position of any other taxpayer: Any change in the financial position of another Person that has resulted, will result, or may reasonably be expected to result, from the transaction or arrangement.
g) Creation of rights or obligations of transacting parties: Creation of abnormal rights or obligations between the parties which would not normally be created between Persons dealing with each other at arm’s length in respect of the relevant transaction or arrangement.
h) Any other relevant information and circumstances.
Evaluation with respect to GAAR perspective
Activities requiring evaluation from GAAR perspective, before implemented:
a) Decision for changing the financial year
b) Any planning or restructuring activities
c) Any changes in the transaction with related parties on account of Corporate Tax Law
The Authorities must ensure that the decision made under Clause 3 of this Article is just and reasonable when it comes to application of the Article.
Please share your feedback and we will try to revert all.
For any clarification & services, do reach out to us at shikha@omnirichfinancials.com or visit us at www.omnirichfinancials.com
uae corporate tax 2023
uae corporate tax rate