Corporate Tax Law of the United Arab Emirates
Part 2: Protocol of Amendment to DTA between Switzerland and the United Arab Emirates
In this second part of our blog posts on “Corporate Tax Law in the United Arab Emirates”, we look at the protocol amending the agreement for the avoidance of double taxation (DTA) signed by Switzerland and the United Arab Emirates (UAE) in Abu Dhabi on November 5th, 2022. The protocol implements the BEPS minimum standards in DTA matters. The background to this was that in the past the DTAs have led to tax loopholes in certain cases. It contains an abuse clause which refers to the main purpose of an arrangement or transaction and thus ensures that the DTA is not abused. The protocol of amendment also supplements the provision on the mutual agreement procedure to bring it into line with the minimum standard. The cantons and interested business sectors have welcomed the conclusion of the protocol of amendment. It still has to be approved by the legislator in both countries before it can come into force.
BEPS stands for Base Erosion and Profit Shifting. All OECD and G20 countries as well as developing and emerging countries have joined the BEPS project. This is a project for internationally coordinated action against harmful tax competition and aggressive tax planning by internationally active companies. On October 5th, 2015, the final results of the BEPS project were adopted and an action plan with 15 concrete measures was published. Some of the action points are considered new minimum standards that all member states commit to comply with, such as preventing abuse of the agreement and improving administrative cooperation in mutual agreement and arbitration proceedings. In view of the fact that both Switzerland and the UAE each implement the minimum standards from the project, this subsequently required an adjustment of the corresponding DTA.
An important element here is the Multilateral Instrument (MLI), which can be traced back to the BEPS project. This agreement introduced certain minimum standards for existing DTAs and DTAs to be concluded in the future, which are intended to ensure equal taxation in all member states. Instead of the usually lengthy bilateral negotiation of amendments to DTAs on a case-by-case basis, the member states can conduct their negotiations with the respective contracting parties on the basis of the prescribed standards, make appropriate adaptations and sign and ratify these amended DTAs.
Conclusion and outlook
With the present protocol of amendment, Switzerland and the UAE are fulfilling their obligations to implement the minimum standards from the BEPS project regarding the DTA that has existed between them since 2012. In particular for companies with a relationship to Switzerland and the UAE, it is advisable to check whether the amendments, especially the abuse clause, result in a need to adapt existing (company) structures so that any benefits from the DTA can continue to be claimed.
In Part 3 of our series, we will introduce you to the UAE corporate tax that will be levied from June 1st, 2023.