BEPS 2.0 has two parts or pillars, namely, Pillar One and Pillar Two. Pillar One is focused on the reallocation of (a portion of) the consolidated profit of a multinational enterprise to jurisdictions where sales arise as well as the standardisation of the remuneration of routine marketing and distribution activities. Pillar Two, on the other hand, introduces a global minimum effective tax rate of 15 %.
The BEPS 2.0 proposals will impact every MNE in the Middle East that has consolidated turnover in excess of 750M Euros and undertakes intra-group transactions.
While the impact of the Pillar 1 proposals cannot be ignored, we expect the Pillar 2 proposals, or the introduction of a global minimum tax, to have the biggest impact on Middle East groups given the hybrid model of corporate tax and Zakat in KSA and Kuwait, and the no- or low-tax environment in the UAE and Bahrain.
Therefore, it is important to assess the impact and involve stakeholders as soon as practically possible to avoid any unexpected surprises from both a financial and compliance perspective.
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