The common VAT agreement of the states of the Gulf Cooperation Council (GCC) and the Kingdom of Saudi Arabia’s VAT law

Abstract

This thesis examines the Common VAT Agreement of the States of the Gulf Cooperation Council (GCC) and the implementation of its provisions in the Saudi VAT Law. It proceeds by examining the emergence and ongoing implementation of the GCC’s cross-border VAT collection and enforcement regime to assess its possibilities, and limitations. The central argument is that the GCC’s VAT regime is unsustainable due to the absence of common and effective mechanisms of treaty interpretation, coordination and enforcement at both the regional and domestic levels. The term sustainable is used in this discussion to mean able to endure, and to stand the test of time. In substantiating this thesis, this discussion examines the procedural and substantive weaknesses of the existing treaty framework, first exploring the reasons underpinning the GCC’s collective decision to adopt a unified rate of VAT supported by a unifying legal framework for the equal treatment of VAT transactions across the GCC common market. The institutional design, rules and procedural features of the evolving regime are also unpacked and assessed together with comparative developments in some other regional orders and governance systems. This analysis is viewed through the lens of broader debates concerning the GCC’s ongoing attempts to balance its regulatory harmonisation aims with respect for the pluralistic values of tax sovereignties and fiscal policy discretion. The thesis also examines the remaining barriers to the future sustainability of the GCC’s regime, focusing on the challenges posed to the legitimate and effective implementation and enforcement of the GCC’s substantive rules and requirements at the level of domestic law. It establishes that the GCC’s institutional regimes lack a dedicated court or supervisory review processes with authority to resolve interpretative disputes regarding the scope and meaning of the treaty processes, much less the power to issue binding decisions or remedies in cases of treaty infringement or illegality in domestic processes of VAT administration. The thesis additionally offers a contextual analysis of the treaty’s implementation by way of a case study of Saudi Arabia’s VAT implementation and dispute resolution framework, before moving on to a wide-ranging discussion of the “lessons” that may be learned from other jurisdictions and contexts, towards the future adoption of flexible, multi-level solutions for the most problematic aspects of the GCC’s regional VAT imposition scheme. The thesis concludes that the GCC’s current dispute resolution system, consisting of private arbitration solutions and political process of treaty interpretation, continues to undermine the sustainability of the regime. It is argued that the GCC’s deference to national judicial and administrative sovereignty hinders opportunities for the development of common VAT rules, principles and legal protections for the benefit of the GCC’s regional and national legal and economic modernisation goals, and the interests of individual taxpayers. A proposal is put forward for regional leaders to establish a GCC regional court with supranational supervisory and interpretative authority to address the above challenges. In the short term, the thesis proposes increased “horizontal” procedural and administrative cooperation between national fiscal authorities in order to ensure the neutral and consistent treatment of intra-GCC VAT transactions and related disputes. It is also contended that informal or privatised arbitral and other ADR solutions may also have a place within the overall package of dispute solutions, towards achieving higher levels of VAT compliance and business trust in the regime.