Oman – preparing for a future tax regime in the BEPS era

Muscat: Recent developments in the local, regional and global tax environment—including a growing focus on transparency and technological demands—are prompting many governments and organisations to adapt to these new norms. This article examines how the Oman tax regime may change in the coming years, in light of OECD and global initiatives related to Base Erosion and Profit Shifting (BEPS).
BEPS refers to strategies that exploit gaps in tax rules across jurisdictions, so as to shift profits to locations with a tax advantage with little or no real activity therein, resulting in minimal payment of corporate taxes. While many of these strategies may not be illegal, they do not affirm to the public outcry which views paying tax as a moral obligation and the surging appetite of countries to collect their fair share of taxes.
Just over a year ago, Oman joined the Inclusive Framework (IF) of the Organisation for Economic Co-operation and Development (OECD). The IF was designed to coherently tackle BEPS by the interested countries, which currently stand at 124. Oman has committed to implement the four minimum Action Plans (AP), namely measures against harmful tax practices (AP 5), model provisions against treaty abuse (AP 6), Transfer Pricing documentation and Country-by-Country Reporting (CbCR) (AP 13) and enhancements to dispute resolution through Mutual Agreement Procedure (AP 14).
Barring Kuwait, other Gulf Cooperation Council (GCC) countries have signed up for the IF. We have described below how these minimum standards may currently apply in business situations.
Where service payments are made to foreign vendors and nil/lower withholding tax rate is adopted based on favorable tax treaty provisions, emphasis will be on the substance. Hence, if economic activities are not carried out where the foreign vendor is a tax resident, tax treaty relief could be potentially denied—the underlying purpose of AP 6.
The OECD has developed Multilateral Instrument (MLI) as a tool to implement the APs in a synchronized manner. From the region, Qatar signed as the 85th jurisdiction of the MLI. While Oman’s existing 34 tax treaties do have selective anti-abuse rules, Oman has already expressed its intent to sign the MLI with the commitment to accomplish seamless variation of tax treaties.
Transfer pricing rules, in their basic form under the Oman tax law, are expected to leapfrog when the CbCR rules (under AP 13) are legislated in Oman tax law. CbCR rules require specified multinational companies to provide an overview of parameters such as type of operations, turnover, employee count, profit, etc. by country. CbCR rules will enable automatic sharing of filings with tax authorities of different countries, which will provide first-hand information for conducting targeted BEPS risk assessments. In the GCC, Qatar has recently implemented the CbCR rules. It is likely that Oman, along with other countries committed to the minimum standards, will also action these rules in the near future. Certain organisations, such as government owned funds and family businesses, will need to specifically assess the applicability of these rules due to their unique governance structures.
On the flipside, the Oman tax authorities also need to prepare implementation measures such as legislative changes, a framework to collect information, rules for data confidentiality, protocols for exchange of information with other countries and training tax officers.
It is anticipated that an effective application of certain actions arising from BEPS minimum standards could be seen much earlier, say in the on-going audit and appeal proceedings, especially in cases of cross border and related party transactions. It will be important for businesses to evaluate their cross border operations in anticipation of these inevitable key tax developments in Oman.

* The author is the Director, Tax at KPMG in Oman.