Buchprufer Consultants LLP

UAE Transfer Pricing

The implementation of transfer pricing practices has attracted significant global attention. As tax authorities scrutinize transfer pricing activities all over the world, Buchprufer can help you create tax-efficient agreements that maximize compliance with laws and regulations while satisfying all your transfer pricing necessities. 

Our team of professionals has a thorough awareness of the global transfer pricing environment and is knowledgeable about the most recent changes to laws and industry standards. You could achieve the best results in your transfer pricing endeavours with Buchprufer as your dependable partner, ensuring compliance while enhancing your competitive advantage in the international market.

Important Elements of a Successful Transfer Pricing Policy

To maintain compliance with local laws and reduce potential risks, multinational companies must create a strong transfer pricing policy. The following are the key elements to think about:

Comprehensive Documentation:

To support the company’s transfer pricing methodology, a well-designed transfer pricing policy calls for comprehensive documentation. This comprises assessments that show adherence to arm’s length principles, such as functional and economic analyses, benchmarking data, and other relevant information.

Local Regulatory Compliance:

The transfer pricing policy must ensure compliance with the specific transfer pricing regulations in each country or tax jurisdiction where the company operates. It should encompass local documentation requirements, disclosure obligations, and penalties associated with non-compliance.

Risk Evaluation and Management

An extensive risk assessment is a key component of a strong transfer pricing strategy since it helps to identify and address possible transfer pricing concerns. This involves taking tax audit, dispute, and penalty probabilities into account.

Regular Review and Modification

For the transfer pricing policy to remain successful and guarantee compliance with changing local laws and shifting business conditions, it must be reviewed often.

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Transfer Pricing Process

The UAE transfer pricing process encompasses a series of vital steps to ensure accurate and compliant intercompany transactions.

Documentation Type for OECD Guidelines

Authorities utilize a three-tiered approach for transfer pricing documentation that is in accordance with OECD transfer pricing standards. This approach entails:

Transfer Pricing Models

Sales and Distribution

Manufacturing

Services

Related Parties

Under the UAE Corporate Tax regime, the definition of related parties is outlined in Section 7.1 of the public consultation document (PCD). A related party is a person or organization who already has a connection to a company covered by the UAE CT system by ownership, control, or kinship.

Furthermore, branches or permanent establishments are also considered related parties under the UAE Transfer Pricing (TP) rules.

Additionally, partners within the same unincorporated partnership are considered related parties.

Connected Persons

A connected person is an individual who directly or indirectly holds an ownership interest in, or controls, the taxable person. A related person also includes a taxable person’s officer or director. Furthermore, any partner in an unincorporated partnership is considered a connected person if one of the partners is a taxable person. In addition, a related party falling under any of the aforementioned descriptions is also considered a connected person.

To prevent tax base erosion, payments made to connected persons are only tax deductible if they meet the following criteria:

Domestic Transactions and Tax Groups

Some nations use the arm’s length principle (ALP) to analyze domestic transactions to ascertain the profits or losses of specific enterprises, particularly in situations where a possible tax benefit can materialize, even when the effective tax impact of local TP regulations may be modest. However, the effects of TP can be lessened when related party transactions take place inside a tax group or when group firms are allowed to transfer losses as long as certain requirements are met.

Free Zones

The UAE will continue to maintain its Free Zones and offer a 0% Corporate Tax rate for Free Zone Persons (FZPs) if certain conditions are met. However, it should be noted that transactions, particularly intercompany transactions, between parties in the UAE mainland may affect the eligibility of the 0% Corporate Tax rate for FZPs and the deductibility of costs for the related parties in the mainland.

Businesses who are impacted by the changes related transfer pricing in the UAE must consider the effects from both a tax and non-tax/operational standpoint. The implications extend beyond TP and may influence contracts, accounting procedures, profit and loss systems, data organization, and the general structure of the tax function, affecting a variety of stakeholders inside organizations.

Illustration - Transaction flows -TP angle

we have illustrated transactional flows below to demonstrate the application of transfer pricing roles:

Key Highlights

Interlink with Corporate Tax

In the connection between transfer pricing and corporate taxes, transfer pricing is essential. Understanding local laws, worldwide tax rules, and industry-specific dynamics are essential for managing transfer pricing and corporate tax effectively. Multinational firms must have strong transfer pricing strategies that are backed up by extensive research and analysis. Let’s see the diagram which depicts the components interlinked with corporate tax.

Key Challenging Areas

Payment to Connected Persons

Reimbursements

Management Support Services

Intercompany Borrowings

Intangibles

Transfer Pricing

Buchprufer’s team of experienced professionals are committed to provide precise and trustworthy transfer pricing assistance solutions that are crafted to match the unique requirements of your business.

Our Expertise Territory

Saudi Arabia

Buchprufer to Assist!

Buchprufer is available to help you create tax-efficient agreements that maximize compliance with laws and regulations while meeting all your transfer pricing needs in an era where tax authorities all over the world are closely scrutinizing transfer pricing operations. Our knowledge guarantees that your company achieves the required degree of transparency and conformity to transfer pricing laws, reducing the risk of audits and fines.