Monday, April 15, 2019

Income Tax Law Update

Following the extensive amendments to the Income Tax Law of 2017, the Ministry of Finance recently issued Ministerial Decision 14/2019, published in the Official Gazette of 10 February 2019, which sets out amendments to the Executive Regulations of the Income Tax Law and provides clarifications on a number of tax-related matters.  Most provisions of MD 14/2019 enter into force on the day following publication in the Official Gazette.  Please find below a summary of some of the main provisions:

Remuneration of company members

The allowed deduction for payments made to a company’s partners in a commercial company has been amended to the least of (a) actual payments made, (b) 25% of the taxable income before deduction of such payments or (c) OMR 1500 per month for each partner.  For professional/consultancy companies, items (b) and (c) are fixed at 35% and OMR 3000, respectively. 

Tax exemptions


Tax exemptions are now restricted to companies carrying out manufacturing/industrial activities.  The initial five years’ tax exemption is confirmed but the provisions in relation to further renewals of such tax exemptions have been cancelled, effectively limiting the tax exemption period to five years.  Further requirements the business must satisfy in order to obtain tax exemption are (a) a minimum investment of OMR 1 million in fixed assets and (b) compliance with applicable Omanisation quotas over the tax exemption period.

Withholding tax

The new Ministerial Decision provides for withholding tax to apply to dividends, interest (interest payable to local banks is obviously excluded) and payments made in connection with services provided by foreign companies not having a commercial registration in Oman.

Withholding tax applies only to dividends distributed to foreign investors by joint stock companies and investment funds, whilst dividends distributed by limited liability companies are exempt.  With respect to services, some categories of payments for services are not subject to withholding tax; these include, inter alia and in addition to services acquired in connection with activities carried out or properties located abroad, (a) training expenses, (b) reinsurance costs and (c) board of directors meetings. Withholding tax applies to all other services, subject to tax treaty benefits when applicable.

Bad debts 

The conditions taxpayers must comply with in order to deduct bad debts have become stricter as it is no longer sufficient to start legal proceedings.  The taxpayer must now demonstrate that it took action to recover the amount by enforcing a relevant court judgment.  This applies to bad debts of OMR 1,500 or more.

Small and medium enterprises (SMEs)

A lower tax rate of 3% applies to SMEs.  MD 14/2019 introduces a new option for SMEs to apply to the tax authorities for presumptive taxation.  It further amends some of the rules on the requirements a company must satisfy in order to qualify as a SME:  the Omani owner/partner must be actively and exclusively engaged in the business, and the business most employ at least two Omani nationals and be able to prove their employment for at least six months in the applicable tax year.

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Monday, April 8, 2019

REIFs to Provide new Source of Financing for Property Market

Real estate investment funds (“REIFs”) are one of the primary ways to invest in real estate. A REIF owns income-producing real estate in a range of property sectors and is generally seen to have a number of benefits to investors. Investment in REIFs was made possible in Oman by the Capital Markets Authority (the “CMA”) Organisational Regulation of Real Estate Investment Funds 2 of 2018 (the “REIF Regulations”) and Ministerial Decision 95/2017 issued by the Ministry of Housing (“MD 95/2017”).

The first Omani REIF is set to debut on the Muscat Securities Market (“MSM”) shortly, and it is hoped that the new form of investment vehicle will encourage new inflows of capital into Oman’s promising property sector.

REIF Regulations in the Sultanate permit institutional foreign investors, as well as expatriates resident in the Sultanate, to own units in REIFs.

Interest in real estate is not limited to commercial properties, but extends to the development of infrastructure, warehouses, factories, and projects for small and medium enterprises (“SMEs”) – all of which require some form of financing. As financing has until now been provided principally by bank lending, the CMA was very keen to see funding alternatives becoming available so as to diversify the systemic risk on banks lending into the real estate market.

Oman’s REIF Regulations incorporate best practices gleaned from other jurisdictions around the world. While most of the provisions in the Regulations are principle-based, there is a lot of flexibility – in relation to the fund structure, for example. Some jurisdictions specify the structure for Islamic REIFs. In Oman, the REIF Regulations have left this open. All that is required for an Islamic REIF is that there should be a shariah advisory board in place; the choice of structure is left to the contracting parties provided that the structure complies with the Accounting and Auditing Organisation for Islamic Financial Institutions.

