UAE Corporate Tax: An Introduction to Transfer Pricing Assessment

Given the status of the UAE as a global hub of Multinational Enterprises (MNEs), the concept of transfer pricing assumes paramount importance. Transfer prices refer to the pricing of goods, services or intellectual property exchanged between various divisions within an MNE during cross-border transactions. As per OECD guidelines, it should be priced as if they were transactions between independent, unrelated parties. It means the prices should be at arm’s length.

Transfer pricing assessment, the process of evaluating the pricing of transactions between associated enterprises, has emerged as a cornerstone of modern international taxation. In this blog, we delve into the multifaceted significance of transfer pricing assessment and its implications for businesses, tax authorities, and the global economy.

What is transfer-pricing assessment?

Transfer pricing assessment involves evaluating the prices of goods, services, or intellectual property exchanged between related entities within an MNE. It is imperative that these transactions mirror those between independent, unrelated parties, as stipulated by the arm’s length principle. This principle guards against the potential manipulation of prices for tax avoidance purposes, safeguarding the integrity of cross-border commerce.

Step-by-Step Guide to Conducting Transfer Pricing Assessment:

Identify Controlled Transactions:

Begin by identifying all transactions between related parties within your MNE. These transactions can encompass the exchange of tangible goods, services, loans, royalties, and intangible assets. Accurate identification is critical for comprehensive assessment.

Comparable Analysis:

The cornerstone of transfer pricing assessment lies in comparing the controlled transactions with transactions between unrelated parties. This requires finding suitable comparables, which should be as similar as possible to the controlled transactions in terms of product, function, risk, and market conditions.

Selecting the Appropriate Method:

There are several transfer pricing methods to choose from, including the Comparable Uncontrolled Price (CUP) method, Cost Plus method, Resale Price method, Profit Split method, and Transactional Net Margin Method (TNMM), among others. The method chosen should be the one that best aligns with the nature of the transactions and the availability of reliable data.

Gather Data and Perform Analysis:

Collect data related to the transactions, including financial and operational information, industry benchmarks, and market data. Analyze the data to calculate appropriate arm’s length prices, profit margins, or markups based on the chosen transfer pricing method.

Documentation and Reporting:

Thorough documentation is essential for transfer pricing compliance. Prepare detailed reports that explain the rationale behind the method chosen, the comparables used, and the analysis conducted. This documentation helps demonstrate that your pricing decisions are in line with the arm’s length principle.

Prepare TP Documentation:

As per Ministerial Decision No (97) of 2023, exemption has been given to certain taxpayers from maintaining the master file and local files.  As per regulations threshold limits is, for taxpayers that are part of an MNE group with consolidated revenues of more than or equal to AED 3.15 billion or taxpayers with more than or equal to AED 200 million revenues in the relevant tax period are required to maintain UAE transfer pricing documentation.

However, it does not mean that taxpayers are free to transfer goods or products or provide services to associate enterprises at will and charge prices that are not at arm’s length. Since the UAE is a member of the OECD, hence UAE tax administration (FTA) and taxpayers have to follow the OECD guidelines for transfer pricing transactions. If you are still confused or uncertain about transfer pricing documentation requirements, consult with the best transfer pricing advisers in Dubai, UAE.

Risk Assessment and Adjustments:

Assess potential transfer pricing risks by considering the potential for adjustments by tax authorities. Evaluate whether the prices determined are consistent with the arm’s length principle and make adjustments if necessary to mitigate these risks.

Engage with Tax Authorities:

In case of disputes or inquiries from tax authorities, be prepared to engage in transparent discussions. Provide your documented analysis and explanations to demonstrate the validity of your transfer pricing decisions. Transfer pricing consultants in Dubai can assist you in engaging with the Federal Tax Authority (FTA).

Continuous Monitoring and Adaptation:

Transfer pricing is a dynamic field influenced by market changes, regulatory updates, and shifts in the business landscape. Continuously monitor your transfer pricing arrangements and adapt them as needed to remain compliant and aligned with the arm’s length principle. Transfer pricing advisers in Dubai can help you in this regard.

Hire the Best Transfer Pricing Advisory Services in Dubai, UAE

Conducting a transfer pricing assessment in the UAE demands a comprehensive understanding of both your business operations and the intricacies of taxation. The journey from identifying controlled transactions to selecting appropriate methods, gathering data, and ensuring compliance is a meticulous process that requires careful attention to detail. Only the best transfer pricing experts in Dubai such as Tax Gian can assist you in this process.

Tax Gian is a brand of Jitendra Tax Consultants (JTC), which is one of the leading providers of transfer pricing services in Dubai, UAE. We have over 21 years of experience and our expertise can help you simplify the complex provisions of the UAE corporate tax law. Through a diverse range of services, we can help companies set up transfer pricing structures, show them how to shift from one transfer pricing structure to another, and how to transfer intangibles between countries. You can learn more about how we can help your company with transfer pricing by scheduling meetings with our highly qualified transfer pricing consultants in Dubai, UAE.