Benchmarking in the GCC

As Gulf Cooperation Council (“GCC”) countries, particularly the United Arab Emirates (“UAE”), Saudi Arabia, and Oman, continue to embed Transfer Pricing (“TP”) within their respective corporate tax frameworks, benchmarking has emerged as one of the most debated aspects of compliance.

In jurisdictions with limited local data, can global comparables serve as a reliable benchmark for determining arm’s length prices?

1. Background: The importance of benchmarking

   Benchmarking lies at the heart of every transfer pricing analysis. It is the process through which Multinational Enterprises (“MNEs”) test whether the prices charged between related parties are consistent with those charged between independent parties under comparable circumstances.
   
   The principle sounds straightforward, but in practice, the reliability of benchmarking depends on the quality of comparable data. For mature tax jurisdictions, publicly available financial databases provide adequate data covering various industries and transactions. However, In developing or transitional markets such as the GCC, the shortage of local comparables has compelled practitioners to resort to other regional or even global datasets to bridge the gap.

2. Reality in the GCC: Limited data and varied economies

   Most GCC countries, including the UAE, currently lack a strong pool of publicly available comparable company data. The business landscape is largely dominated by privately held, often family-owned enterprises that are not required to disclose detailed financial statements. Even when financial information is available, segmental data, crucial for TP benchmarking is seldom reported.

   As a result, both taxpayers and advisors frequently rely on global commercial databases such as Orbis, TP Catalyst, and Amadeus, which provide financial information on comparable companies from regions like Europe, Asia, and North America. These global datasets have become the foundation of most TP analysis in the GCC, particularly for sectors such as services, distribution, and manufacturing.

   However, as TP compliance in the GCC becomes more sophisticated, heavy dependence on distant, global comparables raises valid concerns about their economic relevance, market alignment, and defensibility before local tax authorities. 

3. Global Comparables: Usage and Key Challenges
   
   Market conditions and risk profiles

   A company in Germany or Poland may face economic and competitive conditions that are very different from those in Dubai or Riyadh. Differences in cost structures, market risks, and consumer behaviour can be significant. Using such benchmarks without thorough qualitative adjustments may lead to an inaccurate representation of the arm’s length range.
   Functional and geographic adjustments

   While the Organisation for Economic Co-operation and Development (“OECD”) permits geographic adjustments, these are often subjective and narrow in scope. For instance, applying a flat percentage to account for “emerging market risk” typically lacks a solid empirical foundation. Authorities such as the FTA may challenge these assumptions unless they are backed by credible third-party evidence.
   Currency and inflation dynamics

   Exchange rate fluctuations and differing inflation rates add further complexity to comparability. An operating margin of 5% in a stable, low-inflation European market may not reflect the same economic reality in the GCC, where costs, incentives, and market conditions may vary significantly.

4. Emerging alternatives and regional adaptation

   Encouragingly, the landscape is gradually improving. Several national statistical authorities in the GCC are enhancing the transparency of business data. Additionally, FTA disclosures and free zone reports are slowly contributing to a more visible ecosystem of local benchmarks.

   At the same time, many companies are building regional benchmarking repositories by pooling anonymized data from TP studies across the GCC. Over time, this could lead to the development of “Middle East reference sets” that more accurately reflect regional economic realities, even if the data remains partially private.

   Another emerging strategy is internal benchmarking. When a company/ group has a sufficient number of third-party transactions, such as management fees charged to unrelated clients, loans to external entities, or product sales via distributors, these can offer more reliable and defensible comparables than those obtained from external databases.

5. Regulatory perspective: FTA expectations

   The UAE have signalled that foreign comparables are acceptable, as long as taxpayers can show that they made a genuine effort to identify local comparable data initially. The focus is on providing a “reasoned justification” rather than strictly insisting on “local-only” comparables.

   In practice, this involves:

   • Explaining why no suitable local comparables were available;
   • Demonstrating why foreign markets are economically comparable;
   • Applying appropriate adjustments for working capital or risk; and
   • Maintaining consistent application from year to year.

   The FTA places emphasis on whether taxpayers understand the qualitative characteristics of the comparables they select, rather than simply confirming that the numbers meet quantitative thresholds.

6. Moving forward: Balancing realism and best practices

   Until the GCC establishes a public database of company financials, global comparables will continue to be a practical necessity. What matters most is using them transparently, analytically, and with an understanding of the regional environment.

   Taxpayers should:

   • Prioritize functional comparability over geographic location;
   • Offer detailed qualitative explanations of market dynamics;
   • Apply multi-year testing to reduce the impact of volatility; and
   • Follow consistent methodologies supported by solid, defensible documentation.

   In the end, the objective is to present a defensible arm’s length position, rather than a flawless comparable.

7. Conclusion

As TP frameworks in the GCC continue to mature, benchmarking is shifting from a purely mechanical database exercise to a more judgment-driven, context-sensitive practice. While global comparables remain relevant, their use requires careful consideration of their limitations.

Looking ahead, the next phase of TP in the region is likely to emphasize greater collaboration on regional data, thoughtful economic adjustments, and deeper local insights helping position the GCC not just as a user of benchmarks, but as a contributor to the global benchmarking landscape.