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The laws surrounding transfer pricing are becoming ever more complex, as tax affairs of multinational companies are facing scrutiny from media, regulators and the public
Tax policies are constantly evolving and there are a number of complex changes on the horizon that could significantly affect your business.
Outsourcing Changes to the Outsourcing legislation, specifically when offshoringSignificant changes to the dynamic of the financial services sector in recent years have shifted the paradigms in how we work. The increased digitisation of the workforce, changes in business models, globalisation, and remote working capabilities have led to a new approach to the delivery of services.
Asset management Inflation and tax planningThe recent onset of rapid inflation is an unwelcome development that is having a widespread impact on US businesses and tax planning.
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Every related entity shall provide the Authority with the information necessary for determining and assessing the relevant transfer pricing risks and auditing his transfer pricing practices.
Each related entity shall submit, together with his tax return, a declaration of transfer pricing using the form prepared by the Authority for this purpose, if his total income or total assets as shown in his balance sheet equal or exceed the amount prescribed by the Authority.
The Authority may request such related entity to provide any information necessary for determining and assessing relevant transfer pricing risks or auditing his transfer pricing practices within (30) thirty days from the date when such request is made.
The Authority may provide such entity with a transfer pricing questionnaire addressing areas determined by the Authority on the form prepared by the Authority to this end.
The resident related entity shall submit, within the same time limit prescribed for filing of tax return or within any such other time limit prescribed by the Authority, a master file and a local file on the forms used by OECD, unless the Authority shall use its own forms, if and to the extent that one of the following conditions is satisfied:
Such entity’s total revenues or total assets, as shown in its financial statements, equal or exceed the amount QAR 10 million.
One of the related entities shall be a resident outside of the State.
This obligation shall become effective starting from the taxable year beginning on or after the date prescribed by the Authority by a decision of the President to this end.
- Arm’s length principle shall be applied in accordance with the Unrelated Comparable Price method, which is the price of the service or goods which would have been applied should the transaction be between unrelated parties. In the case where the data required to apply the Unrelated Comparable Price method are not available, the taxpayer shall submit to the Authority an application to apply any other pricing method approved by the Organization for Economic Cooperation and Development (OECD).
- In the absence of comparable elements in respect of the examined case, the Authority may use comparisons with similar activities or other sources of income or any such other objective evidence available to the Authority
- The resident-related entity shall submit, a master file and a local file on the forms used by OECD, unless the Authority shall use its own forms.
- The approved method of transfer pricing in Qatar is CUP( comparable uncontrolled pricing method).
- For application of any other pricing method , prior approval must be obtained from the General Tax Authority (GTA).
- The tax return shall be deemed as a self-tax assessment.
- If the Authority amends the return filed by the taxpayer, it shall issue a corrective tax assessment decision using the form prepared for this purpose.
- In all cases where it is not possible to assess the tax based on the taxpayer’s real income, the Authority shall issue a presumptive assessment decision using the form prepared by the Authority for this purpose. This includes the failure to file the tax return or the supporting documents or statements within the time limits prescribed herein. These documents shall particularly include.
- TP reporting requirements were highlighted in the Executive Regulations issued in December 2019 which stated that the GTA would issue guidance regarding the applicable thresholds for TP Disclosure Forms, Master file and Local file.
- The Authority may request the entity to provide all information and documents in its possession and required for auditing its transfer pricing practices with respect to its transactions with related entities, including:
- Information and documents related to the entity’s operations and functions.
- Information and documents related to the operations, functions, and financial results of the related entities with which such entity transacted.
- Information related to potential benchmarking, including internal benchmarking of related entities.
- Documents related to the unrelated comparable entities’ operations and financial results and transactions between them.
- Information and other documents available to the entity or the entities related thereto.
- Resident entities and permanent establishments in Qatar are required to submit Master file to the GTA on request.
- The contents of the Master file are in line with the Organization for Economic Co-operation and Development (OECD) recommendations.
