FAQ

1. Is UAE free zone still under consideration as restructuring?

   1. No, because the Cabinet of Ministers has issued Cabinet Decision No. 55 of 2023, (effective from 1 June 2023) for determining Qualifying Income for the Qualifying Free Zone Persons under the Federal Decree-Law No. 47 of 2022 (’the CT Law’). Further, the Ministry of Finance has issued Ministerial Decision No. 139 of 2023 (effective from 1 June 2023) defining the terms “Qualifying Activities” and “Excluded Activities” for the purpose of the CT Law supplementing the said Cabinet Decision.
   2. In short, we won’t be able to qualified to have “Qualifying Activities” and “Excluded Activities” under their new law.

   UAE corporate tax : New decisions relating to free zones

2. Is RC4651 Guidance on Country-By-Country Reporting in Canada relevant to our business operation?

   1. No, because only the big Multinational Enterprise (MNE) Group, the ones that earn over €750 million have to worry about filing these CbC reports to the CRA.

3. How Canada Fight Against Aggressive International Tax Avoidance?

   Backgrounder: The Next Step in the Fight Against Aggressive International Tax Avoidance

4. Is Panama part of Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Instrument" or "BEPS MLI")?

   1. Yes, as seen from:

   Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS - OECD

   <aside> 💡 Panama

   Exchange of information on request (EOIR)
   Global Forum membership	yes
   EOIR rating round 1	prov. largely compliant
   EOIR rating round 2	partially compliant
   Mutual Administrative Assistance Convention	in force
   Automatic exchange of information (AEOI)
   Commitment to AEOI (CRS)	2018
   CRS MCAA signed	yes
   Review of the AEOI legal frameworks	in place but needs improvement
   Initial review of effectiveness in practice of AEOI	non-compliant
   Mutual Administrative Assistance Convention	in force
   BEPS
   Inclusive Framework on BEPS membership	yes
   Outcome Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy (11 July 2023)	participates in agreement
   Existence of harmful tax regimes (Action 5)	not harmful (no harmful regime exists)
   Exchange of information on tax rulings (Action 5)	reviewed/no recommendations
   Preventing treaty abuse (Action 6)	2022 review completed
   CbC – Domestic law (Action 13)	legal framework in place
   CbC – Information exchange network (Action 13)	activated
   Effective dispute resolution (Action 14)	review to be scheduled/deferred
   Multilateral Instrument (Action 15)	in force
   </aside>

Streamlined Framework in International Taxation and Corporate Restructuring

1. Operational Realism:
   • Genuine Business Purpose: Align tax strategy with actual non-tax business motives (market access, efficiency).
   • Substance Over Form: Match tax structures with tangible business operations and economic realities.
   • Business Continuity and Sustainability: Prioritize long-term business viability in decisions.
2. Minimizing Tax Liabilities within Legal Framework:
   • Transfer Pricing & Arm's Length Principle: Set intra-group transaction rates at market level, reflecting independent entities.
     • Functional Analysis: Assess functions, assets, risks in business units for profit-value alignment in transfer pricing.
   • BEPS & Economic Substance Compliance: Follow global standards to curb profit shifting; demonstrate substantial economic activity in tax residency.
     • Risk and Reward Alignment: Balance operational risks with profit locations.
3. Corporate Integrity and Transparency:
   • Corporate Governance: Implement strong governance structures.
   • Transparency and Reporting: Disclose tax strategies and restructuring rationales, emphasizing business necessity.
   • Risk Management: Identify and manage tax and operational risks in restructuring.

Abstract Plan and Taxation Questions

classDiagram
    class ParentCompany {
        - Based in Country A
        - Holds Full Ownership of Subsidiary
    }
    class Subsidiary {
        - Based in Country B
        - Managed by Local Nominee Director
        - Generates Income from International Markets
    }
    class NomineeDirector {
        - Local Management in Country B
        - Executes Operational Control
    }
    class InternationalMarkets {
        - Sources of Income
        - External to Countries A & B
    }
    class TaxConsiderations {
        - Tax Residency of Subsidiary
        - Tax Treatment of Foreign-Sourced Income
    }

    ParentCompany --|> Subsidiary : "Wholly Owns"
    Subsidiary --|> NomineeDirector : "Managed by"
    Subsidiary --|> InternationalMarkets : "Derives Income from"
    Subsidiary --|> TaxConsiderations : "Raises Tax Questions"

Explanation

1. Ownership Structure: A corporate entity domiciled in Country A holds full ownership of a subsidiary based in Country B. This parent-subsidiary relationship is critical for understanding the overall corporate structure and its implications.
2. Management and Control: Operational control of the subsidiary is maintained locally in Country B through a nominee director. This aspect of the structure is key in determining where the actual management and control of the subsidiary are exercised.
3. Income Sources: The subsidiary’s revenue streams are exclusively derived from international markets, external to both Country A and Country B. The source of income is an important factor in assessing tax liabilities and compliance requirements.
4. Tax Considerations: This configuration presents unique tax considerations pertaining to the subsidiary's residency status and the treatment of its foreign-sourced income, considering the distinct jurisdictions of ownership, management, and revenue generation. Understanding these tax implications is vital for effective cross-border tax planning.

Each component of this diagram and the accompanying text highlights a specific aspect of your corporate setup, aiding in a clearer understanding of its potential tax and legal implications.

Restructuring Overview