Transfer Pricing Adjustment Key Summary
1. Introduction
Article 34 of the UAE Federal Decree Law No. 47 of 2022 imposes an obligation on the UAE taxpayers to determine the transfer prices of the related party transactions in accordance with the Arms’ Length Principle (“ALP”). It further states that failure to comply with the ALP will warrant TP adjustments. Outlined below is a summary of the TP adjustments and their consequential impact.
2. What?
An adjustment to correct the arm's length price of the controlled transaction/s
3. Why?
To reflect the correct ALP and be compliant with the UAE TP requirements
4. When?
During the year, at the year-end, after the closure of the financial period or during tax assessments
5. Impact?
Increased or decreased taxable income
6. Types of TP adjustments
1. Primary adjustments
- First step taken to correct any deviation from the ALP suo motu by the taxpayer or tax authority.
- Results in increased or decreased taxable income for the taxpayer.
2. Secondary adjustments
- Subsequent adjustment to capture the financial impact of a transaction.
- Can involve actual transfer of funds or assets between the related entities to reflect the corrected pricing.
3. Corresponding adjustments
- Adjustment applied to the taxable income of the counterparty.
- Impacts the taxable income of the counter party in its jurisdiction of residence.
7. Impact of TP adjustment
- Cash flow management issues
- Foreign exchange exposure
- Recognition and accounting
- Invoicing and administrative issues
- Uncertain profit position & financial performance indicator
- Uncertain tax position and tax provision
- Indirect impact on deferred taxes
- Indirect impact on VAT and customs
8. How can Crowe help?
- Assist in proactively assessing the ALP for the related party transactions to remain compliant with the TP provisions.
- Assist in maintaining accurate documentation and implementation of TP policies to mitigate TP adjustments and consequential tax impacts.
