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DETransfer Pricing in the UAE
On 9 December 2022, the Ministry of Finance (MoF) in the United Arab Emirates (UAE) introduced Federal Decree-Law No. 47 of 2022, which governs the Taxation of Corporations and Businesses (CT law) and includes specific articles on transfer pricing (TP). These TP articles mandate that UAE taxpayers adhere to the arm’s length principle when pricing transactions with related parties. To clarify this new regime, the MoF released a series of frequently asked questions (FAQs). The oversight of the CT law will fall under the jurisdiction of the Federal Tax Authority (FTA).
On 11 May 2023, the UAE Ministry of Finance published Ministerial Decision No. 97 of 2023, outlining the documentation requirements for transfer pricing under the UAE CT regime, as detailed in Article 55(2) of Federal Decree-Law No. 47 of 2022.
Compliance Obligations for UAE Taxpayers
All UAE taxpayers, including those operating in free trade zones, are subject to TP regulations and must:
- Adhere to the arm’s length principle for all related-party transactions, regardless of CT grouping status or free zone location.
- File a TP disclosure form as part of their corporate tax (CT) return, except for those eligible for Small Business Relief.
Additionally, UAE taxpayers meeting either of the following criteria must annually prepare a local file and a master file:
- Annual turnover exceeding AED 200 million.
- Membership in a multinational group with a global turnover above AED 3.15 billion.
Even entities in UAE free zones are required to comply with the arm’s length principle. Paulson and Partners recommends that these entities also prepare supporting local and master files to align with compliance requirements.
Each of these services by Paulson and Partners is designed to provide strategic guidance, compliance, and risk mitigation, empowering your business to operate efficiently within international tax frameworks and maintain smooth operations across all jurisdictions.
Transfer Pricing Risk Reviews and Impact Assessments
Our risk reviews and impact assessments involve evaluating potential risks within intercompany transactions to ensure they align with the arm’s length principle. This comprehensive assessment promotes compliance with tax regulations and identifies areas of potential risk, allowing multinational groups operating in the UAE to adjust pricing strategies proactively, thereby minimizing the likelihood of disputes with tax authorities.
Transfer Pricing Planning and Modelling
We offer transfer pricing planning and modelling services to support multinational groups in structuring intercompany pricing effectively. Our modelling optimizes profits, ensures tax compliance, and minimizes future disputes by using strategic pricing frameworks and financial simulations tailored to each client’s specific operations.
Tax Optimization and Business Transformation
Through tax optimization, we help minimize tax liabilities by aligning pricing with value creation principles. Additionally, our business transformation services adapt intercompany pricing to evolving business models and market conditions, ensuring that transfer pricing structures remain compliant and optimized for the changing regulatory landscape.
Transfer Pricing Compliance Services
At Paulson and Partners, we ensure that clients comply with all transfer pricing documentation requirements, from the initial preparation of disclosure forms to the complex demands of CbCR. Our tailored services focus on maintaining regulatory compliance while supporting a seamless alignment of transfer pricing strategies with global and local standards.
Disclosure Form
A transfer pricing disclosure form is required to be submitted alongside the CT return. This form provides detailed information on the company’s intercompany transactions, transfer pricing methods, and related parties involved, offering transparency and regulatory compliance. By supplying this data, companies help tax authorities assess risks and determine which taxpayers may require audits based on their transfer pricing practices.
Local File
The local file is a document compliant with OECD standards, prepared to demonstrate adherence to the arm’s length principle. This file includes comprehensive data on intercompany transactions within a specific jurisdiction, detailing financial information, product/service descriptions, transfer pricing methodologies, and analyses that support the consistency of pricing with the arm’s length principle. In the UAE, companies that meet specific thresholds must prepare a local file annually and submit it to the UAE tax authority within 30 days of a request.
Master File
The transfer pricing master file provides an overview of a multinational group’s global operations, organizational structure, and overall transfer pricing policies. This high-level document covers all global operations, facilitating a comprehensive risk assessment and consistency analysis across different jurisdictions. The master file helps tax authorities evaluate the alignment of the company’s pricing practices on an international scale.
