Monday, April 24, 2017

Key Takeaways on Consumer Protection Laws

The Public Authority of Consumer Protection (the “PACP”) issued Ministerial Decision 77/2017 promulgating the long-awaited Executive Regulation (the “Regulation”) of the Consumer Protection Law, which was promulgated by Sultani Decree 66/2014. This Regulation came into effect on 13 March 2017 and replaced the previous executive regulations of the Consumer Protection Law, issued under Ministerial Decision 49/2007. The Regulation will be the tool by which the Consumer Protection Law will introduce greater protection for consumers in Oman. The Regulation codifies and regulates the investigative powers of PACP and the conduct of its legally empowered officers. The Regulation has 52 articles, divided into five chapters and three appendices, which include the rights of consumers, duties and obligations of suppliers, the procedures of detecting potential violation and the administrative penalties that apply to confirmed violations.

The Regulation provides criteria for what are considered fake, spoilt and counterfeit goods. The Regulation authorises the chairman of the board of directors of PACP (the “Chairman”), after coordinating with the concerned entities, to issue a decision to suspend rendering a service or trading a good or to destroy a good if that good or service falls below any of the standards specified in the Regulation. Further, in case of a significant increase of the prices of commodities or services due to a crisis, natural calamity, exceptional circumstance or unusual event, after the approval of PACP’s board of directors and the Council of Ministers, the Chairman is authorised to take temporary measures to reduce and control such increase in prices. It is important to note that the Regulation confers wide powers on the Chairman, who is empowered to take all measures that will ensure consumer rights, regulate the integrity of transactions in a manner that respects the general rules concerning the safety of goods and services, and ascertain that the goods and services are in conformity to the standard specifications provided for in the Regulation.

The Regulation also strengthens the rights of consumers. Appendix 2 of the Regulation contains an extensive list of the various types of goods covered by a statutory guarantee given by a supplier. If any goods falling within this category of goods are damaged or do not conform to the standard specifications or are not fit for the purpose for which it is to be used, the consumer has the right to exchange the product, have it repaired, or return the goods to the supplier, and recover its cost from the supplier, without any additional cost. Additionally, the consumer has been granted the right to compensation for damages incurred, in the event of exchanging the product or returning it and recovering its value. The consumer’s entitlement under this Article is subject to certain conditions, such as presentation of the receipt for purchase, and any flaws not being caused by consumer misuse. The Regulation also prescribes a two-fold obligation on the supplier to provide the consumer with an invoice for the purchased goods and/or services and to ensure that the consumer is informed of and accepts the contents of the receipt.

The Regulation sets out extensive responsibilities and duties of the supplier. Suppliers are obliged to declare safety threats to consumers and the consumer’s property that arise due to a flaw in the goods or services, immediately after discovery. In this case, the supplier must inform PACP and the consumers of this threat, then withdraw the goods from the market. Suppliers are prohibited from engaging in monopolisation of goods or services and trying to control the market, thus harming the consumer’s interest. As such, groups of suppliers are prohibited from coordinated price fixing.

As a remedial action, the Regulation authorises the legally empowered officers of PACP to freeze goods suspected of violating the provisions of this Regulation and to prevent them from entering the market until such time as PACP, or a court, releases them. After the investigation procedures are completed, PACP may take one of the following actions:

  1. Instruct the violator to remedy the situation and remove the violation immediately or within a specific time period; 
  2. Impose an administrative penalty in accordance with the provisions of the Regulation and the decision issued in this respect; 
  3. Impose an administrative penalty in accordance with the provisions of the Regulation and the decision issued in this respect and refer the file to the Public Prosecution in case the violation is punishable criminally in accordance with the law; or 
  4. Discontinue the complaint administratively, if appropriate. 

The administrative penalties specified in the Regulation are without prejudice to the applicable penalties under the Consumer Protection Law. The administrative penalties range from OMR 20 to OMR 2,000. Violations affecting the safety of consumers or their property range from OMR 100 to OMR 2,000.

