The Gulf Cooperation Council’s (GCC) Unified VAT Agreement is not looking so unified these days and a Brexit-esque development in the Middle East may be to blame. The GCC’s turmoil is yet another reminder that tax functions within global companies need to remain alert and agile when it comes to addressing value added tax (VAT) challenges.
In January, the GCC – which includes member countries Bahrain, the Kingdom of Saudi Arabia (KSA), Kuwait, Oman, Qatar and the United Arab Emirates (UAE) – unveiled a Unified VAT Agreement laying out common value tax principles and frameworks for all GCC countries to adopt. The agreement established a standard VAT (5 percent), registration and compliance requirements, potential exemptions (certain sectors like education and healthcare) and other guidelines.
By June, however, a disagreement between Qatar and Saudi Arabia (and other GCC countries) deteriorated into a full-blown feud. While the sources of the conflict date back many years and cover numerous issues, the end result of the current confrontation is that Bahrain, Saudi Arabia and the UAE have suspended diplomatic relations and some aspects of trade. Kuwait and the U.S. have so far taken stabs at mediating the feud, to no avail.
While the GCC’s economic influence hardly compares to that of the EU, Qatar’s possible exit from the GCC and its nascent VAT Agreement calls to mind the UK’s stunning vote to flee the EU in an important way by showing how political and geopolitical shifts can trigger major trade and tax uncertainties. VAT teams face more than enough challenges handling the interrelated processes of tax determination, compliance and audit management. Sudden political changes that upend multilateral tax agreements add to this substantial challenge – making it even more important for tax functions to have in place the skills, processes and advanced tax technology necessary to manage the VAT lifecycle in a seamless manner.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.