UAE Unincorporated Partnerships and Pillar Two: is there an “Entity” at all?

One of the more intriguing questions raised by the interaction between the UAE Corporate Tax regime and Pillar Two is whether a UAE unincorporated partnership can enter the GloBE architecture as an “Entity” in the first place.

That question is more important than it may seem. Before asking whether an unincorporated partnership is tax transparent or opaque for Pillar Two purposes, before asking how its income should be attributed, and before asking whether it could become relevant for a domestic minimum tax computation, one must first determine whether there is an Entity to which the GloBE definitions can attach at all. Under the OECD Model Rules and UAE DMTT Rules, that is not a rhetorical point. It is the beginning of the analysis. A Flow-through Entity is, by definition, still an Entity.

The issue becomes especially acute in the UAE because an Unincorporated Partnership is not, as a matter of domestic corporate tax design, treated in the same way as a company. The UAE Corporate Tax Law starts from the proposition that an Unincorporated Partnership is generally fiscally transparent,[1] but it also allows an election for the partnership to be treated as a Taxable Person.[2] The existence of that election invites the tempting conclusion that, once opacity is elected, the partnership simply steps into Pillar Two as an entity-level taxpayer. That conclusion may ultimately prove correct in some cases, but it skips over a prior question: is the arrangement an Entity under the GloBE definitions at all?

[1] Corporate Tax Law, Article 16, Clauses 1, 3 and 4.

[2] Ibid, Clauses 8 to 10.