The Regulation is an important step towards enhancing consumer protection, deterring suppliers from dishonest enrichment and holding them accountable, if necessary. The Regulation and the Consumer Protection Law give PACP’s legally empowered officers the discretion to investigate any commercial entity which provides goods and/or services, regardless of whether a complaint was filed against such supplier. This may have the desired effect of acting as a great deterrent to suppliers infringing upon the rights of consumers and, in instances where infringement does occur, an effective way to detect such violation of consumer rights and penalise suppliers accordingly.

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Monday, April 17, 2017

Harsher Penalties for Tax Avoidance - A Blueprint for Compliance

A more punitive penalty regime has been implemented with the promulgation of Sultani Decree 9/2017 (Issuing Amendments to Some Provisions of the Income Tax Law) (the “New Law”) amending Sultani Decree 28/2009 (together, the “Law”), for the purpose of encouraging compliance with the Law, and to encourage self-assessment. This article will provide an overview of the penalties of which taxpayers should be fully aware.

Assessments by the Secretary General 

Electronic lodgement of tax returns will commence following the issue of the amendments to the Law. Pursuant to Articles 13 and 14, returns must be submitted in an electronic format by the due date. The Secretary General is empowered with the right to examine those returns from a random sample, in accordance with Article 15, and in accordance with rules and regulations issued by the responsible Minister and as proposed by the Secretary General. These are yet to be decided, so there will be additional considerations applicable to the electronic lodgement of returns. The Secretary General will also examine assessments of any taxpayer returns if:

  1. A final return has been submitted without fulfilling the conditions for electronic filing in compliance with Article 13, including failure to enclose accounts; 
  2. An examination of the final return in the application of Article 15 demonstrates that it did not include the real taxable income; or 
  3. Upon request by the taxpayer within three years from the submission of the final return in the tax year for which the assessment is to occur. 


Taxpayers will need to ensure they are conversant with the procedures for filing returns in order to comply.

Time Limits on Assessments by the Secretary General 

With the lapse of time, the Secretariat General is prevented from examining returns and assessments (see Article 18). For any tax year, following the lapse of three years from the end of the tax year for which the final return is submitted, the Secretary General is prevented from conducting examinations of returns or assessments. This does not apply to cases of fraud and deception, wherein the Secretary General may conduct examinations for up to five years following the end of the tax year in which the return is submitted. Final returns must be submitted within five years following the end of the tax year for which the final return is due. It should be noted that taxpayers are entitled to object to an assessment, correction or amendment or to make an additional assessment, and to dispute a decision of the Secretariat General.

The penalties below will be imposed by the Secretary General in respect of the regime outlined above.

Penalties 

Taxpayers will risk facing penalties for failure to file notifications within the specified time, with such notification to be provided in respect of commercial or industrial registration, or other formal records including name, address and any relevant amendments. Notifications must be submitted within 60 days of either incorporation or the start of the activity, whichever is earlier, and within 30 days of making any amendments to the information. Additionally, taxpayers will be liable for failure to file a provisional or final return during the specified deadlines. The maximum penalty in each instance is OMR 2,000.

Pursuant to Article 21, penalties will be imposed by the Secretary General for failure to declare the correct income in a taxpayer’s return. The maximum penalty imposed is 25% of the difference between amount of tax on the basis of correct taxable income and amount of tax as per the return submitted, providing a significant incentive for taxpayers to be accurate.

Penalties will be imposed under Article 22 for failure by the taxpayer to provide data, information, accounts, accounting records or any other documents required by the Secretary General or failure to attend at the time and place specified by the Secretary General to discuss the taxpayer’s return or assessment of the return, or answer questions about the return, the assessment or the taxpayer; or failing to file a tax card application from the commencement of incorporation onwards or comply with Article 15 in retaining records for 10 years for the end of the relevant accounting period which will attract a maximum penalty of OMR 2500. The fine can be levied on the principal officer or the taxpayer, or both.

Harsh penalties for obstructionist practices 

Taxpayers should be fully aware that, subject to harsher penalties in Oman’s Criminal Law, Article 23 imposes harsh penalties should the principal officer intentionally fail to submit a return in accordance with this Law, or if the taxpayer or principal officer prevents the Secretary General from exercising its functions or rights specified by this Law. The penalty for doing so is imprisonment of between one to six months and a maximum fine of OMR 20,000. Previously, imprisonment was only for a period of one month with a maximum fine of OMR 2,000. So it is quite apparent that breaches of this nature are to be taken very seriously in the future.

