Saudi Cultural Missions Theses & Dissertations
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Item Restricted DUAL CORPORATE LEVY SYSTEM IN THE KINGDOM OF SAUDI ARABIA IN LIGHT OF THE OECD PILLAR TWO(University of Florida, 2024) Alshalan, Maha; Brauner, YarivThis research explores and evaluates the extent of the impact of tax globalization on the dual Legal System of levies in the Kingdom of Saudi Arabia (KSA) in light of the Organization for Economic Co-operation and Development (OECD) Pillar Two implementation. It adopted secondary data-based research, which is qualitative, and used literature reviews and OECD publications as the main research component. It first explores the legitimacy of imposing a top-up tax besides the Zakat on Zakat payers (Saudi entities), in light of the application of Pillar Two, through the sources of the SA legal tax system. Then, it identifies the tax concerns about the investment climate of Saudi Arabia (SA) regarding the disparity in treatment between Saudi and foreign investors in KSA resulting from the application of the current dual systems; Zakat collection and Income Tax, through the study of the most important tax principles; the prevention of discriminatory taxation, and tax neutrality. Moreover, it exposes issues associated, such as competition imbalance, resource distribution, loss of revenues, and the possibility of evasion. This research presents the success achieved by the KSA government in the Zakat collection system to date that is in line with tax globalization, which makes it a role model for other Islamic countries, but it also focuses on revealing the challenges facing the government of SA concerning expanding the base of its Zakat collection system and implementing Pillar Two, a landmark reform to set a Global Minimum Tax (GMT) which will ensure Multinational Enterprises (MNEs)including Zakat entities will be subject to a minimum 15% tax rate under the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS) project. These challenges are present in the context of the relentless pursuit to develop SA's tax regime on pace with the developments of the times, including the development of the legislative environment through the continuation of KSA in developing and reforming its Zakat and tax systems according to Shari'a law, preserve investors' rights, and enhance the KSA's competitiveness globally. The paper then exposes the upcoming challenge facing KSA in light of the SA’s tax transformation era, Pillar Two implementation, reveals the international overlap with Zakat under GloBE rules and the related issues arising from it, and examines expected advantages and disadvantages in the context of Pillar Two implications in the SA tax system. The paper proposal provides a possible solution through which the KSA can develop the legal tax environment by unifying the SA tax regime. At the same time, the Zakat collection system remains in effect which is derived from other Islamic countries’ application of Zakat such as Malaysia and Indonesia, and as well as referred to in the SA Tax systems. It suggests that the corporate income tax should be expanded to cover resident businesses of SA regardless of nationality, a unified tax system, as this would result in several advantages, and treating Zakat as a deduction approach from tax due ensures maximum benefit from both systems. A unified tax system provides SA’s government with a flexible tool to face globalization and the upcoming challenges for implementing Pillar Two in agreement with international tax norms to mitigate issues resulting from the overlapping of the two systems. At the same time, it achieves SA’s goal of increasing revenues without further expansion of expanding the Zakat base which creates instability and complexity in the system and disputes that create investment concerns. The author believes that by unifying the Tax system SA would achieve the highest level of investment attraction, and at the same time, avoid the many issues that are presented and discussed in this paper. As a consequence of the unifying SA tax system, Zakat is treated as an internal procedure as a tax deduction which is found in gas and oil taxation in SA and the practices of some Islamic countries.48 0