Transfer Pricing

Documentation on Transfer Pricing in the UAE assists companies in determining their tax liabilities based on transactions when filing corporate tax returns. This documentation can influence the taxable income reported and must be included in corporate tax filings if requested by the FTA.

Globally, the application of transfer pricing procedures has garnered significant attention due to their growing impact on corporate taxation in the UAE. Businesses engaged in cross-border transactions recognize the critical role of transfer pricing.

Both large and small businesses face heightened risks due to scrutiny from tax authorities and regulatory standards. Many multinational corporations proactively explore cost management options through optimal transfer pricing models.

Innovate Accounting offers expertise in devising tax-efficient strategies that ensure compliance with laws and regulations, thereby meeting transfer pricing requirements. Before delving into our services, allow us to provide insights into transfer pricing in the UAE and its regulatory framework.

What is Transfer Pricing in UAE?

Transfer pricing involves establishing prices for goods or services exchanged between various units or divisions within a multinational corporation. In the UAE, these transactions are regulated by transfer pricing regulations, which have been further influenced by the UAE corporate tax framework.

The transfer pricing regulations in the UAE aim to guarantee that transactions between related parties occur at arm's length, indicating that they transact with each other at prices comparable to those in transactions between unrelated parties.

What is an Arm Length Price (ALP)?

The arm's length price (ALP) represents the price of a transaction between two related firms, akin to what would have been agreed upon had the transaction occurred between two comparable independent and unrelated parties, driven solely by commercial considerations.

The arm's length principle is rooted in the notion that related parties should engage in transactions at prices reflective of those that would emerge from typical competitive market dynamics of supply and demand.

In alignment with OECD Transfer Pricing Guidelines, the UAE corporate tax legislation has adopted the Arm's Length Principle for its transfer pricing rules. Compliance with transfer pricing guidelines and the arm's length principle is mandatory for all transactions involving related parties.

Impact of Transfer Pricing on UAE Corporate Tax

As stipulated by the Ministry of Finance, transfer pricing regulations mandate that transactions between related parties in the UAE adhere to arm's length terms, mirroring transactions between independent parties. Businesses operating in the UAE are required to comply with transfer pricing rules and documentation requirements in accordance with OECD (Organization for Economic Co-operation and Development) guidelines.

Typically, the Federal Tax Authority conducts assessments and reviews related policies, documentation, as well as inter-company and inter-group transactions to ensure consistency with transfer pricing laws.

Corporate Tax Returns and Transfer Pricing

In the realm of corporate tax returns in the UAE, transfer pricing can influence the taxable income declared by a company.

Should a company be discovered to have employed transfer pricing tactics that artificially diminish its taxable income in the UAE, the FTA reserves the right to amend the company's tax liability in accordance with arm's length principles.

As part of the transfer pricing documentation, the submission of the local file and country-by-country (CbC) report is mandatory alongside corporate tax returns in the UAE, provided the company meets specific criteria.