Transfer pricing refers to the practice of determining the price at which goods, services or intellectual property are exchanged between different entities within the same multinational group. The pricing between related parties should comply with the arm’s length principle, i.e., the price that third parties would pay in comparable circumstances. The arm's length principle is the guiding framework that underpins transfer pricing regulations and practices.
Transfer pricing in the UAE
On 9 December 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) released Federal Decree-Law No. 47 of 2022 pertaining to the Taxation of Corporations and Businesses (the CT law), which included dedicated transfer pricing (TP) articles which will require UAE taxpayers to comply with the arm’s length principle for pricing their related party transactions. To provide clarity on the UAE CT regime, the MoF released a number of frequently asked questions giving further details. Oversight of the CT law will be under the remit of the Federal Tax Authority (FTA).
On 11 May 2023, the UAE MoF published Ministerial Decision No. 97 of 2023 on the requirements for preparing and maintaining TP documentation under the UAE CT regime, as defined under Article 55(2) of the Federal Decree-Law No. 47 of 2022 (the CT law).
The application of UAE TP will apply to all UAE taxpayers. All must:
- Comply with the arm’s length principle on related party transactions regardless of CT grouping positions, whether the entity is located in a free trade zone or the rate of CT applicable.
- File a TP disclosure form, as part of their CT return file, with the exception of those claiming Small Business Relief.
In addition, UAE taxpayers who have turnover above AED 200 million or who are members of multinational group with global turnover above AED 3.15 billion need to annually prepare a local file and master file.
Finally, all UAE taxpayers located in UAE free zones are required to comply with the arm’s length principle. Therefore, KPMG recommends free zone entities also prepare supporting local and master files.
Our transfer pricing services
- Transfer pricing risk reviews and impact assessments: transfer pricing risk reviews and impact assessments will involve evaluating the potential risks within the intercompany transactions. We will assess if the intercompany pricing aligns with the arm's length principle, ensuring compliance and best practices. By identifying risks and their impact, multinational groups operating in the UAE can mitigate issues and adjust their pricing strategies to avoid potential future disputes with tax authorities.
- Transfer pricing planning and modelling: transfer pricing planning and modelling of pricing for intercompany transactions within multinational groups, ensuring compliance with tax laws, optimizing profits and minimizing future disputes through strategic pricing structures and financial simulations.
- Tax optimization and business transformation: transfer pricing tax optimization minimizes tax liabilities by strategic pricing in line with value creation. Business transformation adjusts pricing to match evolving business models and operations, ensuring transfer pricing remains effective and compliant with changing market conditions and regulations.
Disclosure form: a transfer pricing disclosure form is a form that taxpayers are required to submit to tax authorities, alongside the CT return. It provides information about the company's intercompany transactions, transfer pricing methods and related parties involved. This form ensures transparency and compliance with tax regulations by providing authorities with insight into the company's transfer pricing practices. Tax authorities typically use these forms as a risk assessment tool in order to determine what taxpayers to audit.
Local file: an OECD compliant local file is a document prepared by companies to illustrate their compliance with the arm’s length principle. It contains detailed information about the company's intercompany transactions with related parties within a specific jurisdiction. This file typically includes financial data, descriptions of products or services, transfer pricing methods applied and an analysis demonstrating that the pricing is consistent with the arm's length principle. In the UAE, companies subject to certain thresholds are required to annually prepare a local file and this should be provided to the UAE tax authority within 30 days upon request.
Master file: a transfer pricing master file gives an overview of a multinational group's global operations, its organizational structure and its overall transfer pricing policies. This file contains high-level information that applies to all the group’s global operations and presence across different jurisdictions. It helps tax authorities understand the company's transfer pricing practices on a global scale and facilitates risk assessment and consistency analysis across various transactions and jurisdictions.
Country-by-country reporting: providing financial data that multinational group's with global turnover above EUR750m (or AED3.15b) annually prepare and submit to tax authorities. This report provides a jurisdictional breakdown of the group’s operations, financial performance, and transfer pricing arrangements in each country where it operates. It includes information such as revenue, profits, taxes paid, and other key economic indicators. The purpose of this report is to provide tax authorities with insight into how the group's profits are allocated and taxes are paid across different jurisdictions, promoting transparency and ensuring compliance with OECD guidelines and international standards.
Transfer pricing due diligence involves a high-level or thorough assessment (depending on the requirements) of a group's intercompany transactions and transfer pricing practices before a business acquisition, merger or restructuring. It aims to identify potential risks, compliance issues and financial implications related to transfer pricing arrangements. This assessment helps the acquiring or restructuring party make informed decisions, plan for integration and address any necessary adjustments to ensure compliance and optimize the overall financial outcome of the transaction.
Transfer pricing benchmarking involves comparing the pricing of a company's intercompany transactions with similar transactions between unrelated parties in the similar conditions. The objective is to determine whether the company's transfer prices are in line with the arm's length principle, which requires that transactions between related entities be priced as if they were independent entities. Benchmarking involves collecting data on comparable transactions, analyzing market conditions, and selecting appropriate comparables to assess the appropriateness of the company's transfer pricing methods, often utilizing dedicated transfer pricing databases.
Transfer pricing litigation refers to legal disputes that arise between a company and tax authorities regarding the company's transfer pricing practices. These disputes typically occur when tax authorities believe that a company's intercompany transactions are not priced in accordance with the arm's length principle, leading to potential tax underpayments. Transfer pricing litigation can involve negotiations, administrative appeals or even legal proceedings where both parties present arguments and evidence to determine whether the company's transfer pricing methods comply with the TP regulations. The outcome of litigation can have significant financial implications for the company and may result in adjustments to the company's tax liabilities.
- CT law
- Requirements for maintaining transfer pricing documentation
- Transfer pricing guide
- Corporate Tax FAQs
- Country by country reporting
- Determining qualifying income for the qualifying free zone
- Small business relief
- Tax group
- Qualifying activities and excluded activities
- Exempt income: Dividends and participation exemption
- Adjustments under the transitional rules
- FTA guides, references and public clarifications
- Corporate tax