Tax governance in the Middle EastGoverning tax activity within your business

Key considerations for businesses in the Middle EastWhat is a tax strategy?Simply put, a tax strategy sets out theapproach to governing tax activity within abusiness. Having a tax strategy shows thatbusinesses are responsible corporatecitizens in the jurisdictions in which theyoperate and helps safeguard theirreputation and finances.

Broadly a tax strategy should set out thefollowing:

Globally, there is a trend towards increasedtax transparency as businesses must meethigher standards of tax governance and riskmanagement. As a result, it is seen as goodpractice for businesses to develop a taxpolicy that provides additional detail,supplementing their overall tax strategy.

While companies sometimes view theMiddle East as a benign region from a taxperspective, in actuality the tax regimes thatdo exist can be complex and challenging tomanage. In addition, tax reform in the GulfCooperation Council (GCC), including ValueAdded Tax (VAT) and changes likely to bemade in response to the Base Erosion andProfit Shifting (BEPS) action items, meanhaving a tax strategy in the Middle East hasbecome even more important.

The Organisation for Economic Co-operation and Development (OECD)Guidelines for Multinational Enterprises and the OECD ‘co-operative compliance’initiative 2016 recommend that businessestreat tax governance and compliance asimportant elements of their oversight andmanagement systems.

Still, many businesses in the Middle East donot have dedicated in-house tax teams thatdevelop, monitor and enact tax strategies,despite significant issues arising in areas likecompliance and the need to integrate taxplanning into business decision-making.Publishing a tax strategy is thereforeessential for businesses in the Middle East,especially for those that conduct businessactivities in other jurisdictions (whetherwithin the Middle East region or furtherbeyond).

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Deloitte | Tax governance in the Middle East

Appetite towards tax planning

Approach to dealings with tax authorities

Level of tax risk tolerated

Approach to risk management and governance

Relating to tax

Approach to risk management and governance• Understanding of inherent risk• Board oversight• Key roles and responsibilities• Governance framework

Appetite towards tax planning• Code of conduct• Drivers for planning and their

weighting• Structuring of planning• Rationale for external advice

Approach to dealings with taxauthorities• How business works with tax

authorities• Level of partnership/transparency

Level of tax risk tolerated• Internal levels of risk prescribed• If quantified, how influenced by

stakeholders

Why do businesses need a tax strategy? Having a tax strategy demonstratesbusinesses have a culture of openness anddisclosure, and are committed to complyingwith all local tax laws. It also allowsbusinesses to publicly declare that they: 1) do not take part in aggressive taxplanning; but 2) have actions in place in thecase of non-compliance. This helps foster aco-operative approach with tax authorities,so in the case of disputes, businesses canobtain clarity and possibly achieve an earlyagreement.

For Middle East businesses with entities inother international jurisdictions, having atax strategy also sets out their approach togoverning tax activity in other countriesincluding: • Different tax law and rates; • Reporting; and • Compliance obligations.

The BEPS action plan also seeks to enhancethe transparency of intra-group economicactivity, so it is important for businessesoperating in different tax jurisdictions todevelop a tax strategy to address thegrowing demand for tax governanceframeworks.

Who is responsible for a tax strategy?A tax strategy is relevant to all stakeholdersinvolved in the management of tax matters,including:• The board of directors;• Shareholders/investors;• Clients; and • Tax authorities.

The tax strategy sets out the roles andresponsibilities of the tax teams, and therelevant decision makers at the group levelto ensure businesses achieve their goals inrelation to tax, and fulfill their obligations totax authorities and other key stakeholders,such as shareholders and clients.

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Having a tax strategy shows thatbusinesses are responsible corporatecitizens in the jurisdictions in which they operate and helps safeguard their reputation and finances.

Deloitte | Tax governance in the Middle East

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How Deloitte can helpWhilst drafting a tax strategy may sound quite straightforward, in reality,implementing the tax strategy can be the‘tip of the iceberg.’ Given the likely need for board approval, it can be a challengingprocess and may involve financial andreputational risk if the organization gets it wrong.

Deloitte can help develop a tax strategytailored to your business. While the scopeof work required may vary from country tocountry and business to business, we haveset out a brief overview of our approachbelow.

Review• Existing tax functions to ensure you are

operating under best practice and alsohave similar tax functionalities as otherbusinesses in your industry.

Recommend• Best practice tax compliance processes

and procedures relevant to differentjurisdictions where your business holdsinterests.

• Improvements to tax strategy to ensure it clearly defines, and is in line with, theoverarching goals and principles of yourbusiness.

• Improvements to risk management andcontrol based on your business’ attitude to risk appetite.

• Improvements to current tax processes,including the use of the tax system andtechnology to ensure your business’ taxfunction operates effectively, efficientlyand transparently.

Report• Prepare a report that is in line with best

practice and outlines the requirements ofyour tax strategy and plan for achievingthese requirements from your currentstarting position

Tax control framework: the tax strategy is the ‘tip of the iceberg’

Externalstatement

Internalsupport

Tax strategy

Policy and governance

Risk identificationand control

People, processesand systems

Assurance

Deloitte | Tax governance in the Middle East

Contacts

Alex LawPartner, TaxTel +971 (0) 4 506 4891alexlaw@deloitte.com

Vishal SharmaDirector, Internationaland M&A Tax Tel +971 (0) 4 506 4902vishalsharma@deloitte.com

Chris Searing Manager, Internationaland M&A TaxTel +971 (0) 4 506 4780 csearing@deloitte.com

Deloitte | Tax governance in the Middle East

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