1 / 21

THE INTERNATIONAL TAX SPECIALIST GROUP DUBAI 28 April 2014

THE INTERNATIONAL TAX SPECIALIST GROUP DUBAI 28 April 2014. TAX RELIEF IN A HOT CLIMATE: THE U.A.E. TAX TREATY NETWORK David Russell QC. The UAE tax background . No federal tax Income tax in 5 of 7 Emirates In practice restricted to banks and oil companies No personal taxation.

keegan-mcdowell
Download Presentation

THE INTERNATIONAL TAX SPECIALIST GROUP DUBAI 28 April 2014

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. THE INTERNATIONAL TAX SPECIALIST GROUP DUBAI 28 April 2014

  2. TAX RELIEF IN A HOT CLIMATE: THE U.A.E. TAX TREATY NETWORK David Russell QC

  3. The UAE tax background • No federal tax • Income tax in 5 of 7 Emirates • In practice restricted to banks and oil companies • No personal taxation

  4. UAE objectives in DTAs • Stimulation of foreign direct investment • Encourage business ventures • Enhancement of co-operation • Encouragement of tourism • Encouragement of bilateral trade • Part of wider engagement in international arrangements to combat money laundering, terrorist financing and improve capital market regulation

  5. Drivers in DTA negotiations: UAE • UAE federal structure • Protection of returns of outbound FDI • Dividends • Interest • Royalties • Capital Gains • Sovereign Funds

  6. How UAE able to achieve its DTA Network? • Has avoided features now defined as harmful tax competition • No “ring fencing” or externally directed tax design features • Lead Partner in OECD/MENA Dialogues, including Tax Treaty partnership • Longstanding commitment to transparency and proper corporate governance, especially DFSA

  7. Drivers in DTA negotiations: OECD • “Harmful tax competition” • Limitation of Benefits • Exchange of Information • Mutual assistance

  8. Outcomes • 1992 OECD Model Convention provides basic template • Petroleum taxes outside most treaties • Sovereign funds and private investors better protected than under many DTAs • Articles 7, 8, 14 to 21 resolve most trading issues • Significant areas of uncertainty.

  9. The Treaties • No comprehensive local list readily available until recently, and even then some uncertainties • IBFD details out of date and no English translations of some treaties • Ratification details with IBFD also out of date • Officially said to be 50, but this includes some which may not be in force

  10. Application • Basic Rule is Article 2 of OECD Model Convention • Doesn’t apply to Malaysia, New Zealand, Pakistan

  11. Residence • “Liable to tax” formula causes some debate – Indian experience • Formula used in Belarus, Belgium, China, Czech Republic, Indonesia, Italy, Pakistan, Poland, Thailand, Tunisia, Turkey DTAs • Other formulae also confusing: “resident for the purposes of its taxation law” • Very restrictive definition in some treaties, e.g. Canada, Netherlands – and note special exclusion for Netherlands

  12. Dividends, Interest, Royalties • Treaties fall into 3 categories: • Residence based taxation • Participation exemption (dividends) • Low withholding rates • GOC exemptions • Note participation levels

  13. Articles 10,11 and 12 Problems • Debt Instruments – Does “Interest” cover Islamic finance models? • “Beneficially entitled” – what about a waqf

  14. Capital Gains • Gains on immovables, and movables associated with a PE or fixed base, generally taxable according to source. • Other gains (including on shares in companies holding such assets) generally taxable in country of residence • Note exception for shares in land rich companies in Belarus, Canada, China, India, Mozambique, Philippines and Spain • Special rules for France, Korea and Turkey

  15. Residual Income • Most treaties follow OECD model in allocating this to country of residence. • Note the exceptions: New Zealand, Pakistan, Seychelles, Singapore, Thailand tax locally sourced income • Article 22 equivalents do, however, protect third country income from tax

  16. Limitation of Benefits • US very keen on concept • First country to accede to its views was Australia in 1982 • Most UAE treaties don’t contain such a provision • Note the exceptions: Canada, Germany, India, Korea. • Special provision for Luxembourg

  17. Exchange of Information • Most treaties follow 1992 OECD Model Convention • In practice this means UAE won’t be providing much information – see e.g. Article 26 of China DTA • Note exceptions: Netherlands, New Zealand, Spain • Special form of Pakistan DTA article

  18. Suggested UAE objectives • Include local taxes • Define “resident” more clearly, and use general residence criteria • Address problem of free zone companies • Avoid restrictions based on “special regimes” • Use residence basis of tax for dividends, interest and royalties • Avoid land rich capital gains provisions • Avoid Limitation of Benefits provisions • Avoid new Exchange of Information rules

  19. Opportunities • MENA Region – lack of Limitation of Benefits provision in all MENA DTAs makes UAE a highly attractive RHQ location from a tax perspective • Of MENA high tax countries, only Iraq and Jordan not covered by a DTA with UAE

  20. Opportunities (cont.) • Europe – Austrian treaty • No tax on dividends unless shareholding connected with an Austrian PE, interest or royalties • No Limitation of Benefits provision (although Austria would regard a “brass plate” UAE company as abusive) • Relative freedom of operation of Austrian company through Europe

  21. THE END

More Related