Transfer Pricing  

The United Arab Emirates (“UAE”) Corporate Tax (“CT”) law also includes a comprehensive Transfer Pricing (“TP”) regime. The CT and TP regime shall be effective for financial years starting on or after 01 June 2023. The UAE TP Rules and Documentation requirements are in line with the internationally accepted OECD TP Guidelines.

Objective

Ensure that transactions between related parties and connected persons are carried out at arm’s length (at market value).

Applicability

All transactions (both domestic and international) between related parties and connected persons carried by resident or foreign persons including Free Zone.

Related Parties

•        Individuals related to the fourth degree of kinship

•        Owns minimum 50% of ownership

•        Controls the juridical person

•        Partners in an unincorporated partnership

•        A person and its permanent establishment

Connected person

•        Owner of the taxable person

•        Director or officer of the taxable person

•        Related party of any of the above

Compliances and consequences

•        TP documentation – Master and Local file

•        Related Party Disclosure Form

•        Adjustment to the taxable income in absence of Arms Length

•        Corresponding adjustment for international related party transactions

Relevance

•        No deduction on payments to connected person for non-compliance with ALP

•        Mandatory TP compliance to be a Qualifying Free Zone benefitting 0% CT rate

TP Methods to determine the ALP

•        Comparable uncontrolled price (“CUP”)

•        Resale price method (“RPM”)

•        Cost plus method

•        Transactional profit split method (“PSM”)

•        Transactional net margin method (“TNMM”)

Factors to consider for the selection of the TP method ?

Contractual terms

•        Characteristics of goods/services

•        Economic circumstances

•        Functions, Assets and Risk

•        Business strategies

How can Crowe help?

A.   Identify the TP applicability to the transactions with connected persons and related parties.

B.    Support in the preparation of:

•        TP Study Report which includes Function, Asset and Risk (“FAR”) analysis, Evaluation of TP methods, and Economic analysis.

•        TP documentation, intercompany agreements, conduct benchmarking for determining the Arms’ Length Price.

C.   Support in obtaining and negotiating Advance Pricing Agreements (“APAs”) with the relevant tax authorities.