Transfer Pricing — United Arab Emirates
Transfer Pricing Services in UAE
Businesses that deal with related parties or connected persons need to consider transfer pricing as part of their UAE Corporate Tax compliance. The way prices are established for intercompany goods, services, financing, intellectual property and other arrangements can affect a business’s tax position.
Our transfer pricing services in the UAE help businesses evaluate related-party dealings, apply the arm’s length principle, establish appropriate pricing approaches and maintain supporting documentation.
What is Transfer Pricing
UAE Transfer Pricing Rules and Regulations
Transfer pricing forms part of the UAE Corporate Tax framework. The UAE approach is based on internationally recognised transfer pricing principles, including the arm’s length standard reflected in the OECD Transfer Pricing Guidelines.
Businesses with relevant related-party or connected-person arrangements should consider whether their pricing is consistent with the arm’s length principle and whether sufficient records are available to support their position.
Transfer pricing is also relevant during the planning stage. Businesses may need to consider it when entering into intercompany agreements, determining charges between group entities, allocating costs or preparing Corporate Tax records.
Who Needs Transfer Pricing
Which UAE Businesses Need Transfer Pricing Support?
UAE businesses should assess their transfer pricing position when transactions involve related parties or connected persons. The specific obligations can vary depending on the taxpayer, transaction type, transaction value and applicable UAE Corporate Tax requirements.
Arm’s Length Principle
What Is the Arm’s Length Principle?
The arm’s length principle means that a transaction between related parties should generally be priced on terms comparable to those that independent parties would have agreed to under similar circumstances.
Arm’s Length Standard
A transaction between related parties should be priced on terms comparable to those that independent parties would have agreed to under similar circumstances.
Functional Analysis
An assessment considers the functions carried out by each party, the assets involved and the risks assumed under the arrangement.
Related Parties and Connected Persons
Related-party relationships can arise through ownership, control or other specified connections. Connected-person rules cover certain relationships involving individuals or entities.
OECD Guidelines
The OECD Transfer Pricing Guidelines provide an internationally recognised framework. The UAE transfer pricing framework incorporates these internationally accepted concepts.
Transfer Pricing Methods
Transfer Pricing Methods in the UAE
The appropriate transfer pricing method depends on the transaction being reviewed and the commercial circumstances of the parties involved. Factors such as functions, assets, risks, transaction characteristics and the availability of comparable information can influence the selection of the most suitable method.
Comparable Uncontrolled Price
Compares the price charged in a controlled transaction with the price applied in a comparable transaction between independent parties. Useful where reliable comparable information is available.
Resale Price Method
Can be considered when goods purchased from a related party are subsequently sold to an independent customer. Generally considers an appropriate resale margin.
Cost Plus Method
Starts with the relevant costs incurred in supplying goods or services and applies an appropriate mark-up. Relevant for certain intra-group service and supply arrangements.
Transactional Net Margin
Evaluates an appropriate net profit indicator associated with a controlled transaction and compares it with results achieved by suitable independent businesses or transactions.
Transactional Profit Split
Considers the combined results generated by related parties and evaluates how the resulting profit or loss should be allocated based on the contributions of the parties.
Transactions
Common Transactions Subject to Transfer Pricing Review
Transfer pricing analysis can apply to various transactions between businesses and their related parties or connected persons. The appropriate transfer pricing treatment depends on the substance and circumstances of each arrangement.
Documentation
Transfer Pricing Documentation Requirements
Transfer pricing documentation provides evidence of how a business has assessed and supported the pricing of relevant related-party transactions. Depending on the taxpayer and applicable conditions, businesses may need to consider documentation such as a Local File, Master File and other supporting information.
Local File
Contains detailed information about relevant transactions undertaken by the UAE taxpayer and the analysis supporting their arm’s length treatment. Whether required depends on applicable conditions and thresholds.
Master File
Provides information about the wider multinational group, including its business activities, transfer pricing policies and the allocation of functions and economic activity across the group.
Country-by-Country Reporting
CbCR provides tax authorities with information about the global distribution of income, taxes and other relevant indicators across qualifying multinational enterprise groups.
Disclosure Requirements
Certain businesses may have transfer pricing information and disclosure obligations as part of their UAE Corporate Tax compliance. Information should be consistent with underlying records.
Advisory Process
How Our Transfer Pricing Advisory Process Works
We take a transaction-focused approach to transfer pricing, starting with an understanding of the business and its commercial arrangements before recommending an appropriate approach.
Review Your Business Structure
We begin by understanding your business model, group relationships and relevant intercompany arrangements.
