Transfer Pricing under Corporate Tax in UAE

At TAX DXB, we offer comprehensive transfer pricing services under the corporate tax in the United Arab Emirates (UAE). Our team of experienced tax professionals assists businesses in navigating the complexities of transfer pricing regulations to ensure compliance and minimize tax risks. We provide professional transfer pricing services tailored to the specific needs of businesses. Our services include transfer pricing analysis, documentation preparation, compliance support, and expert guidance on transfer pricing matters.

What is Transfer Pricing in UAE?

Transfer pricing refers to the pricing of transactions between related entities, such as parent companies, subsidiaries, or affiliates, within a multinational enterprise. It involves determining the appropriate prices for goods, services, or intellectual property transferred between these entities. Transfer pricing regulations aim to ensure that transactions are conducted at arm's length, meaning they reflect the prices that unrelated parties would agree upon under similar circumstances.

What is an Arm's Length Price (ALP)?

The arm's length price (ALP) is the price at which unrelated parties would transact in similar circumstances. It serves as a benchmark for determining whether the prices used in related party transactions comply with transfer pricing regulations. The ALP ensures that transactions between related entities are conducted on fair and market-based terms, preventing tax avoidance and ensuring a fair distribution of profits.

Impact of Transfer Pricing on UAE Corporate Tax

Transfer pricing has a significant impact on UAE corporate tax. Proper transfer pricing documentation and adherence to arm's length pricing principles are crucial to demonstrate the fairness and accuracy of related party transactions. Failure to comply with transfer pricing regulations may result in tax adjustments, penalties, and potential disputes with tax authorities.

Corporate Tax Returns and Transfer Pricing

Transfer pricing plays a crucial role in corporate tax returns in the UAE. Businesses are required to disclose information on related party transactions and provide supporting documentation to justify the pricing methodologies used. Accurate transfer pricing information ensures the proper calculation of taxable income and helps avoid potential tax audits or adjustments.

Need for Transfer Pricing Documentation

Transfer pricing documentation is essential to demonstrate compliance with transfer pricing regulations and support the arm's length nature of related party transactions. It provides a comprehensive analysis of the transfer pricing policies, methodologies used, and the economic rationale behind them. Robust documentation is crucial to mitigate transfer pricing risks and satisfy the requirements of tax authorities.

Transfer Pricing Documentation Conditions for Corporate Tax in UAE:

The UAE has implemented transfer pricing documentation requirements in alignment with international standards. These include:

1. Master File: A comprehensive report providing an overview of the multinational enterprise's global business operations, transfer pricing policies, and related party transactions.

2. Local File: A detailed report specific to the UAE entity, providing information on its business activities, financials, and transfer pricing policies, along with supporting documentation.

3. Country-by-Country (CBC) Reporting: A report disclosing key financial and tax-related information for each jurisdiction where the multinational enterprise operates, providing insights into the global allocation of income, taxes paid, and economic activity.

Document Model of Transfer Pricing under OECD Guidelines

The Organization for Economic Co-operation and Development (OECD) provides guidelines for transfer pricing documentation, including a three-tiered approach:

1. Master File: A comprehensive overview of the multinational enterprise's global operations, including its business overview, intangible assets, intercompany financial activities, and transfer pricing policies.

2. Local File: A detailed report specific to each entity within the multinational enterprise, covering its business operations, related party transactions, and transfer pricing methodologies.

3. CbC Reporting: A report providing aggregated financial and tax-related data for each jurisdiction in which the multinational enterprise operates, facilitating high-level analysis of transfer pricing and economic activities.

Transfer Pricing Techniques:

Transfer pricing techniques are methods used to determine the arm's length price. Common techniques include:

1. Comparable Uncontrolled Price (CUP):Comparing the price of the controlled transaction with prices of similar transactions between unrelated parties.

2. Cost plus Method: Adding an appropriate profit markup to the cost of production or provision of goods/services.

3. Resale Price Method: Determining the arm's length price based on the resale price of goods or services, minus an appropriate gross profit margin.

4. Profit Split Method: Allocating profits between related parties based on their relative contributions to the value chain.

5. Transactional Net Margin Method (TNMM): Comparing the net profit margin earned by the tested party with that of comparable unrelated entities.

Transfer Pricing Services at TAX DXB

At TAX DXB, we provide comprehensive transfer pricing services, including:

  • 1. Transfer pricing analysis and benchmarking studies.
  • 2. Preparation of transfer pricing documentation in compliance with local and international regulations.
  • 3. Assistance in determining appropriate transfer pricing methodologies.
  • 4. Compliance support and audit defense in transfer pricing matters.
  • 5. Expert guidance on implementing effective transfer pricing policies and strategies.

Our dedicated team of tax professionals ensures that businesses navigate the complexities of transfer pricing regulations effectively and optimize their tax positions while maintaining compliance with UAE tax laws. For more information and personalized assistance regarding transfer pricing in the UAE, please contact our team. We are here to provide the guidance and support you need to navigate the intricacies of transfer pricing and ensure compliance with regulatory requirements.

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