Key Strategies for Transfer Pricing Compliance and Optimization
Multinational Enterprises (MNEs) need to give due consideration to transfer pricing as it is a critical issue that demands strategic planning. Transfer pricing is the term used to describe the pricing of goods, services, and intangibles transferred between related parties (located in different tax jurisdictions) within an MNE.
The Federal Tax Authority (FTA) will be scrutinizing these transactions to prevent profit shifting and ensure fair taxation. This scrutiny may lead to transfer pricing adjustments by the FTA and litigations. MNEs must adopt a robust transfer pricing strategy to avoid costly litigations and transfer pricing disputes
The best transfer pricing consultants in Dubai can help you can help you draft a proper transfer pricing strategy and policy.
In this blog, we’ll delve into the key transfer pricing strategies for compliance, and business optimization.
Understanding Transfer Pricing
Transfer pricing is the setting of prices for cross-border transactions between related parties, such as a parent company and its subsidiaries. These transactions can include the exchange of goods, services, intangible assets, and financial arrangements. However, these intra-group transactions must be carried out and conducted at arm’s length. It means the prices must be comparable to what would be charged between independent parties in similar circumstances.
Key Strategies for Transfer Pricing Compliance
A robust transfer pricing strategy comprises the following elements:
Thorough Documentation
Transfer pricing documentation in the UAE includes a master file, a local file, and a country-by-country (CbC) report. Transfer pricing experts in Dubai can help you prepare the documentation.
Benchmarking Analysis
Transfer pricing benchmarking in the UAE involves identifying comparable transactions between independent parties and using them as a reference to set transfer prices. This analysis is useful for determining arm’s length prices. Transfer pricing benchmarking service providers in the UAE can help you in this regard.
Functional Analysis
A functional analysis is carried out to understand the economic contributions of each party to justify the transfer pricing arrangements. In a functional analysis, the following are subjected to evaluation:
- The functions performed
- Assets employed
- Risks assumed by each related party in a transaction
Advance Pricing Agreements (APAs)
An APA is an agreement between a taxpayer and the FTA on the appropriate transfer pricing methodology for specific transactions over a fixed period. These agreements provide certainty and reduce the risk of transfer pricing disputes. Transfer pricing service providers in Dubai can help you draft robust APAs for your company.
Review and Adjustment
MNEs must regularly review and adjust their transfer pricing policies to reflect changes in business operations, market conditions, and regulatory requirements. Continuous review ensures that transfer prices remain aligned with the arm’s length standard.
Optimizing Transfer Pricing for Business Efficiency
While transfer pricing compliance in the UAE is critical, it also offers opportunities for business optimization. By strategically managing transfer prices, businesses can achieve tax efficiency, enhance cash flow, and support operational objectives. You can optimize transfer pricing for business efficiency in the following ways:
- Centralizing the ownership and management of intangible assets, such as intellectual property
- Aligning transfer pricing with supply chain management can lead to operational efficiencies
- The profit split method is ideal for transactions involving highly integrated operations
- Optimizing intercompany financing arrangements, such as loans and guarantees, can improve liquidity and reduce the overall cost of capital
- Cost-sharing arrangements allow related parties to share the costs and risks of developing intangible assets
Who Provides the Best Transfer Pricing Services in Dubai?
It is advisable to consult with the leading transfer pricing advisers in Dubai as transfer pricing is a complex tax issue. Since it requires critical attention and strategic planning, MNEs should not rely upon their in-house tax team to deliver the best result.
You need external help and advice to meet the arm’s length principle, maintain effective documentation, and employ the best transfer pricing strategies in the UAE. Tax Gian, a brand of Jitendra Tax Consultants (JTC), is a trusted provider of the best transfer pricing services in the UAE. JTC is registered with the FTA as a tax agent in the UAE. JTC and its associate Jitendra Chartered Accountants (JCA) have been providing exemplary accounting and tax advisory services in Dubai for more than two decades. Consult with Tax Gian’s tax experts to navigate the challenges of the UAE transfer pricing regime.
