Tax advisory services are a critical tool that business entities should utilize to examine the tax implications on their business within the country where they operate and other countries where their business expand, if any, in order to secure the maximum possible tax benefits enabling them to reduce tax burdens on their financial results.
Taxes are significant sources of sustainable finance to the public budgets of both developing and developed countries. In determining tax liabilities, tax systems in such countries rely on different income categories for individuals or legal entity; provided that they are capable of realizing justice in determining tax burdens in line with income level of such categories.
The taxation remained an internal affair in light of economic conditions of each country until the globalization era has emerged, which in turn resulted in reconsidering the conventional criteria for taxation practice to be in line with the new globalization climate. Accordingly, activities of businesses and individuals had extraterritorial dimensions beyond their countries, and hence, the taxpayers began to think about evading or avoiding such taxes through concentrating their business in countries that offer tax exemptions or preferential tax treatments. Therefore, national businesses departed their countries of origin and migrated to tax havens, which adversely affected the tax resources of developing or developed countries. As a result, these countries had to cooperate together to fight such phenomenon, which is clearly manifested in the Base Erosion and Profit Shifting Project, which was developed under mutual collaboration between OECD and G20.
In light of this situation, the role of structural and procedural organization of tax authorities, including the competent Tax Department of Kuwait Ministry of Finance, becomes critical to enable them to efficiently manage the tax system in terms of fair collection of tax, particularly from foreign investments, in addition to managing the tax information, which constitutes the cornerstone of effective performance of tax authorities worldwide.
In addition, these developments in the tax systems have considerable impact on Kuwaiti companies, at domestic, regional or international levels, which may take the form of holding or parent company that has subsidiaries in Kuwait or abroad or may take the form of subsidiaries in Kuwait owned by foreign holding or parent companies, whether such companies are owned by Kuwaiti nationals or foreign investors who make investments in the State of Kuwait. Furthermore, lack of awareness of the concerned authorities of tax matters in different business entities may result in damages to economic or tax interests of the business community.
The role of tax advisory services is particularly important in light of international tax conventions and agreements signed by the Government of the State of Kuwait with governments or international organizations with respect to the actions for fighting the international tax evasion or avoidance, and the exchange of information for tax purposes, which are currently in effect:
- Inter-Governmental Agreement between the State of Kuwait and the United States of America to Improve International Tax Compliance and to Implement FATCA.
- Convention on Mutual Administrative Assistance in Tax Matters (MAAC).
- Common Reporting Standard (CRS) Multilateral Competent Authority Agreement.
- Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI).
Moreover, Kuwait signed the Common VAT Agreement of the States of the Gulf Cooperation Council. However, no timeframe has been set to implement the said VAT Agreement in the State of Kuwait. It is anticipated that VAT implementation will require legislative efforts related to enactment of the law and its executive regulations, which have not been initiated till date.
In light of the above, business entities should start now to plan and get ready for the current and future tax liabilities after becoming aware of recent efforts in this area.
Tax advisory services offered by Baker Tilly to business entities are set out below:
- Develop tax planning at holding or parent company and subsidiaries level.
- Develop organizational structure of the business unit in charge of tax at holding or parent company and subsidiaries level.
- Develop job descriptions of tax jobs.
- Develop Tax Processes, Policies and Procedures Manual.
- Recommend appropriate applications for tax information management.
- Manage deployment projects of applications for tax information management.
- Internal audit on compliance with mandatory tax requirements of the regulatory authorities.
- Conduct panel discussions and training programs related to tax matters.