What are Controlled and Uncontrolled Transactions Under TP Rules?
The introduction of corporate tax has prompted transfer-pricing discussions in the UAE, especially for companies conducting cross-border transactions with their group entities. Transfer price is the price of intra-group cross-border transactions between divisions of a company. For example, if a subsidiary company in the UAE sells goods or renders services to its holding company or a sister company in Bahrain, the price charged is referred to as the transfer price.
However, as per the transfer pricing regulations, companies are required to charge their own divisions—or associated parties–as they would charge an unrelated company in the open market. In other words, associated parties must be charged arm’s-length prices. Businesses should check whether there is any controlled transaction while looking at a potential transfer pricing issue.
Controlled transactions are transactions between two enterprises that are associated enterprises with respect to each other. Since transfer pricing refers to the terms and conditions which ‘associated enterprises’ agree for their ‘controlled transactions’, companies need to understand the differences between ‘controlled’ and ‘uncontrolled’ transactions. Transfer pricing consultants in Dubai can provide you with further advice and assistance. Read the following article for more information on controlled and uncontrolled transactions:
What is a controlled transaction under transfer pricing?
The main objective of transfer pricing rules is to prevent Multinational Enterprises (MNEs) from shifting profits between entities and as a result not paying the correct amount of taxes. This is possible only when there is a level of control that can be exercised across the different entities. This level of control can only exist when enterprises are associated. Enterprises are associated if they meet the following conditions:
- An enterprise participates directly or indirectly in the management, control or capital of another enterprise or,
- The same persons participate directly or indirectly in the management, control or capital of two enterprises.
Examples of Controlled Transactions
The following examples may help you identify a controlled transaction:
- Company A sells apples to Company B. Company A owns 100% of the shares in Company B. Company A and B are associated enterprises. The sale of apples is a controlled transaction in this case.
- Company A sells apples to Company B. Company A and B is both 100% owned by Company C. Company A, B and C are associated enterprises. The sale of apples is a controlled transaction in this case.
- Company A sells apples to Company B. Mr X is the only director of both Company A and Company B. Company A and B are associated enterprises. The sale of apples is a controlled transaction.
What is an uncontrolled transaction?
An uncontrolled transaction is a transaction between two (or more) enterprises that are “not associated enterprises” ( or independent enterprises) with respect to each other. For example 4: Company A sells apples to Company B. Company A and B are not related in any way via management, control or capital. They do not have the same owner or people Companies A and B are not associated enterprises. The sale of apples is an uncontrolled transaction in this case.
Transfer Pricing Advisers in Dubai can Advise You
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.