As the COVID-19 pandemic continues to bring unprecedented challenges through its economic and financial impacts, the IMF revealed its updated projections of the global economic growth to stand at -4.9% in 2020, which is 1.9% below the April 2020 forecast.
In the Middle East and Central Asia region, while growth is projected at –4.7% in 2020 according to the IMF, GCC countries are expected to see a rebound in their GDP in 2021 at a 2.5% pace, which will be among the highest economic recoveries.
However, until this recovery is confirmed, businesses in the region must face the effects of the current economic downturn and try to minimise its impact on their cash flows and working capital. Businesses may sustain losses but not a lack of cash flow.
Depending on the business model an organisation adopts, there is a set of tax considerations that are relevant in order to manage working capital. In many respects, the requirement to adapt brought about by the present situation will give rise to an opportunity for businesses to accelerate decisions which will be of benefit long-term, enabling them to operate in a more efficient and agile manner, reduce cost and mitigate risk.
Confirming its commitment to support its firms, particularly in crisis times, Qatar Financial Centre (QFC) introduced the following tax measures:
As a general principle, the QFC regime allows firms to carry out restructuring transactions in a tax neutral manner such that any profits that are achieved as a result of these transactions are disregarded for tax purposes.
This feature is extremely relevant in a crisis context, where companies need to restructure their operations and organisation to mitigate the impact of the crisis.
In difficult times, companies tend to optimise their resources and move around their cash to use it where it is needed most. This transfer of cash can be made in different ways, including through loans, dividends, interest, fees, etc. The tax treatment of outbound payments is therefore extremely important in this case.
In the QFC, dividends are exempt from tax. Also, payments to non-residents are eligible for a concessionary treatment. This allows QFC firms to efficiently manage their working capital and cash flow needs without incurring additional tax costs.
Overall, the approach to tax compliance within an organisation should be risk focused, aligned with the key strategies of the organisation and use technology wherever appropriate.
This will drive down the cost of compliance but allow businesses to do more with less and increase effectiveness. By adopting such an approach, this will position the business to be ready for future changes and growth.
From a tax compliance perspective, as we have observed globally, tax authorities have been quick to respond to the crisis mainly through short term alleviating measures such as an extension of tax filing deadlines and deferral of tax payments to allow businesses to adjust to new ways of working.
However, organisations should also carefully consider existing relief measures embedded in the local legislation from a managing working capital aspect. For example, changes in accounting policies may be used to accelerate tax deductions and defer revenue recognition (or do the opposite if they are loss making).
In addition, the re-evaluation of inter-company transactions through the review of transfer pricing policies to reflect the current market conditions, or the reassessment of existing inter-company financing policies and cash pooling arrangements with the view of reducing costs, also comprise effective relieving measures.