UAE Corporate Tax (CT) Law introduces a comprehensive Transfer Pricing (TP) regime which is broadly in line with the OECD TP Guidelines.
KEY HIGHLIGHTS OF UAE TP RULES
- UAE TP rules apply to UAE businesses that have transactions with Related Parties and Connect Persons, irrespective of whether they are located in UAE mainland or Free Zone or in a foreign jurisdiction. Clarifications are expected on transactions between Free Zones and UAE mainland entities. Further, Tax Groups & Small businesses are exempted from TP compliances; however, thresholds & clarifications are expected.
- All the controlled transactions should meet the arm’s length standard. TP rules prescribe five TP methods (CUP, RPM, CPM, TNMM, PSM) for determining the arm’s length price. Rules also allow to adopt any Other Method.
- Where the transfer price/margins do not fall within the ALP range, the FTA shall make TP adjustment to taxable income. However, the definition of arm’s length range is not yet clarified (inter-quartile/percentile/ari
thmetic mean etc.)
- TP rules also introduce corresponding adjustment principle to ensure transparency on domestic transactions and to eliminate/minimize risk of double taxation on international transactions (if application is made by UAE entity).
- TP rules prescribes TP documentation which includes filing of disclosure form along with tax return and maintaining local file & master file which has to be filed upon request by FTA. Thresholds and penalties are yet to be prescribed. CbCR filing requirement was earlier introduced in 2019. UAE has adopted BEPS Action 13 documentation requirements.
- Law also introduces Advance Pricing Agreement (APA) Regime. However, APA process is yet to be clarified.
UAE TP framework is broadly aligned to international TP regulations and is expected to strengthen with more guidance expected from the Authorities in due course.
ACTION POINTS FOR UAE BUSINESSES
- Considering the timeframe left to implement the TP rules, the UAE businesses & MNEs have to analyze the inter-company transaction flows, substance test, characterization and set-up appropriate TP policy and remuneration mechanisms. Structuring & Tax impact analysis has to be undertaken factoring TP & BEPS implications along with inter-play of CT, VAT, Accounting, Valuations etc.
- Further, this is the right time to undertake TP benchmarking analyses, set-up inter-company agreement/TP policy, SOPs etc. which will assist in meeting TP compliances requirements.
SBC Spectrum Auditing – TP FAQs
Following TP FAQs are useful in understanding the UAE TP regime.
SBC-Spectrum-UAE-TransferPricing-FAQs (click to download the document)
(click on the above image to download the document)
How Can We Assist You on UAE CT & TP?
The developments in relation to CT & TP in the UAE have far-reaching tax and non-tax/operational implications for affected businesses. Alongside CT & TP, these implications may also relate to legal structure, business model, contracting, accounting, profit and systems and data organization, and the organization of the tax function with a potential impact for various stakeholders within organizations. Considering the timeframe left to prepare for the implementation of CT & TP rules, companies should start assessing the impact for their business and what they need do in order to be prepared given the complexity of these rules. We can assist you with the following:
Corporate Tax & International Taxation:
- Assist in undertaking tax impact analysis for being CT compliant ready
- Assist in Managing Group Tax compliances under single dashboard
- Assisting in preparing and maintaining the Documentation and Reporting to the tax authorities
- Representation/ involvement at the Court or Tribunal level or before tax or non-tax authorities
- Analysis of tax residency and CT & TP implications in UAE
- Advisory on WHT applicability for various international transactions
- Advisory on Global Entity Structuring/Restructuring
- Ensure consistency with OECD and Global International Tax & TP practices, BEPS readiness
- Analyze the inter-company transaction flows and set a robust TP policy
- Advice on substance test, appropriate business models and remuneration mechanism from a TP and Tax standpoint
- Tax impact analysis factoring TP and BEPS implications
- TP inter-play with CT, VAT, Customs, Accounting, Valuations etc.
- Undertaking TP benchmarking analyses, Drafting inter-company agreement, Group TP policy, SOPs etc.
- Assist with TP Compliances (Disclosure Form, Local File, Master File, Country-by-Country- Report)
- Representations before FTA in due course
- Alternative Dispute Resolution/Preventions (APA/MAPs)
Reach out to Spectrum Auditing for any details pertaining to UAE Corporate Tax. Call us today for any kind of assistance at +971 4 2699329 or WhatsApp +971 50 9866 466 or email [email protected] to get all your queries addressed. Spectrum is your partner in your success.