GCC Indirect Tax News Roundup - Quarter One 2024

Navigating the tax landscape: The Impact of Transfer Pricing on Indirect Taxes

In an evolving tax landscape, it is critical to stay up to date with the latest developments to ensure compliance. Further to the introduction of the UAE Corporate Tax regime, partnered with international developments such as Pillar 1 and Pillar 2, Transfer Pricing is a rapidly evolving subject across the region.

Many businesses have initiated their impact assessments on Corporate Tax and Transfer Pricing on intra-group transactions. They are now advancing into the detailed design and implementation stages.

Due to the close interaction, an integrated tax approach between Transfer Pricing, VAT and Customs is critical to ensure full compliance and create sustainable best practices for the future. We have addressed some of these critical topics below:

• A shift toward a more centralized business model: Although the physical movement of goods in the supply chain would remain unchanged, the indirect tax implications resulting from an IP migration or a change in the invoicing flows should be assessed to prevent any VAT leakage and its advised to anticipate additional VAT compliance burden.
• VAT and customs impacts from Transfer Pricing adjustments: Transfer pricing adjustments can result in non-recoverability of input VAT for true-down, non-refund of overpaid import customs duties for true-up, VAT re-assessment for non compliant VAT invoices and reporting, challenges on the taxpayer’s eligibility to use the customs transactional value method or additional compliance costs. Anticipating the indirect tax implications resulting from the Transfer Pricing methodology is therefore critical.
• Customs implications from intercompany royalty payments: Import customs duties constitute a final cost to the supply chain. To assess whether intercompany royalty payments should be included in the customs value for imported goods, a detailed assessment is required to evaluate whether this is linked to marketing or manufacturing intangible or pre or post importation activities.

Integrating VAT and Customs into a holistic tax strategy will ensure delivering sustained outcomes and achieve efficiencies.

The United Arab Emirates (UAE)

Customs

Updates to the Unified Customs Tariff of the GCC States

Dubai Customs has released Customs Notice No. 1 of 2024, approving the 2024 revisions to the unified customs tariff table of GCC States based on the 2022 edition and subsequent updates.

These changes, agreed upon at the GCC level, are expected to be implemented by other GCC customs authorities soon with updated tariffs.

In the UAE, the amendments to the unified customs tariff table entered into force on 1 January 2024. The impacted HS codes primarily relate to sectors like chemicals, pharmaceuticals, machinery, transport equipment, food and beverages, and computers.

Customs Notice No. 1 of 2024 is accessible through this link.

Further details are available in PwC’s news alert that can be accessed via this link.

Value Added Tax

VAT Public Clarification - SWIFT messages

The UAE Federal Tax Authority (“FTA”) has issued a Public Clarification (VATP036, dated 2 February 2024) to provide its position on the acceptability of SWIFT messages for the purposes of documentation requirements and to support input VAT recovery.

The Public Clarification explains that:

• Financial institutions are regarded as making supplies to themselves in respect of interbank services and are required to issue tax invoices to themselves in respect of these supplies.
• Financial institutions are regarded as making supplies to themselves in respect of interbank services and are required to issue tax invoices to themselves in respect of these supplies.
• Considering the volumes of SWIFT messages UAE financial institutions receive on a daily basis, it would be impractical to require financial institutions to issue a tax invoice to themselves for each SWIFT transaction.
• Provided the SWIFT message contains sufficient information to establish the particulars of the supply, UAE financial institutions are not required to issue a tax invoice to themselves in respect of interbank services received from a non-resident bank and for which such SWIFT communication has been received.

Public Clarification (VATP036) is accessible through this link.

E-invoicing

E-invoicing updates

The UAE Ministry of Finance has revealed, at the ‘E-invoicing Exchange Summit’ held on 12-13 February 2024 in Dubai, some details about the upcoming E-Billing System:

• E-invoicing will operate on the basis of the Peppol 5 corner model, with the Tax Authority in corner 5 to collect e-invoices transmitted by taxpayers.
• E-invoices must be transmitted via Peppol network in UAE PINT format.
• As part of the initial mandate, B2B and B2G transactions will be covered with plans to expand the scope to B2C transactions in the future.
• Phase 1 go-live for reporting invoices to the Tax Authority will start in July 2026.

The Kingdom of Bahrain (Bahrain)

Tax procedures

Extension of retention period of record and accounting books

The National Bureau for Revenue (“NBR”) has informed a number of taxpayers through an email notification that the retention period of records and accounting books has been extended for an additional five years, in accordance with paragraph (D) of Article (103) of the Executive Regulations of the VAT Law.

Taxpayers must take the necessary measures to ensure that they retain their records and accounting books for an additional period of five years from the end of the tax period to which it relates to.

The takeaway

Taxpayers are now, more than ever, required to keep up with the pace of indirect tax changes in the region and stay future ready.

For a deeper discussion on various aspects listed in the publication that are applicable to your business, please get in touch.