The United Arab Emirates (UAE) is a preferred destination for global businesses, multinational corporations, and growing enterprises. The country’s strategic location, good business environment, and increasing global trade opportunities have attracted many organizations to do business in multiple countries. Consequently, companies set-up various business entities in different countries and do business with the other entities. Transactions between the related companies have to be properly documented and priced in line with tax laws of the countries where they operate.
Transfer Pricing Advisory services UAE have helped businesses establish fair pricing policies between related entities while also addressing UAE Corporate Tax and international tax requirements.
Transfer pricing is the terminology used to describe the pricing of transactions between entities related to or part of the same corporate group. These may include the sale of goods and services, licensing of intangible property (e.g. patents, trademarks, copyrights, etc.), financial transactions, and loans.
For instance, if a company in the UAE purchases goods from, or a service is provided by, the company’s parent entity in another country, the price charged for such a transaction is considered a transfer price.
Pursuant to the Arm’s Length Principle, the price charged should be at a level that independent enterprises would have agreed on, given the same or comparable circumstances.
Prudent transfer pricing practices help achieve tax transparency and mitigate tax risks.
The UAE introduced Corporate Tax under Federal Decree-Law No. 47 of 2022, which takes effect from financial years beginning on or after 1 June 2023. Therefore, the transfer pricing framework is to be addressed from that date onwards.
As stipulated by the UAE Corporate Tax framework, businesses must ensure their related party and connected person transactions comply with the Arm’s Length Principle.
The requirements are based on international standards and guidelines, such as the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines.
In line with the conditions and thresholds set by the law, businesses are required to create and maintain transfer pricing documentation, which may include:
– A ‘Master File’ which provides an overview of a multinational group’s operations, structure and policies relating to transfer pricing.
– A ‘Local File’ which provides detailed information relating to a particular UAE group company, and its related party transactions, and supporting analysis.
– A Transfer Pricing Disclosure Form, which provides information on relevant related party and connected person transactions.
Complying with the above requirements and maintaining adequate documentation demonstrates a business’ compliance and facilitates the response to requirements, when requested, by the authorities.
Transfer pricing is just one of the several tax compliance requirements for businesses, and it plays an important role in risk management for businesses.
Here are a few reasons for seeking professional advisory support.
UAE businesses must comply with the provisions of Corporate Tax and transfer pricing requirements. Professional advisory support assists businesses to understand their responsibilities and requirements, and support them in preparing and implementing an adequate transfer pricing policy.
Pricing between related parties can pose financial and tax risks for a business. Transfer pricing strategies and policies play an important role in mitigating such risks.
Following the Arm’s Length Principle requires proper documentation to provide evidence of related party transactions. The advisory function assists in developing and maintaining the required documentation, benchmarking studies and financial information to support the documentation.
Businesses working in various countries deal with different tax laws and regulations. Transfer pricing advisory assists in developing policies that facilitate smooth cross-border business operations and maintain consistency.
Visibility into intercompany transactions, costs and profits enables better business decisions. An effectively designed transfer pricing framework supports financial and business decisions.
The nature of a business determines the services required. Some of the key services are:
– Assessing risks associated with related party transactions to identify potential gaps in compliance;
– Developing and/or maintaining transfer pricing documentation to include Local Files and Master Files where required;
– Performing benchmarking analyses for related party transactions;
– Developing transfer pricing polices, intercompany agreements and policies;
– Reviewing Intercompany Agreements to reflect the true nature of the business;
– Providing advice and assisting clients with understanding regulatory changes, and transfer pricing practices.
By selecting the right services, businesses can establish an effective and efficient compliance framework.
A number of challenges arise when businesses attempt to implement transfer pricing regulations. These include:
– Identifying related parties/ connected persons.
– Deciding on the most appropriate pricing method for a given transaction.
– Locating comparable market data for a given transaction for purposes of benchmarking.
– Ensuring adequate and consistent financial documentation.
– Balancing the requirements of transfer pricing across multiple jurisdictions.
– Keeping the company’s policies up to date with evolving legislative requirements.
The most common transfer pricing challenges can be managed through regular in-house reviews and the engagement of external parties when required.
AJMS Global focuses on practical business implementation, and the improvement of business outcomes for clients. For businesses looking to operate more effectively and efficiently while better meeting the requirements of local and international regulators, AJMS Global is a trusted advisory partner.
Taking a structured approach to advisory means businesses can define their transfer pricing obligations, identify risks and develop processes to support their business operations.
Whether a business is expanding internationally, restructuring their operations or reviewing their related party transactions, professional advisory services help to implement an effective and transparent process.
Transfer pricing services have gained importance with businesses operating in the UAE, especially businesses undertaking international transactions and those operating as part of a group. Implementing the Arm’s Length Principle and understanding the requirements of Corporate Tax help in managing risks arising from non-compliance.
Transfer pricing advisory services help develop transfer pricing policies, enhance transparency and foster sustainable growth of the business.
With the right approach to transfer pricing and the help of advisory firms such as AJMS Global, businesses are able to focus on their core activities of the business and be at peace with transfer pricing obligations.
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