Further, the REIF Regulations allow for the transfer of special purpose vehicles (“SPVs”), typically set up to hold a particular real estate asset, to a REIF. Funds may hold various assets either directly or through an SPV, and can hold any assets in Oman, not only those in integrated tourism complex projects.

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Wednesday, April 3, 2019

In the Pipeline


The Selective Tax Law is promulgated by Sultani Decree 23/2019.  This new law will repeal previous provisions and will be published in the Official Gazette 90 days from 13 March 2019.
The new law will regulate the prices of tobacco products, energy drinks, alcohol and pork products. These products will have a tax increase of 100%, while the tax on carbonated drinks will be increased by 50%.  The Governmental Communication Center said that the Selective Tax Law seeks to support a healthy lifestyle.
Sultani Decree 24/2019 promulgates the establishment of a Food and Safety and Quality Centre in the Ministry of Regional Municipalities and Water Resources.  All governmental competences relating to the quality and safety of food will be transferred to the Ministry of Regional Municipalities and Water Resources.  Employees working in departments responsible for the quality and safety of food will also be transferred, maintaining the same job status.
Following a meeting of the European Council on 12 March 2019, the United Arab Emirates and the Sultanate of Oman (in addition to eight other jurisdictions) were added to the European Union’s list of non-cooperative jurisdictions for tax purposes.  The total number of jurisdictions on the EU blacklist currently stands at 15.
Please contact us if you would like more detailed advice on the above.

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Monday, March 25, 2019

Taxable Income and Profits under Oman Law

The current Commercial Companies Law (issued pursuant to Sultani Decree 4/1974) provides for payment of net profits of companies to its shareholders as dividends.  In practice, the management or board of the company would allocate net profits that are proposed to be distributed to the shareholders as dividends after taking into consideration future cash and investment requirements of the business and subject to any statutory reserve and after making provision for tax.  The new Commercial Companies Law (issued pursuant to Sultani Decree 18/2019, but yet to come into force) contains no provisions that significantly alter the current position with regard to the above.

The Income Tax Law issued pursuant to Sultani Decree 28/2009 (as amended) (the “Income Tax Law”) provides for the preparation of financial statements of Omani companies in accordance with applicable accounting standards in Oman, such as the International Financial Reporting Standards (the “IFRS”) and the International Accounting Standards (the “IAS”).  IAS 12 provides guidance in respect of calculation of taxes under IFRS.  It recognises both the current tax consequences of transactions and events and future tax consequences of future recovery or settlement of the carrying amount of an entity’s assets and liabilities.  The auditors, while preparing the audited financial statements, will make provision for the tax liability of a company on the basis of its taxable income rather than net profits.  In order to calculate the tax liability, the auditors are required to adjust the net profits for the relevant financial year by giving due consideration to potential allowances and disallowances, including deferred tax, in accordance with the provisions of the Income Tax Law, and the executive regulations issued by Ministerial Decision 30/2012, as recently clarified by Ministerial Decision 14/2019 (the “Tax Regulations”).

The Income Tax Law has no provisions relating to the calculation of dividend and net profit of a taxpayer nor does it provide a definition of these terms.  According to the Tax Regulations, retained profits are determined according to the certified accounts and financial statements of the company including the general reserve.  The Income Tax Law sets out the method for calculating the taxable income and tax liability of a taxpayer.  Under the Income Tax Law, taxable income is equal to the gross income of the taxpayer after deducting the expenses and allowing for any deductions, set-offs or exemptions under the law.

The Income Tax Law distinguishes between categories of expenses that are deductible for the purposes of calculating the taxable income and tax liability of a taxpayer and those that are not.

Whether an expense is tax deductible or not is only relevant to calculation of the taxable income and the tax liability of the company.  The characterisation of an expense as tax deductible or non-deductible does not affect the net profit of the taxpayer in its financial statements.  According to the Tax Regulations the retained profits are determined on the basis of its taxpayer’s financial statements.  Hence, if an expense is not tax-deductible, it does not necessarily follow that the company cannot consider that expense as deductible for the purposes of calculating its net profit.