Country-by-Country Reporting (CbCR)
Country-by-Country Reporting (CbCR) is mandatory for multinational groups with a global turnover above EUR 750 million (or AED 3.15 billion). This report offers a jurisdiction-specific breakdown of the group’s operations, financial results, and transfer pricing arrangements across all countries where it operates. It includes revenue, profits, taxes paid, and other key financial metrics, helping tax authorities understand the allocation of profits and taxes across jurisdictions, thereby enhancing transparency and ensuring compliance with OECD guidelines and international standards.
Automatic Exchange of Information (AEOI)
With Paulson and Partners, clients receive comprehensive support in evaluating and optimizing their transfer pricing strategies, ensuring they are strategically positioned for compliance and growth in an ever-changing global tax environment.
Transfer Pricing Risk Reviews and Impact Assessments Our transfer pricing risk reviews and impact assessments involve a thorough evaluation of potential risks within intercompany transactions. We examine whether the pricing between related entities aligns with the arm’s length principle to ensure compliance and uphold best practices. By identifying risks and assessing their impacts, multinational groups in the UAE can proactively address issues, fine-tune their pricing strategies, and reduce the likelihood of future disputes with tax authorities.
Transfer Pricing Planning and Modelling Transfer pricing planning and modelling helps multinational groups set optimal pricing for intercompany transactions to meet tax compliance standards. Through strategic pricing structures and financial simulations, we support profit optimization while minimizing the potential for disputes. Our modelling solutions are tailored to meet the specific needs of each client, creating a framework that is both compliant and optimized for long-term growth.
Tax Optimization and Business Transformation Our tax optimization services focus on minimizing tax liabilities by aligning pricing structures with value creation. Through business transformation strategies, we adapt transfer pricing to evolving business models and operations, ensuring that transfer pricing remains effective and compliant with dynamic market conditions and regulatory requirements.
With Paulson and Partners, our transfer pricing due diligence services provide essential insights to support successful transactions, ensuring compliance and enhancing financial performance post-integration.
Transfer pricing due diligence is a critical assessment conducted prior to a business acquisition, merger, or restructuring. It involves a high-level or in-depth review, depending on specific requirements, of a group’s intercompany transactions and transfer pricing practices. The objective is to identify any potential risks, compliance issues, and financial impacts associated with existing transfer pricing arrangements.
This due diligence process enables the acquiring or restructuring party to make well-informed decisions by:
Identifying potential risks and compliance issues Assessing any gaps in current transfer pricing practices that may result in financial or regulatory challenges.
Planning for integration Understanding transfer pricing structures to ensure seamless integration of operations.
Addressing necessary adjustments Implementing modifications to align with compliance standards and optimize the financial outcome of the transaction.
Transfer pricing benchmarking is a process that compares a company’s intercompany transaction prices with similar transactions conducted between unrelated parties under comparable conditions. The primary goal is to assess whether the company’s transfer prices align with the arm’s length principle, which mandates that transactions between related entities be priced as if they were conducted independently.
Benchmarking involves several key steps:
Data Collection Gathering data on comparable transactions between independent entities, often using specialized transfer pricing databases.
Market Condition Analysis Analyzing the relevant market environment and conditions to ensure comparability.
Selection of Comparables Choosing suitable comparables to evaluate the company’s transfer pricing methods accurately.
By benchmarking against third-party data, companies can validate the appropriateness of their transfer pricing practices and strengthen their compliance framework. Paulson and Partners provides specialized benchmarking services to help clients assess, optimize, and ensure their transfer pricing policies meet global standards.
Transfer pricing litigation arises when disputes occur between a company and tax authorities over the company’s transfer pricing practices. These disputes typically emerge when tax authorities contend that a company’s intercompany transactions do not align with the arm’s length principle, potentially resulting in tax underpayments.
Transfer pricing litigation can encompass various stages:
Negotiations Initial discussions aimed at reaching a mutual agreement to resolve discrepancies.
Administrative Appeals Formal appeals where the company challenges the tax authority’s position.
Legal Proceedings In cases where disputes escalate, both parties may present evidence and arguments in court to determine compliance with transfer pricing regulations.
The outcome of transfer pricing litigation can have substantial financial consequences, often resulting in adjustments to the company’s tax liabilities. At Paulson and Partners, our litigation and dispute resolution services provide expert guidance through each phase, from strategic negotiations to comprehensive representation in appeals or legal proceedings. Our goal is to help clients safeguard their financial interests while ensuring adherence to transfer pricing regulations.
