DFSA moves to comply with OECD tax standard

The Dubai Financial Services Authority (DFSA) has proposed an urgent but minor amendment to its Regulatory Law of 2004, to amend the definition of a "privileged communication" in the authority's regulatory laws in order to bring the United Arab Emirates' information exchange standards into compliance with the OECD standard. This follows an assessment by the OECD Global Forum on Transparency and the Exchange of Information for Tax Purposes on the availability of, access to and exchange of information. Currently, when the DFSA requires a lawyer to give information, produce a document or answer a question, and by doing so would infringe on the attorney client privilege without waiver by the lawyer's client, the lawyer is entitled to refuse to comply. 

A lawyer is only obliged to make such a disclosure when the person is a corporate body under official management, or is being liquidated and the official manager consents to the lawyer's disclosure. In all other cases, the person involved must consent to the lawyer's disclosure.

The current definition reads: "a communication attracting a privilege arising from the provision of professional legal advice and any other privilege applicable at law advice or from the relationship of lawyer and client or other similar relationship, but does not include a general duty of confidentiality."

The DFSA has stated that as "any other" advice given by a lawyer to a client is currently covered by the definition, it is possible to suggest that the scope of legal privilege is wider than the international standard; thus has the potential to hinder the effective exchange of information. Consequently, the DFSA proposes removing the words "advice or from the relationship of lawyer and client or other similar relationship" from the definition.

Once the change is implemented, the DFSA, DIFC and the UAE will all comply with the standards currently set by the OECD Global Forum within the required timeframe. In the next stage of review, the OECD Global Forum will test whether the UAE's legislative requirements enable the effective exchange of tax information (Phase 2).

 GCC's combined economy to hit USD1tr 

According to a report issued in the second quarter of 2012, by the Gulf Investment Corporation (GIC), the GDP of the GCC (Gulf Cooperation Council) is set to increase by 5.8% to USD 1.6 trillion at current rates, despite the recent decline in oil prices weighing on the region. Qatar is currently leading the GCC with an economic growth of 8.7%, whilst Saudi Arabia and Kuwait's growth are estimated to remain at approximately 6% growth each, the UAE is at 4.5%, Oman at 4.2% and Bahrain at 3.1%.

Cragus wins awards

The Cragus Group has appeared once again in International Tax Review magazine as a leading tax planning firm in the GCC (May 2012), following their previous listing in the leading tax transactional survey (March 2012).

In more recent months, Cragus has also been recognized as the winner of the 2012 Corporate Intl Magazine Global Award for "International Tax, Advisory Firm of the Year in the GCC", in addition to winner of the 2012 "Corporate Tax, Accountancy Firm of the Year in the GCC".

For the seventh consecutive year, also each year since its establishment, Cragus has appeared in Euromoney's World Tax (2013) as a leading tax advisory firm in the GCC, and once again in tier 1.

Finally, three Cragus individuals have been successfully nominated to appear in Euromoney Legal Media Group's Guide to the World's Leading Tax Advisers, more than any other firm in the GCC.

The Cragus Group would like to thank their clients and peers for their continued support.

Notes from Washington - Paging George Marshall

The recent acceleration of protests, chaos and terrorism throughout the Middle East have caused many to reconsider their positions since the Arab Spring, not least the policy makers in Washington. The Romney campaign's simplistic criticism of Obama's "failed Middle East policy" misses the mark, while the White House is loath to admit flaws in its efforts at engagement. An accurate picture lies somewhere between the two narratives.

Certainly, only a fool - or a presidential candidate - would believe that US action alone holds some kind of key to peace and stability in a region caught in the midst of a generational political transition. The Arab Spring countries are now experiencing all the challenges of democratic governance, but doing so with fledgling institutions fully susceptible to political opportunism. Furthermore, this transition is unfolding in an arena where state power faces often hostile challenges from internal and external actors to an extent not witnessed since the Second World War.

While the Obama Administration has sustained robust politico-military engagement throughout the region, including aid for the painstaking work of institution building, where the effort has lacked the most is on the economic side of the ledger. While not a proximate cause of the violence that spread throughout the region last week, a corollary appears to exist between levels of economic stability and a predilection for social unrest.