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Monday, March 18, 2019

Understanding Whistleblowing in Oman

The reporting of wrongdoing discovered in a workplace is a complex area which requires a fine balance between a variety of competing interests.  Corruption has a detrimental effect on any economy as it creates an unfavorable business environment.  Whistleblowers play a key role in revealing corruption, incorrect financial reporting and fraud.  Wrongdoing in an organisation is often discovered only if someone from the inside stands up and speaks out.

Whistleblowing, although not defined under Omani law, is generally considered to be “the disclosure of information about a perceived wrongdoing in an organization.”  The concept of anonymous disclosure is not widely accepted in the Middle East.  The reason behind this is the fear of unfounded allegations arising, and more generally, a cultural aversion to the concept of informing on a co-worker. It is therefore essential that any whistleblower policy provide effective protection against retaliation.

Many countries have ratified whistleblowing protection laws through domestic legislation and international conventions.  As a result, many employers have implemented that legislation in the form of employee codes of conduct, whistleblowing policies and anti-fraud measures.  The aim of these policies is to offer a reporting mechanism that is confidential, objective and independent, hence making the whistleblower feel confident about raising concerns.

Currently, specific whistleblowing does not exist in Oman.  Nevertheless, the Capital Market Authority (the “CMA”) has recently launched a whistleblowing window on its website.  The move aims to upgrade the capital market and insurance sectors and protect the participants from unfair and unsound practices.  “Whistle-blowing window is a communication conduit between CMA and the whistle blower as the person reports the information or violation or illegal activities or illegal acts that might cause damage to the capital market and insurance sector participants or the company or the public,” the Authority stated.  The whistleblowing window is a simple and swift channel of communication between CMA and all the entities regulated by CMA in the insurance and capital market sectors to report any unacceptable behavior such as conduct which is unethical, fraudulent, illegal or corrupt or which constitutes harassment, discrimination or bullying.

The window will serve any person who is an employee, shareholder, director, internal auditor or external auditor in addition to a supplier or client who detects or comes across such practices.  The window aims to deliver a swift system for reporting irregularities that might have detrimental impact on the company so the CMA can take timely remedial action.  The move will enhance transparency and flow of information on malpractices to the regulator, which will lessen such practices and irregularities and will enrich confidence of investors to invest in the market, besides creating a wide communication network between the regulator and whistleblowers as it will save time and ensure confidentiality regarding the identity of the whistleblower.

The lack of domestic whistleblowing legislation in Oman has resulted in the Government and private sector taking the lead in enacting internal anti-bribery and whistleblowing policies.  Omani and international companies doing business in Oman that plan on implementing anti-corruption measures will undoubtedly find it difficult to do so without also putting in place a comprehensive whistleblowing policy. 


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Monday, March 11, 2019

Enforcement of Arbitral Awards

Introduction

In order for an arbitral award to be enforced, it must first be recognised as binding.  In Oman (and in other GCC countries), after arbitration proceedings have concluded and a tribunal has rendered its award, the winning party needs to apply to the Oman courts to have the award ratified by the courts.

Ratification (also known as execution) is a process before the courts that “confirms” an arbitral award as being binding and, consequently, capable of enforcement.  A comparable process also exists for the enforcement of court judgments in Oman.

The moment that an award becomes binding on the parties is not uniform across countries.  This article will focus on when an award becomes binding on the parties, and when it becomes enforceable.

Why a binding award is so important

Recognition of an award as being binding is essential for the enforcement of the award in the country where it is rendered.  Under Article V(1)(e) of the New York Convention, an award may be refused enforcement by the courts in a foreign country if the award has not become binding on the parties.

Article V(1)(e) of the New York Convention states:

“Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:  The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.”

Article V(1)(e) above indicates that courts have the discretion to refuse enforcement of an award that is not binding on the parties.  In contrast, if an award is considered binding on the parties, courts may only refuse the enforcement of a foreign award on a very limited number of grounds.  Thus, having an award recognised as “binding” is a critical first step for a party seeking to enforce an arbitral award in a foreign court under the New York Convention.

