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.
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Planning
Businesses carefully analyze their operations and determine the most appropriate transfer pricing methods -
Pricing policies and contracts
Aligning with international guidelines and local regulations to establish clear terms for intercompany transactions. -
Accounting
Record-keeping and documentation are essential to support the transfer pricing arrangements. -
Monitoring
Maintain transparency and adherence to regulations to identify and address any potential transfer pricing risks. -
Testing and Compliance
Validate the transfer pricing policies, ensuring they stand up to potential scrutiny from tax authorities.
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:
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Master File:
A document containing standardized data relevant to each member of the multinational enterprise (MNE) group. -
Local file:
A record that specifically refers to major transactions affecting the local taxpayer. -
Country-by-Country Report:
A record including information on the earnings and taxes received by the MNE group, as well as information on the locations of economic activity within the MNE group.
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:
- Correspond to the market value of the service provided.
- Are incurred wholly and exclusively for the purposes of the taxpayer's business.
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
- Transfer pricing method will be determined by the substance between UAE entities.
- Authentication of connected persons and the identification of related parties.
- Application of transfer pricing guidelines to management accounts and ERP systems.
- Ensure that the regulated transactions with linked parties and related parties are priced in compliance with the arms-length principle by reviewing the present transfer pricing structure.
- Look about the way Pillar 2 and other UAE transfer pricing developments may affect.
- Examine the operational model for transfer pricing that has to be modified and determine how it interacts with corporate taxes, ESR, customs, etc.
- Handle the master file, local file, cbcr, and other requirements for transfer price compliance.
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.
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.
Key Challenging Areas
Payment to Connected Persons
Reimbursements
Management Support Services
Intercompany Borrowings
Intangibles
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.