Repeat instances of failing to issue a return by the principal officer will attract harsher penalties from the Secretary General if the abstention occurs over two consecutive years. In such cases the principal officer will be held accountable and may be imprisoned for three months to one year, and/or the Secretary General may impose a maximum fine of OMR 30,000.

In the event the Principal Officer intentionally refuses to file returns with the actual income of the entity or should an incorrect tax liability be intentionally disclosed or documents and records be disclosed, the tax authority may impose upon the principal officer a period of imprisonment of between six months and three years and a maximum fine of OMR 50,000 (see Articles 23-24).

In order to avoid the harsh penalties imposed by the New Law, principal officers and taxpayers should be diligent in filing their returns in an accurate manner, on the due date, together with all relevant information. Should the tax authorities require examination of returns and assessments, principal officers and taxpayers should act in compliance with the requests of the tax authority and should attend all requested meetings and provide all relevant information.

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Monday, April 10, 2017

Key Changes to Oman Tax Law

Royal Decree 9/2017 issued on 19 February 2017 and published in the Official Gazette on 27 February 2017 introduces a number of changes to the Oman Tax Law. This article will summarise the major amendments.

Effective for all financial years beginning on or after 1 January 2017, the general tax rate has been increased from 12% to 15% to be calculated in respect of any taxable income of any enterprise, Omani company or permanent establishment for any tax year. Companies are subject to the new tax rate beginning in their respective 2017 tax years; e.g., a company adopting a financial year from 1 April to 31 March will be subject to the new tax rate from 1 April 2017.

The tax-free threshold of OMR 30,000, previously applicable to all taxpayers, has been removed. To support small businesses, the new Law introduces a specific lower tax rate of 3% which applies only when all the following conditions are met by the relevant taxpayer:

  1. The taxpayer must be an Omani sole proprietorship, partnership or limited liability company with a registered capital of no more than OMR 50,000 at the beginning of a tax year. Although the purview of these provisions is not explicitly limited to fully Omani-owned companies, the capital requirement automatically excludes foreign investment companies, which under the Foreign Capital Investment Law must have a minimum capital of OMR 150,000. Exceptions to this rule may include fully owned GCC companies, US companies established under the Free Trade Agreement, and companies registered at Knowledge Oasis Muscat and Engineering Consultancy Companies, as these may all be registered with a minimum share capital of OMR 20,000. 
  2. The gross income of the taxpayer shall not exceed OMR 100,000 for any tax year. 
  3. The average number of employees during the tax year shall not exceed 15. 
  4. The taxpayer shall not carry out business in air and sea transport, banking, insurance, mining and public utility concessions. Other excluded activities may be added to this list in the future. 

Tax exemptions, previously available for an indefinitely renewable period of five years to companies engaging in activities such as industry, mining, tourism, agriculture and fishing, medical care and education, have now been restricted and will apply only to industrial companies. The term has been reduced to five years only (non-renewable). The amendment is effective from 27 February 2017. The newly introduced provisions will not affect exemptions that have already been granted.

Another amendment, which will undoubtedly have far-reaching consequences, relates to the new provisions regulating withholding tax (“WHT”). The WHT previously applied only to specific categories of services provided by foreign companies without a registered entity in Oman; these included (a) royalties; (b) research and development; (c) software licences; and (d) management fees. The scope of the WHT has now been extended to all services provided by a foreign person without a taxable presence in Oman and availed in Oman. As the term “foreign person” is not defined in the Law, the WHT applies to both foreign corporations and individuals and covers all services, including those provided under existing contracts. WHT is payable upon payment for the service, by deduction to be made by the Omani paying entity, who is responsible for the payment of the relevant amount to the Tax Authority within 14 days from the end of the month in which the payment to the foreign person is made. The WHT rate is 10% calculated on the gross amount. Although Government entities (Ministries, Public Authorities, etc.) do not fall under the definition of “taxpayer,” the Law provides specifically that WHT will be due also on payments made by Government entities.