When is an award binding?

As mentioned above, the time that an arbitral award is considered binding on the parties varies from country to country.  The approach that is followed in Oman is that an award is only binding on the parties once it has been executed by the Omani courts, which in turn can only take place after the time limit to challenge an award has lapsed.

In some countries, in particular those that adopt the UNCITRAL Model Law, awards become binding on parties at the time that the award is rendered (see Article 34 of the Model Law), even though in practice awards are still ratified by a court.

Practicalities

It is worth mentioning that, even if an award has not been ratified in a country that is a signatory to the New York Convention, under limited circumstances the award may still be enforced by the courts in another jurisdiction that is a signatory to the New York Convention.

Article III of the New York Convention sets out the conditions for such ratification:

“Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon under the conditions laid down in the following articles.  There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” 

So, while the recognition and enforcement of foreign arbitral awards under the Convention must be conducted “in accordance with the rules of procedure of the territory where the award is relied upon,” the “conditions” under which recognition and enforcement of foreign awards can be granted are exclusively governed by the Convention.

National rules of procedure governing the recognition and enforcement of foreign arbitral awards in each Contracting State shall not impose substantially more onerous conditions than those imposed on the recognition or enforcement of domestic arbitral awards.

Finally, while Article III grants Contracting States the freedom to apply their own national rules of procedure at the recognition and enforcement stage, courts have applied Article III in accordance with the Convention’s policy of promoting recognition and enforcement to the greatest extent possible.

For the above reasons, it is very important that you select lawyers specialised in arbitration and enforcement of arbitral awards at the time of selecting your legal team.  Curtis has an industry-leading team of arbitration lawyers with experience in enforcement of arbitral awards before the Omani courts and most major international legal jurisdictions.

In a future issue, Part 2 of this blog post will discuss in greater detail how awards may be enforced.

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Thursday, February 21, 2019

Oman's New Commercial Companies Law

Introduction

On 13 February, 2019, His Majesty Sultan Qaboos issued Sultani Decree 18/2019, promulgating a new Commercial Companies Law (the “New CCL”), which is to be published in the Official Gazette and implemented within 60 days from the date of publication.

The New CCL repeals the Commercial Companies Law promulgated by Sultani Decree 4/1974 (the “Old CCL”) and replaces it with entirely new provisions.

The Minister of Commerce and the Chairman of the Public Capital Market Authority will issue executive regulations within a year of the New CCL’s implementation. They will also issue any decisions required to enforce the provisions of the CCL. Current decisions will remain in force until the issuance of such new decisions.

Companies governed by the Old CCL must comply with the requirements of the New CCL within one year of its implementation.

Below we set out a few of the key changes in the New CCL. Some of these will require positive action to avoid possible regulatory sanctions. For more comprehensive advice on how the New CCL may affect your company, please contact us.

Key Changes 

1. Capital contributions

Subject to the specific provisions governing each category of company, the New CCL provides (in Article 21) that capital contributions may take the form of cash, moveable or immoveable property, intangible rights, services or labour.

Article 239, however, restricts the nature of capital contributions in limited liability companies to cash or tangible property, explicitly proscribing contributions in the form of services or labour.

2. Limited liability companies

The New CCL introduces a new corporate vehicle, the sole shareholder company, which is a limited liability company with only one – either natural or juristic – shareholder. Under the Old CCL, limited liability companies had to have a minimum of two shareholders.

Article 291 provides that natural persons may not incorporate more than one sole shareholder company. A sole shareholder company may not incorporate another sole shareholder company.

For other forms of limited liability company, the maximum number of shareholders has been raised from 40 to 50, which ceiling may be raised if the minister concerned considers it to be in the public interest to do so.

The New CCL removes the minimum share capital requirement of OMR 20,000 for limited liability companies.

3. Joint stock companies

The minimum share capital requirement remains at OMR 2 million for public joint stock companies; and at OMR 500,000 for closed joint stock companies.

However, if a public joint stock company is created by converting another type of company, the limit is only OMR 1 million.

