An addition to the transfer pricing family “Qatar”

An addition to the transfer pricing family “Qatar”

Qatar has introduced transfer pricing guidelines vide tax law no. 21 of 2009 (Qatar Income Tax Laws) and it’s supporting Executive regulations as Qatar Financial Centre (“QFC”) tax law which was published recently in the official Gazette, and is applicable retrospectively from January 1, 2010. The new law introduces new concepts including a self assessment regime, an advance ruling scheme and specific rules for Islamic finance. A few key highlights of the new law are provided below as it pertains to transfer pricing.

As per the QFC law, parties are associated with each other if:

Ø  For natural persons, where one of them is a spouse, an in-law or a relative up to the fourth degree

Ø  For natural and legal persons, where the natural person owns, alone or with other related person or persons, directly or indirectly, more than 50% of the capital, voting rights or income rights of the legal person

Ø  For legal persons, where one of them owns, alone or with other related person or persons, more than 50% of the capital, voting rights or income rights of the other, or where another person, or other related persons, own, directly or indirectly, more than 50% of the capital, voting rights or income rights of both legal persons.

The guidelines are based largely on the OECD model; however there is no mention of OECD in the law itself

As per the QFC Tax Law, the market price in the case of related party transactions should be determined in accordance with the comparable uncontrolled price method (“CUP”). In cases where the necessary information is not available to apply the CUP method, the taxpayer may apply any of the specified methods in the OECD Guidelines by submitting an application to Public Revenue and Taxes Department (“PRTD”).

There is no specific provision for documentation in the law, but since the Qatar Income Tax Law requires the use of the CUP method, or other transfer pricing methods also authorized by the OECD, there is an implied requirement to have documentation in place. A written approval to use an OECD authorized transfer pricing method other than the CUP method may be obtained from the PRTD in advance of the related party transactions taking place.

There are no penalty specific penalties for failure to properly document related party transactions, however, interest on any additional income tax due resulting from a transfer pricing adjustment may be levied at the rate of 1.5% per month of delay (capped at amount of income tax due). Also, there is currently no requirement for contemporaneous transfer pricing documentation or for documentation to be submitted to the PRTD together with the filing of tax declaration.

Qatar is the second Middle Eastern country after Egypt to introduce transfer pricing regulations, emphasising the growing importance of the subject worldwide.