Exchange Of Information And The Economic Substance Regulations

As countries have increasingly resorted to improved and broadened cooperation in tax matters, this also reflects the basic principle that participation in the global economy carries both benefits and responsibilities. Taxpayers who have access to cross-border transactions may also have access to greater tax evasion and avoidance possibilities.

Exchange of information (“EOI”) is one way for countries to maintain sovereignty over their own tax bases and to ensure the correct allocation of taxing rights between tax treaty partners.

I.             ESR and Exchange of Information

Circumstances where the Competent Authority will exchange information with the relevant Foreign Competent Authority under the ESR:

1.     Licensee fails to meet the ES tests

2.     Licensee is a high-risk IP licensee

3.     Entity is a tax resident outside the UAE

4.     Branch of a foreign entity is subject to tax outside the UAE

II.           Forms of Exchange of Information

1.   EOI on request - The request for a particular piece of information by one competent authority to another.

2.   Automatic EOI - The systematic and periodic transmission of “bulk” taxpayer information by the source country to the residence country concerning various categories of income.

3.   Spontaneous EOI - The provision of information to another contracting party

that is foreseeably relevant to that other party and that has not been previously requested.

III.          Scope of Exchange of Information

Request for information includes but is not limited to:

1.   Fiscal residence and tax status

2.   Nature of income

3.   Income and expense as per tax return

4.   Business records and formation documents

5.   Name and address of directors, managers, and other employees

6.   Banking records

7.   Invoices and commercial contracts 

I.             How can Crowe help?

1.   Identify gaps between the existing substance and the level of substance required under the ESR and advise on the remedial measures to ensure fulfillment of the ES Test in the future.

2.   Advising on the documentation to be maintained to support any future inquiries from the authorities.

3.   Assisting in liaising with the authorities during audits or requests for information.