Oman endorses two major international tax reforms – What’s next?

Sandeep Kumar Tax Director, KPMG LLC (Oman)

Oman’s recent ratification of the Multilateral Convention for implementing tax treaty-related measures to Prevent Base Erosion and Profit Shifting (BEPS), popularly known as the “Multilateral Instrument” or “MLI,” demonstrates its commitment to the OECD’s Inclusive Framework (IF) on BEPS, as part of which Oman had agreed to implement four minimum standards. Preventing tax treaty abuse is one of these standards.

Oman was the 92nd jurisdiction to sign this landmark agreement, on 26 November 2019, to strengthen its existing tax-treaty network. The Convention was ratified by RD 43/2020, issued on 31 March 2020. This brings Oman one step closer for the MLI to ‘enter into force’ for bilateral tax treaties which are already Covered Tax Agreements (CTAs). CTAs are those identified bilateral tax treaties wherein both Oman and the other tax-treaty partner (for instance China) have listed each other to be covered by the MLI. Until now, 15 bilateral tax treaties, out of Oman’s total tax treaty network of 34 countries, have become CTAs. The MLI will ‘enter into force’ for Oman on the first day of the calendar month after the expiry of three months beginning on the date Oman has deposited its instrument of ratification with the OECD’s Secretary-General.

Once the MLI has entered into effect for Oman, claiming benefit under a tax treaty covered by the MLI is likely to become more difficult for foreign taxpayers, as they will have to prove that obtaining a benefit under such a treaty was not one of the “principal purposes” of any arrangement or transaction [Article 7(1) of the MLI].  Likewise, Article 16 of the MLI (which is also a minimum standard) requires signatories to include a mutual agreement procedure (MAP), in their CTAs. This can be seen as being quite positive, as it should expedite the dispute-resolution process involving potentially huge tax demands that can be settled through a MAP.

Another imperative event that happened on 25th March 2020 was Oman ratifying the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention) through Royal Decree 34/2020. This is quite significant, as it clearly endorses the OECD’s stand on matters concerning tax evasion and avoidance. The Convention’s objective is to facilitate international
co-operation on information exchange, including automatic exchanges for better operation of national tax law(s), and at the same time enhance respect for the fundamental rights of taxpayers.

Like the MLI, Oman will have to deposit its instrument of ratification for this Convention with the OECD, after which it may ‘enter into force’. Closely connected to this Convention is the Multilateral Competent Authority Agreement‎ on Automatic Exchange of Information Agreement (CRS MCCA), through which automatic exchange of financial information with other jurisdictions is possible. Oman intends its first information exchange to occur by September 2020, as per the 2019 AEOI Implementation Report.

It is quite surprising for a jurisdiction like Oman to be on the European Union’s blacklist in spite of having full-fledged corporate income-tax law in place for more than 30 years. The ratification of the Convention (and the MCCA) should help Oman in expediting its removal from the blacklist, which currently is a dampener to foreign investments.

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