The UAE’s transfer pricing rules are intended to be aligned with the OECD internationally accepted transfer pricing standard as per the Explanatory Guide issued by the Ministry of Finance. The UAE Corporate Tax Law enforces TP regulations and documentation requirements so that the pricing of transactions between related parties and connected persons, such as companies that are part of the same multinational enterprise (MNE) group, is not influenced by their relationships.
As per Clause 2 of Article 55 of the UAE Corporate Tax Law, taxable persons need to maintain both master file and local file in case their transactions with the Related Parties and Connected Persons for a Tax Period meet any of the conditions prescribed in a Ministerial decision. The Ministry of Finance recently released the Ministerial Decision No. 97 of 2023 prescribing the requirements for maintaining Transfer Pricing Documentation under Corporate Tax Law.
This blog gives you a detailed look into the conditions for maintaining Transfer Pricing Documentation as prescribed in Ministerial Decision No. 97 of 2023. Businesses can get TP assistance by subscribing to Tax Gians’ transfer pricing services in Dubai. Read ahead for more insights:
Conditions for Maintaining Transfer Pricing Master File and Local File
A taxable person is required to maintain both a master file and a local file if the person meets either of the following in a relevant Tax Period:
- The taxable person is a constituent company of a Multinational Enterprises Group for any time during the relevant tax period that has a total consolidated group Revenue of AED 3,150,000,000 (AED 3.15 billion) or more.
- The taxable persons’ revenue in the relevant tax period is AED 200,000,000 (AED two hundred million) or more
TP Requirements for Master File
The TP master file should contain the following overview of the MNE group business. It is essential to place the MNE group’s transfer pricing practices in their global economic, legal, financial and tax context & to assist tax administrations in evaluating the presence of significant transfer pricing risk. Any Information for the master file is considered important if its omission would affect the reliability of the transfer pricing outcomes.
- The nature of its global business operations
- Its overall transfer pricing policies, and
- Its global allocation of income and economic activity
Information on MNE Group in Master File
The information in the master file can be broken down into the following categories:
- The MNE group’s organisational structure;
- A description of the MNE group’s business or businesses;
- The MNE group’s intangibles;
- The MNE group’s intercompany financial activities; and
- The MNE group’s financial and tax positions
Transactions or arrangements specifically included in the Local File
The Ministerial Decision offers more clarity on the transactions and arrangements that must be included in the Local File. Tax Gian’s transfer pricing services in Dubai can help you with the transactions to be included in the Local File. Taxable persons are required to include their transactions or arrangements with all of the following Related Parties and Connected Persons in the Local File:
- A Non-Resident Person
- An Exempt Person
- A Resident Person who made an election under Article (21) of the Corporate Tax Law and meets the conditions of such election
- A Resident Person whose income is subject to a different Corporate Tax rate from that applicable to the income of the Taxable Person
Transactions or arrangements that shall not be included in the Local File
The Ministerial Decision No. 97 of 2023 also specifies what transactions or arrangements taxable persons should not include in the Local File as part of the UAE TP documentation requirements. In line with the Decision, taxable persons should not include the following Related Parties and Connected Persons in the Local File:
- Transactions with a Resident Person except for the resident persons who are either exempt has elected for the small business relief or whose income is subject to a different Corporate Tax rate
- b) A natural person, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
- c) A juridical person that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
- d) A Permanent Establishment of a Non-Resident Person in the UAE whose income is subject to the same Corporate Tax rate as that applicable to the income of the Taxable Person.
Special ‘Independence Requirement’ for TP
The TP requirements in the UAE include an independence requirement as envisaged in the Ministerial Decision. To determine whether parties are acting as if they were independent of each other, two conditions must be met as follows:
- The relevant transaction or arrangement is undertaken in the ordinary course of Business.
- These parties are not exclusively or almost exclusively transacting with each other
However, if the activities of one Person in the transaction or arrangement are subject to detailed instruction or to comprehensive control of the other person in the same transaction or arrangement, such Persons shall not be regarded as acting as if they were independent of each other. Moreover, The Federal Tax Authority (FTA) will consider all relevant facts and circumstances to determine whether the Persons shall be regarded as acting as if they were independent of each other.
Avail of the Best Transfer Pricing Services in Dubai, UAE
Businesses need to accurately interpret the Ministerial Decisions to ensure complete compliance with transfer pricing requirements in the UAE. Corporate tax consultants in Dubai such as Tax Gian, a brand of Jitendra Tax Consultants (JTC) provide reliable transfer pricing services for taxable entities.
Tax Gian is one of the leading providers of transfer pricing advisory services in Dubai and offers top-notch corporate tax advice for all businesses. Since 2001, Jitendra Chartered Accountants, an associate of JTC, has been providing end-to-end advisory services including tax solutions in Dubai, UAE to its clients globally. Our transfer pricing services in Dubai include:
- Transfer pricing planning & strategy
- Structuring transfer pricing policies
- Transfer pricing risks assessment
- Transfer pricing documentation assistance
- Advance Pricing Agreements (APAs)