“On 20 December 2021, the OECD issued final rules to implement a Global Minimum Tax, which will impact companies operating in the UAE and GCC countries from 2023.

The Global Minimum Tax (or Pillar 2) forms part of the OECD’s Base Erosion and Profit Shifting (BEPS 2.0) project which propose a two-pillar approach to international tax reforms. This new directive follows an earlier announcement which stated that 137 countries (including five of six GCC countries, excluding Kuwait) supported the concept of a global minimum tax rate of 15% for large multinationals, and the reallocation of taxing rights for the world’s largest groups.

The focus of the 20 December release is on Pillar Two, or the Global Minimum Tax. The Global Minimum Tax effectively stipulates a floor for tax competition amongst jurisdictions. All signatories of the new taxation regime have endorsed the minimum tax and have committed to implementing actions to tackle tax avoidance, improve coherence of international tax rules, and ensure a more transparent tax environment.

With this latest update to final Global Minimum Tax rules, companies operating in the UAE and the GCC need to develop response strategies which assess the financial and non-financial impact of the new taxation laws. As local and regional businesses move toward this new taxation regime, global statutory responsibilities and compliance obligations should not be overlooked.

From a compliance and restructuring perspective, companies need to conduct an impact assessment across their value chain and on different business functions and operations, as well as the existing ERP system from a technical compatibility standpoint, to be better prepared for the transition. This may comprise the quantification of the impact on pricing, incentives, profitability, top-line and cash flows.”

Shabana Begum, Partner, Head of Transfer Pricing, KPMG Lower Gulf