Transfer Pricing in the UAE

As part of the introduction of Transfer Pricing (“TP”), the UAE will apply the internationally recognized “arm’s length” principle to transactions and arrangements between related parties and with connected persons.

Introduction of TP rules and TP documentation requirements in line with the OECD TP Guidelines.

Deliberation on TP documentation applicability thresholds, requirement for any TP returns, applicability of TP rules to domestic related party transactions and other key aspects.

• Expected impact
  • Merger and acquisition transactions to be assessed from a TP perspective.
  • Elimination of double taxation of taxpayers and resolving international tax disputes through Mutual Agreement Procedure (“MAP”).
  • Taxpayers can appeal before various tax/legal forums in relation to TP disputes with the federal tax authority.
  • Country-by-Country (“CbC”) reporting effective from 1 January 2019, continues to apply to Multinational Entity (“MNE”) Groups in the UAE.
  • All transactions and arrangements with related parties and connected persons will be subject to TP Rules.
  • Internationally-recognized TP methods to be adopted for determining Arm’s Length Price (“ALP”).
  • Cost-sharing agreements or cost-contribution agreements could be within the scope of TP.
  • Maintenance of Master and a Local file with the format and content consistent with the requirements as prescribed under OECD BEPS Action-13.

• Open points
  • “Safe harbour” mechanism in the TP regime to benefit the taxpayers to reduce or eliminate uncertainties and protracted litigation.
  • Due date for TP compliances and consequent penal implications for non-compliance.
  • Advance Pricing Agreement (“APA”) specifying the pricing method that the taxpayer can adopt to aid the taxpayers to voluntarily resolve actual or potential TP disputes in a proactive, cooperative manner.
  • Clarity as to whether intra-group transactions qualifying for exemption from corporate tax will be exempt from TP Rules.
  • Clarification on TP approach to be taken for entities operating in Free Zones.

• Key takeaways

• Business should consider performing an initial high-level impact assessment of the TP arrangements, which are at the core of any MNE’s international tax policy. MNEs already operating in the UAE with the right level of Economic Substance can leverage the arm’s length principle to increase the efficiency of their tax structure.

• The corporate tax return, backed up with the right TP policy and the right documentation, will be critical when dealing with the UAE Federal Tax Authority (“FTA”).