Economic forces provided an essential catalyst to the 2011 Arab Spring - Muhammad Bouazizi, recall, was unemployed and hungry before he set himself on fire, igniting the region's revolutions. Hunger drove many Egyptians into the streets as well, as the Mubarak government failed to address critical shortages of bread throughout Cairo. 18 months later, the transitional countries now suffer from stagnant growth and high unemployment. Oil exports have slowed while food prices are set to skyrocket following this summer's prolonged droughts. The eight oil importers among Arab Spring economies have fared the worst; unemployment ranges in double digit territory and growth is under 2 percent. Syria's civil war has not only killed thousands and displaced thousands more - the country's infrastructure has suffered in excess of $11 billion in damages, and counting.   These negative dynamics undermine stability and contribute to the vulnerability of publics to those peddling solutions in the garb of extremism. In the face of such volatility, however, the official American response has been disappointing, as the matter of economic engagement has been pushed almost entirely into the highly ineffective realm of multilateral diplomacy, leaving direct, bilateral economic engagement largely on the sidelines.

Last autumn, G-8 leaders launched the so-called Deauville Partnership to support the political transitions underway throughout the Middle East.   Nearly $40 billion was pledged by the G-8 and Arab oil exporters toward revitalizing the economies affected by the Arab Spring. By the spring of 2012, however, only a fraction of the promised funding had come through for the fragile economies of the region as pledges of finance had dissolved into a morass of bureaucratic delay and political gamesmanship. Left largely to their own devices, the non-oil exporters in the region resorted to drawing down already scant currency reserves to cope with significant economic pressure. As the multilateral effort has faded, the only apparent lifeline for transitional governments remains that offered by the IMF.

The gap could be filled by bilateral action from either the US or the EU, but the responses from Washington and Brussels have been episodic, largely rhetorical and marred by domestic politics. Washington's initial blueprint in late 2011 called for a focus on small and medium enterprises, on developing protections for intellectual property, and for working with partners such as Jordan to increase intra-regional trade. Curiously, the plan did not involve the region's economic powers, the oil exporters in the GCC; nor did it address basic questions of market access or public/private investment partnerships. Seemingly dead on arrival, the plan was met with skepticism, even ridicule, in Middle Eastern capitals.

Other initiatives, both US and international, have been long on talk and short on action. The G-8, the UN, and even regional economic powerhouses like Saudi Arabia and the UAE have all been slow to take concrete steps to shore up trade with these transitional countries, despite the acknowledged link between economic security and national security (not to mention regional security and stability).

As luck would have it, in July 2012, a former public servant well-schooled in the art of diplomacy offered a clarifying explanation of the critical links between economics and security that seem to rather permanently evade the US national security establishment. Speaking at the International Institute of Strategic Studies in London, former World Bank president Robert B. Zoellick gave a galvanizing discussion of how the United States must "integrate its foreign economic policy with its strategic and security interests".   For Zoellick, whose public career included stints in senior positions at Treasury and State as well as the cabinet post of US Trade Representative, America's modern history demonstrates the importance of connecting economic and security, as well as the pitfalls awaiting the policymaker who fails to do so.

How can the US overhaul its economic policy towards the Middle East? Start with leadership and listening. Should the elections deliver a second Obama Administration, the vision of a more comprehensive economic engagement across the region becomes at least possible, if not probable, as the president would almost certainly begin seeking the pursuit of legacy foreign policy issues. It will be the task of regional leaders to shape American willingness to stay the course into the area of economic cooperation.

If the Republican candidate's recent candid words on Palestine, Israel and the Middle East are taken at face value, however, then a Romney Administration may well retrench American economic engagement in the region, limit ties to the GCC to military and security affairs, and gird for conflict with Iran. Of a certainty this would leave America exposed on many fronts while generating tensions with no easy release.  

In the interim, we can hope the President and his Republican rival listen to experts, like Zoellick, who view the region with less a political lens than a practical, let's-get-something-done approach. For the United States, nothing in the Middle East is easy, but economic policies that support long-term growth, stability, and security shouldn't be shunted aside or made political. The US must shoulder aside the chaos of the past week to engage on this, and contribute what it can to preventing the Arab Spring turning into an Arab Decade, where Syria's civil war will become not the worst case example but the first case example of a coming collapse.

This contribution was gratefully received from Eric Shimp - Special Advisor to UAE regarding the UAE-USA FTA Negotiations, and Policy Advisor, Alston & Bird, LLP. Washington DC.