The option, available to both public and closed joint stock companies under the Old CCL, to pay half the nominal value of the issued shares on subscription, provided that the remainder is paid within three years of incorporation, is not provided for in the New CCL.

The founders of a public joint stock company may subscribe to no less than 30% of the shares of the company and no more than 60% of the shares. However, in the event a company is being converted into a public joint stock company, the maximum is 75%.

Closed joint stock companies may now offer securities – other than shares – for public subscription.

4. Holding companies

Holding companies may no longer take the form of limited liability companies. To comply with the New CCL, any holding company currently in the form of a limited liability company must be converted into a joint stock company whose object is to conduct the business of a holding company.
They must have paid up share capital of no less than OMR 2 million.

5. Corporate governance

The New CCL imposes a large number of new restrictions and responsibilities on both shareholders and boards of directors.

For example, board meetings are now only quorate with a minimum of two thirds of the board members in attendance.

Shareholders with more than 5% of the shares in a company may not act as proxies for other shareholders in general meetings.

Board directors may not stand in as proxies for shareholders in general meetings.

Many of the time limits set out in the Old CCL have been reduced significantly: e.g., where the deadline for filing the minutes of an annual general meeting used to be fifteen days, under the New CCL the deadline is now seven days.

6. Sanctions

The list of offences under the Old CCL has been expanded under the New CCL, and the sanctions that may be imposed have been significantly increased.

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Monday, February 18, 2019

Disclosure of Confidential Information by Employees

Following a previous article on the provisions applicable to termination of employees found guilty of misuse of confidential information acquired during their employment, this article will focus on the provisions applicable to the employer’s confidential information under the Omani Labour Law, the Civil Code and the Penal Code.

Article 27 of the Labour Law, which lists the employee’s main obligations, states under item (4) that the employee is obliged to keep the secrets of its work.  Furthermore, Article 40(5) permits the employer to dismiss the worker with immediate effect and without payment of end of service benefits (if applicable) if the employee discloses any confidential information in relation to the employer’s business.

In summary, the Labour Law is clear in stating that, subject to the statutory disciplinary procedures and timelines, actual disclosure by an employee of its employer’s confidential information is a legitimate reason for immediate termination of an employment contract.

The same concept is re-stated in the Oman Civil Code under Article 657 which lists the main obligations of employees, including the obligation to “keep the industrial or trade secrets of the employer, including after the termination of the contract, as required by the agreement or by custom.”  Interestingly, the access to trade secrets and the obligation of confidentiality are linked to the possibility to validly enter into a non-competition agreement.  Article 661 provides that, if the work of the employee is such as to permit him to have access to work secrets or to make acquaintance with the customers of the business, the parties (employer and employee) may agree that, after termination, it would not be permissible for the employee to compete with the employer directly or to enter into an employment relationship with a business which competes with the employer, provided that such agreement is valid unless it is limited in time, place and type of work to the extent as may be necessary to protect the lawful interests of the employer.

Finally, Article 671 specifically provides that no claims arising out of a contract of employment shall be heard after the expiration of one year from the date of the termination of the contract except for the actions pertinent to disclosing trade secrets.

In addition to the serious consequences of any such disclosure under the Labour Law and the applicable provisions of the Civil Code, Oman’s Public Prosecution, in the framework of its awareness building programme, has recently issued a note of precautionary advice addressed to the general public.  Public Prosecution underlines that breach of confidentiality in respect of work secrets and confidential information is a punishable offence under the Omani Penal Code if the person committing it is a public official.

Book 2, Chapter 3 of the Penal Code deals with a number of criminal offences that may be committed by public officials in the context of their duties.  Article 201 provides that “any person who discloses job secrets shall be punished with imprisonment for a period of not less than three months and a fine of RO 1,000.”  The employee’s retirement and the termination of the employment contract do not preclude the application of this Article.

Similar provisions are found in many jurisdictions but the definition of “Public Official” under the Penal Code is rather wide as it includes, in addition to persons holding a government office and “persons assigned to carry out specific work by a competent public authority,” employees of wholly owned government companies or of companies with government participation in excess of 40%.