Issues will arise, inter alia, with respect to mixed contracts including the supply of goods and the provision of related services (e.g., the supply of equipment and its installation). In such cases, we understand that the value of the contract will need to be split and WHT will have to be paid on the amount relating to the services. Arguably, WHT may also apply to a wide range of payments including directors fees payable to non-resident directors, re-insurance contracts with foreign re-insurers and a wide array of other contracts. Finally, Free Zone companies, although income tax-exempt, will have to deal with WHT on services provided to them.

The same concept and the same tax rate will apply to interest payable to financial institutions abroad and to dividends payable to foreign shareholders in companies registered in Oman. With reference to dividends, it has been clarified that WHT applies only to dividends relating to shares in joint stock companies, and not in limited liability companies. The Arabic language, like various Romance languages, uses different words to describe shares in a joint stock company and in a limited liability company. The text of the Law clearly refers to shares in joint stock companies only.

The WHT applicable to interest and dividends applies from 27 February 2017 (and therefore does not apply to payments which are due before that date and properly documented, e.g., by invoices bearing a date). The effective date for WHT on services is not entirely clear as the relevant provisions are shown both in the clause defining “income” (which sets out 1 January 2018 as the effective date) and the clause describing the WHT (which sets out 27 February 2017 as the effective date).

The new tax provisions on WHT will need to be read in conjunction with any existing Double Tax Treaty between Oman and the country of origin of the foreign service provider.

Other notable amendments:

  1. Financial statements must comply with International Financial Reporting Standards (this requirement was previously applicable only by reference as quoted in Royal Decree 77/86); 
  2. Tax returns must be filed electronically; 
  3. New provisions have been included to deal with Islamic finance, to be treated on a par with standard financial transactions; and 
  4. Donations can now be made in kind and are allowed to be deducted on the basis of a specified value determination system. 

A separate article will deal with the stricter penalties introduced by the Law.

In conclusion, the Government of Oman is aiming to expand the pool of taxpayers, until this date very limited in comparison with the number of corporate entities registered with the Ministry of Commerce and Industry, and to increase tax revenues. Nonetheless, there is a possibility that some of the new provisions, such as the wide scope of the WHT, may lead to possibly unintended consequences such as the increase of costs for local businesses and the reduction of the returns of foreign investors in relation to investments in Oman, which may make such investments less attractive.

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Monday, April 3, 2017

Navigating Team Hires - Key Considerations for Companies

In a team move, one or more employees leave an employer to join a competitor or set up a new enterprise in the same field. For new employers, lateral hires of multiple individuals already working together is an immediate way to boost revenue and secure market share. Multiple lateral hires of experienced employees can also rapidly increase an employer’s core capabilities and add strength in the targeted market. In direct contrast, the impact on the old employer can be commercially significant and can weaken its position in the market. These considerations are important in the current economic climate, which is likely to see increased prevalence of team moves in Oman and across the GCC.

A typical team move scenario involves a small team at different levels of seniority, for example in a company in the financial services sector selling a product or services to an established customer base. The targeted team members will have worked together closely for a number of years, and the most senior person in the team will invariably have some influence over the more junior members of the team. Typically, one person will resign first, usually the most senior person on the team. Other team members will announce their staggered departures shortly afterwards.

Team moves nearly always involve breaches by employees of the terms of their employment. In any team move, there is by necessity a degree of contact and planning that takes place between the new company and the targeted employees. In this process, it is common that a certain amount of confidential information is disclosed to the potential new employer either voluntarily or at the request of the new employer. It is important therefore for the new employer to understand any post-termination restrictions in the existing employment contracts of the targeted employees. This situation alone raises key legal issues for the new employer, the old company and the employees.

Applicable Omani laws 

In Oman, most employment contracts contain a clause pertaining to the treatment of confidential information and its disclosure. In addition, employment agreements governed by Omani law invariably include a restrictive covenant upon the employee to protect the goodwill, trade secrets and market share of the employer. Such clauses are commonly referred to as non-compete clauses. The Omani Civil Transactions Law, issued under Sultani Decree 29/2013, provides that such clauses are valid in order to protect the legitimate interests of the employer. More specifically, “… if an employee has knowledge of secrets of his employer in terms of how the entity conducts business or is familiar with the employer’s clients, then the employment contract may contain a clause to prevent the employee from (i) gaining employment with a competitor of the employer or (ii) participating in competitive work.” Under the Omani Civil Code (Article 661), in order to be enforceable all non-compete clauses must be reasonable in terms of duration, type of work and applicable territory.

