UAE Corporate Tax – General Anti-Abuse Rule

Introduction

In accordance with the Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses (Corporate Tax Law), UAE has implemented General Anti-Abuse Rule (GAAR) effective from the date of publication of the Law in the
Official Gazette.

Applicability

GAAR shall be applicable upon fulfilment of below conditions:

• Entering into the transaction or an arrangement, without valid commercial rationale or economic reality, AND
• The main purpose or one of the main purposes is to obtain a CT advantage

The instances of Corporate tax advantage includes but not limited to following:

• Obtaining a tax refund or increase refund of CT
• Deferral of a payment of Corporate Tax or advancement of a refund of Corporate Tax
• Non-payment or short payment of CT
• Avoidance of an obligation to deduct or account for Corporate Tax.

Implications

GAAR authorizes the Federal Tax Authority to disregard the transactions or arrangements, which do not have any commercial substance and are undertaken only for tax benefit. The FTA can counteract or adjust CT advantages obtained, which may include:

• Allowing or disallowing any exemption / deduction / relief;
• Allocation of exemption / deduction or relief to other person;
• Re-characterization of nature of any payment;
• Disregarding effect of other CT provisions ;
• Adjustments to CT liability of any other person

Factors to be considered

For application of GAAR to any transaction / arrangement, following must be
considered:

• Manner in which it was entered / carried out;
• The form and substance;
• The timing;
• The result;
• Any existing / prospective change in the financial position of the Taxable Person
  or another person;
• Creation of abnormal rights between the parties
• Any other relevant information and circumstances
  Conclusion/Takeaways

Activities requiring evaluation from GAAR perspective, before implemented:

• Decision for changing the financial year
• Any planning or restructuring activities
• Any changes in the transaction with related parties on account of CT