Tax
Transfer Pricing Regulation
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Transfer Pricing Procedure In UAE
The use of transfer pricing procedures has attracted significant global attention due to the growing impact of transfer pricing on corporate tax in the UAE. AH Tax Consultancy can help you establish tax-efficient arrangements that ensure compliance with regulations and laws while addressing all your transfer pricing needs. Businesses involved in cross-border transactions are increasingly recognizing the importance of transfer pricing.
On December 9, 2022, the UAE Ministry of Finance issued Federal Decree-Law No. 47 of 2022 on the taxation of businesses and corporations. The Ministry of Finance also updated the “frequently asked questions” section, which now includes new transfer pricing regulations.
Under these transfer pricing rules, transactions between parties must be conducted on arm’s length terms. The corporate tax law requires that the value of transactions with connected persons and related parties be determined by referencing their “market value.” This represents an arm’s length measure or financial outcomes, as the objective of transfer pricing is to prevent the manipulation of taxable income.
Applicable To Taxpayers And Scope Of Transactions
- Transactions between mainland and free zone entities as well as domestic related parties are all covered within the scope of the law.
- A non-resident person having a permanent establishment in the UAE would also be subject to the advance transfer pricing agreement and provisions. Therefore, he would be required to submit and maintain the relevant transfer pricing documentation.
- Transactions done between different business lines of an exempt person must comply with the arm’s length principle.
Transfer Pricing Methods
The law sets five transfer pricing methods for the purpose of the application of the arm’s length principle.
Resale price method
Comparable uncontrolled price method
Cost plus method
Transactional profit split method
Transactional net margin method
Transfer Pricing Documentation
In the future, UAE businesses will need to comply with the internationally accepted transfer pricing documentation requirements.
It is expected that the government of UAE will issue further guidance as the law does not provide any materiality thresholds. ebs recommends that businesses look into their business arrangements from a transfer pricing perspective and start to prepare the required documentation.
Large, small, and medium groups now face a certain risk due to monitoring by the tax department and regulatory standards. Several global corporations are also thinking about the possible cost management options provided by a well-designed transfer pricing mode
Advance Pricing Agreements (APAs)
- An APA is an approach that aims to prevent transfer pricing disputes. These disputes are arising by criteria for applying the arm’s length principle to transactions. through the regular clarification process, the law provided that APAs will be exploitable.
AH Observation
- In the future, UAE businesses will need to comply with the internationally accepted transfer pricing documentation requirements. It is expected that the government of UAE will issue further guidance as the law does not provide any materiality thresholds. ebs recommends that businesses look into their business arrangements from a transfer pricing perspective and start to prepare the required documentation. Large, small, and medium groups now face a certain risk due to monitoring by the tax department and regulatory standards. Several global corporations are also thinking about the possible cost management options provided by a well-designed transfer pricing mode
FAQ's
The corporate tax law is going to be effective from 1 June 2023 and includes some transfer pricing (TP) provisions that are broadly aligned with Organization for Economic Cooperation and Development (OCED) principles.
It refers to the value attached to the transfer of services, goods, and technology between related entities. It also refers to the value attached to transfer between unrelated parties.
These are the main three types of transfer pricing:
Market-based transfer price, Cost-based transfer price, and Negotiated transfer prices.
There are generally over sixty governments that have adopted transfer pricing rules which in some cases are based on the arm’s length principle.
There are five main OECD methods for transfer pricing such as CUP, Resale Price, Cost Plus, TNNM, and the Profit Split Method. Taxpayers need to choose the most appropriate method for their particular case.
On 31 January 2022, the Ministry of Finance of the UAE announced that the UAE will introduce a Federal Corporate Tax (CT) on business profits that will be effective for financial years starting on or after 1 June 2023. The corporate tax law is applicable in the context of the UAE transfer pricing (TP) rules which are applicable in UAE.