Under Article 27 of the Oman Labour Law, employees are obliged to maintain the secrets of the employer. Additionally, under Article 40 an employer may dismiss an employee without notice and without payment of the end of service gratuity if inter alia he discloses confidential information about the employer to a third party. Such disclosures of confidential information or trade secrets are considered to be gross violations of the labour law which justify the remedy of instant dismissal without end of service or other payments ordinarily due to the employee.

Team moves in Oman must be viewed in the context of the existing two-year expatriate visa ban. Put simply, the ban imposed by Sultani Decree 16/1995 restricts expatriates from seeking employment with a new employer in Oman for a period of two years after the termination of their current employment. The expatriate is however eligible to join another company if he can obtain a no objection certificate (NOC) from his current employer. The ban and NOC system currently in place has put a pall on team moves in Oman, but not entirely. There have been recent reports in the Omani press and statements by The Royal Oman Police and other Government officials indicating that the ban and NOC system may be abolished soon. If so, management in both targeted and hiring companies in Oman should be aware of the legal constraints, risks and remedies associated with multiple lateral hires.

Remedies following team moves 

Along with most team moves, there will be a threatened or actual application to the court for damages resulting from a breach of contract. The resulting litigation may prevent employees from taking advantage of any unfair head-start obtained through their unlawful activity. Seeking a ‘springboard injunction’ as a short-term remedy in any impending team move is a useful litigation tool to prevent the employees from departing for the new company. The principles behind the ‘springboard injunction’ were summarised in the QBE v. Dymoke case (QBE Management Services (Ltd) v Dymoke & Ros [2012] EWHC 80 (QB)) as follows:


  • “…where a person has obtained a ‘head start’ as a result of unlawful acts, the Court has the power to grant an injunction which restrains the wrongdoer, so as to deprive him of the fruits of his unlawful acts. This is often known as ‘springboard’ relief.”


In the Dubai International Financial Centre (DIFC) and in the courts of England and Wales, such an interim remedy would be possible. The Omani courts are, however, unlikely to entertain any injunctive relief applications in such a scenario. Instead, the targeted company would have to bring a claim for breach of contract or use other applicable laws and would need to prove financial loss caused by the actions of the departing employees. In this situation, employers often assert that there has been unlawful collusion between team members and that losses are greater because the departing team is irreplaceable as a whole. In any team move, however, it will be difficult to prove which financial losses are directly caused by breaches of contract. More often than not, these cases are resolved when the new company gives suitable undertakings, for example by agreeing to place the team in an area of the business that does not compete with the old employer for an agreed period of time, or agreeing that key personnel will not work for certain clients.

Conclusion 

Whether you are considering hiring a team from a competitor or are faced with losing one, management on either side can consider several steps. The new company can consider (i) undertaking a review of all existing employment agreements to better understand the duties and obligations on both sides; (ii) engaging a recruitment company to ensure an arm’s-length hiring process; (iii) refusing to request or receive any trade secrets or confidential information from the lateral employee; (iv) avoiding any misconduct, evidence of which could be used in any subsequent court proceedings; and (v) approaching targeted employees separately and not in groups. By contrast, some considerations for the old company include (i) undertaking an immediate IT investigation to determine if any communications between the employees and the new employer remain on the company server; (ii) not disclosing details about other persons approached during the investigation; (iii) understanding that time is of the essence, especially if litigation is being considered; (iv) interviewing the concerned employees separately; and (v) trying to understand the reasons for departure to determine the possibility of persuading any key employees to remain. Undertaking a team move successfully without triggering breaches of contract is difficult for a poaching employer to accomplish. From a legal and practical perspective, a team move raises issues that tend to be more complicated than the departure of a single employee. Warning signals are often visible to the old employer, but are mostly ignored until it is too late. In any subsequent litigation, carefully planned strategies are key to improving the positions of both a poaching employer and targeted employers faced with a departing team.

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