Considering the large percentage of government employees among the Omani population and the structure of the local economy, where government investment is a rather common feature in a large number of major corporations, this definition applies to an arguably far larger number of employees than in most other jurisdictions.  Further, employees of government-owned or -participated companies are considered private sector employees and, as such, subject to the Labour Law, leaving open the issue of the interaction between the relevant provisions set out in the pieces of legislation considered.


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Monday, February 11, 2019

Indirect Loss under Omani Law

Common law meaning

The concept of indirect loss developed in common law jurisdictions such as England.  The common law approach generally permits recovery of two broad categories of loss caused by a breach of contract:  first, losses that are the natural consequence of the breach (for example, the direct cost of repairing or replacing damaged property); and, secondly, losses which are not a natural consequence of the breach but which were foreseeable by the parties (for example, lost profits, if both parties knew that damaged property would leave the innocent party unable to perform its obligations under other contracts).

Indirect losses are generally viewed in common law jurisdictions as the types of loss that fall into the second of these categories.  In those jurisdictions, clauses excluding indirect losses will not exclude losses arising directly and naturally from a breach of contract.

Treatment under Omani law

Whilst the Civil Transactions Law (Royal Decree 29/13) (the “Civil Code”) does allow for the recovery of indirect losses in certain circumstances, such provisions of the law are yet to be tested before the Omani courts.  In a civil jurisdiction such as Oman, the distinction between losses occurring as a natural, direct consequence of a breach and those that are foreseeable but not arising in the natural course of events does not sit comfortably with the courts, partly because the concept of foreseeability is not a relevant consideration.

Indirect or consequential damages are not, then, excluded as a matter of law but the terms have limited applicability in Oman.  First, there must be a nexus between loss suffered and damages claimed.  Secondly, there must be a degree of foreseeability, i.e., damage must not be too remote.

Common practice

In spite of the attitude of the Omani courts to the concept of indirect loss, clauses excluding indirect losses are commonly seen in Omani law-governed contracts.  Given the lack of a clear concept of indirect loss in Oman, these clauses can be ineffective unless they clearly identify the heads of loss that are meant to be excluded.

For example, there is a risk that the Omani courts would consider loss of profit to be a direct loss that is not excluded by a generally worded indirect loss exclusion clause.  If the parties do not want to be liable for loss of profit, this should be specifically mentioned.

In summary, terms such as direct, indirect and consequential, which are not legally recognised terms in Omani law, are likely to be a source of contention in the event of a dispute.  It is preferable to draft contractual provisions that state explicitly the exact heads of claim that are intended to be excluded.

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Monday, February 4, 2019

Conflicts of Interest in the Public Sector

The recognition and resolution of conflict of interest situations is vital to good corporate governance and maintaining confidence in public and private institutions. In the GCC, there are expectations that governments should deliver higher standards in the civil service, public institutions and in government-owned or -controlled corporations which are prevalent in Oman. Conflicts of interest should be a regular and important consideration of individuals who occupy a positon of trust. If conflicts of interest are not recognised and managed at the outset they have the ability to undermine the integrity of a company and its decisions.

Essentially, a conflict of interest is any situation where there is a risk that a private interest (political, business or commercial, etc.) of a director, manager, officer, agent or other representative interferes with the legitimate interest of the entity for which that individual works. In the public sector, a conflict arises when a public official has private capacity interests which could improperly influence the performance of their official duties and responsibilities. In the private sector, conflicts of interest have been identified as a major cause behind corporate governance shortcomings.

Conflicts of interest often lead to fraud and other corrupt practices which violate existing regulations. The Sultanate of Oman has, pursuant to Sultani Decree 112/2011, implemented the Law for the Protection of Public Funds and Avoidance of Conflicts of Interest (as amended) (the “Anti Corruption Law”) with which government officials must comply. A government official is defined by the Anti Corruption Law as any person holding a government position or working for the government, whether on a permanent or temporary basis and whether they are paid or not. The provisions of the Anti Corruption Law are also applicable to members of the Oman Council, the representatives of the government in companies, and employees of companies in which the government has a 40% shareholding of the company. Pursuant to the Anti Corruption Law, a government official for example:

  • Is prohibited from acting as an intermediary, an agent or a sponsor of any company or establishment whose activities are connected with the entity in which he works; and
  • Must not (and his minor children must not) have a share in any company, establishment or business for profit which is directly connected with the entity in which he works. 

