Tax is just another patriotic duty as 'your country needs you'

Effective tax planning involves anticipating and adapting to the changing tax environment to maximise future financial outcome. Alamy

For those history buffs among you, the image from the 1914 British army recruitment poster of Field Marshal Earl Kitchener’s head and floating arm pointing directly at you will ring a bell.

The poster has seen many iterations around the world, with people adapting it for whenever additional support is being sought from the masses.

In short, whoever is wagging their finger at you, the message is always the same: your country needs you.

The money necessary to properly operate and conduct itself as a country is funded almost exclusively by taxation. Here in the UAE, the home we all share, corporate tax is the way of asking us to carry some burden of that cost.

Taxes come in different guises and indeed names. Why else would a levy not be a tax?

A tax is a call to something higher, a patriotic duty, that has to be answered by Emiratis, residents as well as juridical entities in the Arab world's second-largest economy. Fulfilling that duty takes the form of paying your fair share of taxes in a timely manner.

However, the door swings both ways. It’s incumbent on the relevant authorities to ensure that people and the companies in the tax bracket are able to comprehend the rules, and in a manageable form, calculate, report and settle any amount due.

In a world that gets ever smaller and with a growing desire to split our time between locations, the tradition of having a home, singular, is fading. Many of us want it all and want it in multiple places.

More countries are now allowing their citizens to simultaneously hold multiple nationalities. Times change and we change with the times.

It had been individuals and entities that typically sought multiple residencies. Today, we are seeing more activity from nation states fishing for and hooking those same persons.

So what’s the tax angle here? These persons find themselves granted, willingly or not, specific nation status – well, at least their profits.

We’ve had the concept of being taxable in multiple jurisdictions for some time. Double taxation agreements between nations have ensured that the medieval practice of double jeopardy is not inflicted on them. Careful planning ensures certain country combinations are avoided.

However, what happens when one nation decides that a legal person, natural or juridical, in their jurisdiction, is from a taxation perspective, something that an external nation says is something else?

This is important because it is the direction of taxational travel.

New regulatory regimes come into being to fight yesterday’s battles. Global pressure to implement Pillar-2 is an example. It is the primary driver as to why corporate tax was introduced in the UAE.

The UAE issued its federal corporate tax law that will levy a headline 9 per cent rate on taxable income exceeding Dh375,000. Silvia Razgova / The National

Taxable income below the aforementioned threshold will be subject to a 0 per cent rate of corporate tax. Chris Whiteoak/ The National

No corporate tax will apply on salaries or other personal income from employment — be it in the government, semi-governmental, or private sector, the Ministry of Finance said. Chris Whiteoak/ The National

Businesses will become subject to the UAE corporate tax from the beginning of their first financial year that starts on or after June 1, 2023. Victor Besa / The National

The UAE corporate tax regime builds from best practices globally and incorporates principles that are internationally known and accepted. Victor Besa / The National

What’s to be made of one country battling in the courts to stop another from forcing it to tax a company from a third nations in its own country?

I speak of Apple, Ireland and the European Union.

You might argue that the latter is not a country. Yet it has everything a country has: a flag, an anthem, two legislative chambers, upper and lower respectively, council of ministers and the European Parliament, an executive, the European Commission, a central bank, a legal system with supporting courts that interpret and rule on European Law.

Member countries issue their citizens passports emblazoned with the symbol of the European Union and as a body it never stops talking about ever closer union.

After lengthy investigations, in 2016 the EU deemed that Ireland had undertaxed Apple by €13 billion ($14 billion). As these represented unpaid taxes, there would be the matter of interest on the late payment of the same. That interest would cover a period of over a decade.

For comparison purposes, under UAE law, the interest come close to about 300 per cent of the amount due, allowing for tapering of the later years.

Ireland does not want this money to go to the EU courts to have the decision set aside. It won and that decision is currently being appealed.

Despite that victory, Apple has had to formally set aside the monies due pending appeal.

There is no guarantee that a final decision in this case, currently scheduled sometime this year, will be the end of the matter. Indeed, it is the first serious case of nations directly interceding in other nations tax affairs targeting non-national persons resident there.

Tax planning with a view to optimising tomorrow requires understanding the shifting landscape today and choosing what ground to operate from. It has never been so complex.

David Daly is a partner at the Gulf Tax Accounting Group in the UAE