Why should the transfer pricing policy be adopted by all the taxpayers before the financial year i.e. 01.01.24?

UAE Transfer pricing Guidelines 2024

Since the enforcement of Corporate Tax on businesses and professions from 1st June 2023, a number of legislations have been issued to clarify the impact of Corporate Tax on each business.

Today, the daunting task faced by the taxpayers irrespective of the threshold of AED 3.15 billion annual turnover or AED 200 million turnover is “Transfer Pricing” (TP) i.e. all the transactions irrespective of cross-border or domestic transactions with the “Related Parties” (RP) and “Connected Persons”(CP) have to be at Arms’ length i.e as if independent party charging to their customers as per Market Value. For your simple understanding below are some examples of the Transactions that need to be followed for TP:

A. Related Parties Transactions: (Cross-border or Domestic)
Buying of the goods Interest-free loan to associates
Selling of the goods Interest on loans to associates
Receiving services Providing/availing of marketing support services
Providing services Royalty received/paid from/to trademark or rights in the trademark/td>
Providing Insurance services Services charges to associates
Loans on interest to associates Reimbursement/ recovery of expenses(Any other nature of transaction)
B. Connected Persons Transactions: (Cross-border or Domestic)
Managerial Remuneration Rent for residence + Electricity
Car Expenses Insurance of self or including family
Education Expenses Any other nature of transaction (Charged in P&L as pre-tax profit)
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Under Transfer Pricing (TP) the main and important things to understand are below:

 

Things to do before the Corporate Tax year Starts:

  • Arms’ Length (As per Article 61 of Federal Decree-Law No. 47 of 2022): The opening balance sheet e.g. 01.06.23 or 01-Jan-2024 (Or Closing Balances as of 31.05.23 or 31-Dec-2023 ) as the case may be shall be prepared based on the arm’s length principle. It means that before the finalization of accounts for the pre-tax year, the balances of all the related parties and connected persons have to be adjusted to meet the Arm’s length Principles.
  • Other Transitional Rules (As per Ministerial Decision No. 120 of 2023): Taxable Income adjustments to be made pertain to Intangible Assets, Financial Assets, and Financial Liabilities.

Things to do during the Corporate Tax year or before filling the tax return:

  • Ensure the transactions (cross-border or domestic) with RP & CP are at arm’s length.
  • A proper study of the market prices to support the arm’s length price selected
  • To prepare the transfer Pricing Policy.
  • To prepare transfer Pricing Documentation
  • To prepare Master File and Local Files or similar working papers.
  • To make provisions for changes in some business decisions/processes in line with GAAR rules.

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