Further, it is not permissible for ministers’ council, ministries, public authorities and institutions and other administrative units that derive power from the state and that are supervised by the government official to deal with any company or establishment in which it has a direct or indirect interest.

The International Chamber of Commerce (“ICC”) Guidelines on Conflicts of Interest in Enterprises identifies three types of conflicts as detailed below:

1. An actual conflict of interest, which is a current situation in which an employee or associate of the company faces a real and existing conflict of interest. Some examples are:

  • Hiring or supervising a relative. 
  • Serving on the board of a company while serving on the board of a competitor company. 
  • Purchasing goods or services from a supplier directly or directly owned by a relative. 
  • Close personal relationships influencing the decisions in a bidding process. 
  • Using assets of the company for private benefit. 
  • Trading in securities for personal benefit using non-public information. 


2. A potential conflict of interest, which does not exist yet but may occur, regarding an employee or officer of a company. Some examples are:

  • X is a board member of companies A and B which are not business related. This may develop into a conflict of interest if the two companies do business together. 
  • X is a former public official of the Capital Markets Authority of Oman (“CMA”). This could create a conflict of interest if the company becomes subject to an investigation by the CMA. 
  • X is the sibling of the CEO of the IT supplier of the company. This could become a conflict of interest if X were to become responsible for the company’s procurement process and was part of the decision-making process. 
  • X is in a position to influence a business decision of a third party where he has direct or indirect influence of a relative to the benefit of the company. 

3. A perceived conflict of interest, which is a situation where a director, officer, manager, employee, agent or representative of a company appears to have a conflict of interest, even if this is not true. For example:

  • X is a senior director at company A and accepts a board membership at company B with which company A does a lot of business. If X is appointed with the full support and approval of the board of company A this merely creates the appearance of a conflict. 
  • Company A hires a new employee who has the same name as the CEO, but they are not relatives. 

The Organisation for Economic Co-Operation and Development (“OECD”) Tool Kit on Managing Conflicts of Interest [1]  has identified a number of commonly repeated ‘at risk’ conflicts of interest areas which directors and managers should make themselves aware of, including:

  • Inside Information – is there a policy and administrative procedure in place for ensuring that inside information obtained in confidence is kept secure and is not misused by directors or staff of the company? Is the policy being enforced? 
  • Ancillary Employment – does the company have a published policy and procedure for approval of additional/ancillary employment? 
  • Contracts – does the company ensure that any employee who is involved in the preparation, negotiation, management and enforcement of a contract involving the company has notified the company of any private interest in relation to the contract? 
  • Gifts or other Benefits – does the company policy deal with conflicts of interest arising from traditional and new forms of gifts or benefits? 
  • Nepotism – it is the practice of giving favours to relatives and close friends, often by hiring them? 
  • Self Dealing – is there a situation in which someone in a position of responsibility in a company has outside conflicting interests and acts in their own interest rather than that of the company? 

To the extent that a company has not already implemented a policy to deal with the conduct of its employees, we recommend that all Omani government-owned companies (LLCs or SAOGs) put in place a specific policy to treat conflicts of interest between individual directors and the company. The policy should identify processes for dealing with actual, potential and perceived conflicts of interest, such as misappropriation of assets, related transactions, insider trading and more. It should be reviewed and signed by each director when appointed as a director and be reviewed and updated regularly.

Although a conflict of interest is not corruption on its own, it does hold the potential for a breach of trust and fraudulent behaviour to follow. Conflicts of interest must therefore be promptly identified and managed. Left unresolved, a conflict of interest can result in unlawful actions and lead to unhealthy mistrust and suspicion of both private and public companies.

Endnotes
[1]Managing Conflicts of Interest in the Public Sector – A Tool Kit, ISBN 92-64-01822, OECD, 2015

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