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The Transfer Pricing Guide (TP Guide), published on October 23, 2023, by the Federal Tax Authority (FTA), offers taxpayers information and helpful advice regarding the Transfer Pricing (TP) rules and regulations by the UAE CT Law (Corporate Tax Law of the United Arab Emirates).
Setting prices for transactions involving related businesses within a multinational corporation, especially those involving goods, services, or intellectual property, is known as transfer pricing. These exchanges may include the lending of money, the selling of products, the rendering of services, or the licensing of intellectual property. Transfer pricing guarantees appropriate profit allocation among subsidiaries, prevents tax evasion, and ensures that related party transactions are carried out at arm’s length, reflecting fair market value.
Transfer pricing is vital in international taxation and regulatory compliance in the United Arab Emirates. Since the UAE is a hub for holding companies and multinational organisations, using appropriate transfer pricing techniques is crucial to upholding transparency, preventing tax disputes, and proving conformity with international tax laws. Businesses operating inside the UAE’s jurisdiction must adhere to suitable transfer pricing procedures due to the UAE’s commitment to international tax transparency and conformity with OECD principles.
Failure to comply with the UAE’s requirements for transfer pricing documents may result in fines and possibly even changes to taxable income. Thus, it is essential to have precise and current paperwork to prevent unfavourable outcomes.
MNEs should routinely evaluate the risks associated with transfer pricing and update their documentation as necessary. Transfer pricing policies and paperwork in the UAE may need to be revised in response to shifts in corporate operations, the state of the economy, or legal requirements.
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A transaction or agreement between Related Parties is required to meet the Arm’s Length Standard. If the outcomes of the transaction or arrangement between Related Parties align with what would have happened if Unrelated Parties had entered into a comparable transaction or arrangement in comparable circumstances, then the Arm’s Length Standard has been satisfied.
Regardless of whether Related Parties or Connected Persons are based in the UAE Mainland, a Free Zone, or a Foreign Jurisdiction, transfer pricing regulations apply to UAE enterprises that trade with them.
The UAE’s tax authority adjusts the taxable income of the party that is taking part in the relevant transaction or arrangement when the Tax Authority or a Taxable Person modifies the Taxable Income for a transaction or arrangement to comply with the Arm’s Length Standard.
The price that may be agreed upon in a free market transaction conducted at arm’s length by individuals who are not connected under comparable circumstances is known as the market value. Therefore, the Arm’s Length Standard applies to ascertain whether a payment or benefit given by the Taxable Person matches the Market Value of the service or is otherwise delivered by the Connected Person in exchange.
No. There are no guidelines for regulated transactions involving intangibles in the UAE Transfer Pricing Regulations. Therefore, the recommendations made in the OECD’s Transfer Pricing Guidelines 2022 shall be followed.
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