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U.S. Warns Saudi Arabia Its Tax Regime May Drive Firms Away

U.S. Warns Saudi Arabia That Its Tax Regime May Drive Firms Away

The U.S. has criticized Saudi Arabia’s tax authorities and warned that disputes with foreign companies risk discouraging investment in the country.

“Numerous multinational enterprises” operating in Saudi Arabia “have experienced tax issues exhibiting a lack of transparency, consistency and due process compared to what they have come to expect from other nations,” the U.S. embassy in Riyadh said in a letter to the Saudi Ministry of Investment.

It wasn’t clear when the letter was sent but some ministry officials received it in recent days, according to people familiar with the matter. The embassy declined to comment, and the ministry didn’t immediately respond to requests for comment.

The U.S. criticism comes as Crown Prince Mohammed bin Salman tries to transform the oil-dependent economy and draw in more international firms. He’s hoping to attract around $100 billion of foreign direct investment each year by 2030.

Overhauling the kingdom’s legal system and taxation practices are key parts of his plan, but the reforms have proved to be complicated.

While tax disputes have been common in the past, the latest pressure from the U.S. follows a spate of unexpectedly large bills delivered to overseas firms. Technology companies including Uber Technologies Inc. are contesting levies worth tens of millions of dollars, Bloomberg reported last month.

The U.S. said tax administrators in Saudi Arabia have “inadequate resources” and need better training to deal with “complex cases.”

The kingdom’s tax authority said in a statement Thursday that it was striving to apply best practices and has been working with other countries and international organizations to “eliminate inconsistencies and unexpected consequences of tax practices.” 

The authority “always welcomes communication with taxpayers to solve any misunderstanding or disputes at any time,” it said in the statement. The Saudi tax system “grants all taxpayers the right to appeal through an independent judicial body if disputes have not been fully resolved through the different stages of objections that are processed and evaluated.” 

While American companies “appreciate” the country’s reform efforts, their experience “has been disappointing and could result in a deteriorating image of the Kingdom of Saudi Arabia as a place to invest,” according to the U.S. embassy’s letter. The country will be at a “serious competitive disadvantage” without improvements. 

“Other sophisticated jurisdictions in the region, such as the United Arab Emirates, have gone to great lengths to facilitate adjudication procedures for foreign investors,” it said.

Saudi Arabia’s $840 billion economy is the biggest in the Middle East, but many foreign businesses prefer to have their regional headquarters in less conservative countries such as the UAE, home of Dubai.

Prince Mohammed has set out to change that, offering some fee and tax breaks and easing social restrictions in a bid to turn Riyadh into a global business hub.

©2021 Bloomberg L.P.