- As per the OECD recommendations, the following information needs to be included in the Master file:
- A high-level overview of a company’s business operations, description of the groups 5 largest supply chain products or services, as well as service agreements between group entities
- Main geographical markets and functional analysis describing the principal contributions to value creation by individual entities within the group
- Significant transactions related to business restructuring, acquisitions and divestment operation
- TP policies and information about intangibles owned by group entities, intercompany financial activities, and financial and tax positions.
- Resident entities and permanent establishments in Qatar are required to submit Local file to the GTA on request.
- The contents of the Local file are in line with the OECD recommendations.
- As per the OECD recommendations, the following information needs to be included in the Local file:
- A description of the management structure of the local entity, a local organization chart, business strategy, whether the resident entity participated in business restructuring operations or transfers of intangible assets and information about the main competitors
- Description of the material controlled transactions (eg procurement of manufacturing services, purchase of goods, provision of services, loans, financial and performance guarantees, licenses of intangibles, etc.)
- A functional analysis, copy of intercompany agreements, and TP methods;
- Information about bilateral advanced pricing agreements (APAs) and tax rulings
- A financial statement of the local entity, a schedule of the relevant financial data for comparable used in TP analysis and the sources from which that data was obtained.
- Multinational companies engaged in intragroup transactions that do not maintain appropriate transfer pricing policies may be exposed to transfer pricing risks if transfer pricing regulations are implemented in the State of Qatar.
- Business reporting high profits in the Qatar where the entity has little or no economic activity in Qatar will trigger assessment by the relevant Regulatory Authority.
- Businesses engaged in High-Risk Intellectual Property Business are subject to higher reporting requirements.
- If proper documentation of TP is not maintained the General Tax Authority on assessment may reverse the related party transaction and charge tax and penalties.
- The GTA shall monitor the cases of non-compliance with the notification and CbCR, TP filing requirements and impose the financial penalties provided for under Article 24 (8) of the Income Tax Law (which may extend up to QR 500,000).
- There is no specific guidance introduced in Qatar related to economic analysis but to follow the OECD Guidelines.
- The Minister shall issue a decision on the terms and procedures for Bilateral Advance Pricing Agreements, and any controls necessary for the implementation of the provisions of this Part.
- Thin Capitalization: The tax executive regulations limits the deductible interest on related-party loans to three times the shareholders equity recorded in the financial statements for the accounting period. The entities may also be required to substantiate that the loan advanced by the related parties provides economic benefits. The tax executive regulation also indicates that interest paid by a permanent establishment to its headquarters or an affiliate is non-deductible.
- The CbC reporting/notification rules apply to ultimate parent entities resident in Qatar of a multinational enterprise (MNE) group with consolidated revenues of at least QAR 3 billion in the preceding financial year (ie FY 2017 for FY 2018 CbC reporting purposes).
- An entity that is resident in Qatar for tax purposes and that is part of an MNE group whose ultimate parent entity is not resident in Qatar is not required to file a CbC report or a CbC notification in Qatar.
- Transfer pricing documentation should be maintained by all the resident entities having transaction with related entities.
- There are no specific regulations on Digital services Tax in State of Qatar, but the withholding tax on services availed from foreign suppliers will attract a 5% withholding tax on the invoice value.
- The Covid-19 pandemic forced regional governments to concentrate on stimulating business, supporting individuals, as well as using tax and expenditure to support companies.
- The Qatar general tax authority (GTA) was amongst the first in the region to postpone its tax returns and payments deadlines to support the private sector and the wider economy.
- Tax authorities have renewed focus on opening additional revenues, with an even greater focus on tax audits and transfer pricing.
- In setting new benchmarks, challenges, such as the absence of reliable financial data on comparable and the varied impact of COVID-19 across industries and markets, could hamper the analysis. For example, in preparing the 2020 benchmarking analysis, the available financial information of comparable companies is most likely the pre-COVID-19 (ie 2019 and prior years) because the 2020 financial statements are due for submission next year. Hence, comparing the pre-COVID-19 financial data with the post-COVID-19 financial data does not make sense. The benchmarking results will not be comparable to that of the controlled transaction.
For further information on transfer pricing in Qatar please contact:
Khan Ashraf Ahamed