Identify Potential Exposure
We review related-party and connected-person transactions to identify arrangements that may require further analysis or documentation.
Conduct Functional and Economic Analysis
We examine the functions carried out, assets used and risks assumed by the parties involved in each relevant transaction.
Determine the Appropriate Method
Based on the transaction and available information, we assess which transfer pricing methodology is most appropriate.
Carry Out Benchmarking
Where benchmarking is appropriate, we analyse relevant comparable businesses or transactions to support the arm’s length assessment.
Prepare Supporting Documentation
We assist with organising and reviewing the documentation required to substantiate the transfer pricing position.
Support Ongoing Compliance
Our support can continue beyond the initial assessment through periodic reviews, Corporate Tax compliance assistance and support with relevant FTA enquiries.
Our Transfer Pricing Services
Our Transfer Pricing Services in the UAE
Our transfer pricing advisory services cover the key areas businesses may need to address when managing related-party transactions under the UAE Corporate Tax framework.
Benefits of Professional Transfer Pricing Support
Common Mistakes
Common Transfer Pricing Mistakes to Avoid
Transfer pricing issues can arise when related-party arrangements are not reviewed regularly or when pricing decisions are not adequately supported. Periodic reviews can help businesses identify potential weaknesses and address them before they develop into larger compliance concerns.
Frequently Asked Questions
FAQ
When should a UAE business review its transfer pricing arrangements?
A review is advisable when a business enters into significant transactions with related parties or connected persons, particularly when arrangements change or new intercompany dealings are introduced. Reviewing transactions periodically can help identify whether the pricing approach, supporting agreements and available records remain appropriate for the business’s current circumstances.
Which UAE businesses may need to consider transfer pricing?
Businesses that conduct relevant transactions with related parties or connected persons may need to assess their transfer pricing position. This can include mainland companies, Free Zone entities, UAE subsidiaries of international groups and businesses involved in cross-border dealings. The obligations that apply depend on the taxpayer and its particular transactions.
Does every business follow the same transfer pricing requirements?
No. Transfer pricing requirements can vary between businesses. The nature of the transaction, relationship between the parties, value involved and other applicable conditions can influence the compliance and documentation requirements. A business should assess its own circumstances rather than relying on another company’s approach.
What information may be needed for a transfer pricing review?
The information required depends on the transactions being assessed and the applicable requirements. A review may involve intercompany agreements, transaction records, financial information, details of the functions performed by each party, and existing transfer pricing analysis. Where applicable, businesses may also need to consider Local File and Master File requirements.
What is the purpose of a transfer pricing benchmarking study?
Benchmarking provides evidence for assessing whether a related-party transaction produces an appropriate arm’s length result. The exercise may involve identifying comparable independent businesses or transactions and analysing relevant financial or commercial information. Reliable benchmarking can provide additional support for the pricing position adopted by a business.
How should a business select a transfer pricing method?
The appropriate method should be determined by looking at the actual characteristics of the transaction. Factors such as the functions performed, assets involved, risks assumed and availability of reliable comparable information can influence the decision. Applying the same method to every intercompany transaction may not produce an appropriate result.
Which intercompany transactions should be reviewed?
The scope can extend beyond straightforward sales between group companies. Depending on the circumstances, businesses may need to consider management services, financing, loans, intellectual property, licensing, guarantees, shared services, cost allocations and other intra-group arrangements. Each transaction should be assessed according to its commercial substance and the applicable rules.
Do UAE Free Zone businesses need to consider transfer pricing?
Yes, transfer pricing can be relevant to Free Zone businesses where they have transactions with related parties or connected persons. A Free Zone entity should consider these arrangements alongside its UAE Corporate Tax position. The specific treatment and documentation requirements depend on the entity’s circumstances and the transactions involved.
Can transfer pricing change a business’s Corporate Tax position?
It can. The amounts charged or paid under related-party arrangements can affect the taxable results recorded by a UAE business. Reviewing the transfer pricing position alongside accounting records and Corporate Tax information can help identify inconsistencies and provide a stronger basis for the treatment adopted.
How can professional transfer pricing support help a UAE business?
Professional support can bring together transaction analysis, methodology selection, benchmarking and documentation review. An adviser can also help identify areas requiring further attention and organise information needed for Corporate Tax compliance or an FTA enquiry. The appropriate scope of support depends on the business’s group structure and related-party arrangements.
Get Transfer Pricing Support
Transfer Pricing Services in the UAE
Need help assessing your related-party arrangements? IncHub provides practical support with transfer pricing assessments, benchmarking, documentation and UAE Corporate Tax compliance.