TP Comparability Analysis: Economic Circumstances
Comparability analysis under transfer pricing in the UAE has become critical for businesses since the introduction of the corporate tax law. Carrying out comparability analysis is essential for selecting the most appropriate transfer pricing method and applying the chosen method to arrive at an arm’s length price.
A comparability analysis requires the selection of reliable comparables. An uncontrolled transaction will be considered comparable if the five comparability factors are sufficiently similar to the controlled transaction. The five comparability factors under transfer pricing are Characteristics of property or services, Functional analysis, Contractual terms, Economic circumstances and Business strategies.
Transfer pricing advisors in Dubai can help you with the comparability analysis. In this blog, we will look at the “Economic Circumstances” factor. Let us dive in:
Comparability Factors: Economic Circumstances
To achieve comparability, it is critical that the markets in which the independent and associated enterprises operate do not have differences that have a material effect on the price or that appropriate adjustments can be made. As a first step in this regard, businesses need to identify the relevant market or markets taking account of available substitute goods or services. Availing of transfer pricing services in Dubai can help businesses identify economic circumstances.
Economic Circumstances Relevant to Determine Market Comparability
Economic circumstances that may be relevant to determining market comparability include the following:
- Geographic location
- Size of the markets
- The extent of competition in the markets and the relative competitive positions of the buyers and sellers; the availability (risk thereof) of substitute goods and services
- Levels of supply and demand in the market as a whole and in particular regions, if relevant;
- Consumer purchasing power
- Nature and extent of government regulation of the market
- Costs of production, including the costs of land, labour, and capital; transport costs
- The level of the market (e.g. retail or wholesale)
- The date and time of transactions
Important Considerations for Economic Circumstances
Sometimes an MNE group may carry out similar controlled transactions in multiple jurisdictions and the economic circumstances in these jurisdictions may be reasonably homogeneous (same). In such situations, it will be appropriate for the MNE group to depend upon a comparability analysis that covers multiple jurisdictions to support its transfer pricing policy towards this group of jurisdictions.
However, in certain situations, an MNE group may offer significantly different ranges of products or services in each jurisdiction, and/or perform significantly different functions in each of these jurisdictions (using significantly different assets and assuming significantly different risks), and/or where its business strategies and/or economic circumstances are found to be significantly different. In these situations, it may opt for a multiple jurisdictional approach may reduce reliability.
Tax Gian can Help You Navigate Transfer Pricing in the UAE
If you’re struggling to determine transfer pricing in the UAE as per the arm’s length standard, Tax Gian, a leading tax expert can help you. We are one of the top transfer pricing advisers in Dubai, operating as a division of Jitendra Tax Consultants (JTC). We offer bespoke transfer pricing consulting services in Dubai in line with regulatory expectations and aligned with our client’s global business goals.
Tax Gian can deliver transfer pricing models that are consistent with our client’s value chain. Our highly qualified transfer pricing advisors in Dubai can help companies ensure that all related party transactions are documented to position their Transfer Pricing model in compliance with regulatory provisions. Tax Gian’s team of corporate tax professionals can guide you through complex areas of international tax to mitigate the risk of non-compliance.