There is no concept of group taxation for Qatar tax purposes.
Historically, transactions between related parties were expected to be undertaken on an arm’s length basis and in accordance with the Comparable Uncontrolled Price method or any other OECD acceptable pricing method. However, there was no specific requirement for filing TP documentation with the GTA. The Regulations have outlined specific transfer pricing requirements:
- The Comparable Uncontrolled Price (CUP) methodology is referred to as the primary methodology. In case the CUP method is not applicable, the taxpayer should lodge a request to the GTA for the application of a different transfer pricing methodology.
- A new requirement for performing a “Functional Analysis” describing a taxpayer’s position and economic role with related entities, identifying the functions performed, risks assumed, and the tangible and intangible assets owned and used.
- A new requirement to update the analysis supporting the arm’s length character of the intercompany transactions every three years.
- A new requirement of a transfer pricing declaration as part of the annual income tax return, of which the form and content should be specified by the GTA.
- Tax deductibility of interest on loans, paid to related parties shall be dependent on such loans being economically beneficial to taxpayers. On this basis, a “Commercial Purpose” test has been introduced. The loan amount and interest charge shall also not exceed three (3) times the equity of the Qatar tax paying entity and shall be documented in an intercompany agreement between the parties.
- A new requirement to prepare TP documentation (Local File and Master File) by the time of filing the tax return for the period during which the respective related party transaction(s) occurred or at any other date that the GTA may specify otherwise if the following conditions are met.
- The threshold (to be established by the GTA) on revenues or assets of the taxpayer is met;
- One of the related parties of the Qatari taxpayer is established outside of Qatar.
Country-by-Country Reporting (CbCR) Multilateral Competent Authority Agreement (MCAA)
Qatar became a signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 10 November 2017 and the CbCR MCAA on 20 December 2017.
On 16 June 2019, the GTA in Qatar, which is the ‘competent authority’ in matters related to CbCR, issued a notice with respect to CbCR obligations in Qatar, which will now be effective for financial years beginning on or after 1 January 2018.
The notice requires mandatory CbCR submission for Ultimate Parent Entities (UPEs) that are a tax resident in Qatar and reported consolidated revenues equal to or more than 3 billion Qatari riyal (QAR) in the preceding financial year. The CbCR submission will need to include all qualifying constituent entities. For the time being, no CbCR or notification obligations apply to a constituent entity that is tax resident in Qatar if the UPE is resident outside Qatar.
The GTA, in collaboration with the Qatar Financial Centre (QFC) Tax Department where applicable, will monitor the non-compliance with the CbCR obligations and apply penalties in accordance with the Income Tax Law.
The notice by the GTA on 16 June 2019 comes soon after the suspension and goes back to include mandatory CbCR submission for entities that fulfil the following requirements:
- Resident in Qatar.
- The UPE of a multinational enterprise (MNE) group.
- Reported consolidated revenues equal to or more than QAR 3 billion in the preceding financial year.
On 16 September 2019, the QFC issued a notice (‘QFC September Notice’) referring to the GTA June Notice and provided certain additional information with respect to the CbCR obligations for QFC entities, as well as potential penalties for non-compliance. QFC entities are subject to the CbCR obligations in Qatar and are required to submit the CbCR, subject to qualifying under the Qatari CbCR requirements.
The QFC September Notice outlines that non-compliance with the CbCR obligations and triggers the application of financial sanctions/penalties, as outlined below:
- A financial penalty of QAR 100 per day or per false or incomplete information would apply, as the case may be, in instances of a failure to submit on time the CbCR notification or submission of false or incomplete information in the CbCR notification.
- A financial penalty of QAR 500 per day of delay or per false or incomplete information, as the case may be, in instance of a failure to submit on time the CbC report or submission of false or incomplete information in the CbCR.
Any loan between related parties should be at arm’s length and interest expense should not exceed three (3) times the equity of the entity.
Controlled foreign companies (CFCs)
There are no CFC provisions in Qatar.