Businesses in the UAE are facing growing pressure from tax authorities to justify every transaction within their group. The introduction of transfer pricing (TP) regulations and corporate tax has made financial transparency a priority.
Many groups still treat internal loans, guarantees, and cash pooling as informal arrangements. This creates confusion over whether these are genuine debts or disguised equity contributions. When left unchecked, these gaps can trigger tax risks and compliance issues.
The solution lies in treating treasury and inter-company financing as structured, well-documented parts of a company’s TP strategy.
Tax Gian’s professional corporate tax agents in the UAE help you improve your transfer pricing strategy to simplify compliance.
- Understanding the Role of Treasury in Transfer Pricing
The treasury department acts as the central hub for managing liquidity, cash flow, and financing across a business group. Within the UAE’s TP regime, the treasury function must ensure that every inter-company transaction, whether it’s a loan, guarantee, or cash pooling arrangement, is priced as if it were between unrelated parties.
- Applying the Arm’s Length Principle (ALP)
At the heart of the UAE’s TP system is the arm’s length principle (ALP). It requires that related-party financial transactions mirror those between unrelated entities.
For inter-company loans, treasury teams must assess the borrower’s credit risk, repayment capacity, and loan terms. Interest rates should be benchmarked using comparable third-party data, often sourced from financial databases or bank quotations.
In cash pooling, the pool leader who coordinates and manages the cash flow must receive fair compensation. Similarly, each participating entity should either pay or earn interest at market-based rates, supported by proper records.
If a financial guarantee is given by one group entity for another’s borrowing, it must be supported by an arm’s length guarantee fee unless proven to be a pure shareholder activity. Without documentation, such transactions may be reclassified, creating compliance risks.
For deeper insights on the matter, consult our corporate tax agents in the UAE.
- Accurate Delineation of Transactions
Getting the transaction right on paper is not enough; it must also reflect the real economic activity. Treasury professionals must clearly define whether a transfer of funds is a loan, equity contribution, or other form of financing.
The assessment depends on factors like:
- The borrower’s ability to access external credit,
- Repayment schedule and interest terms,
- The rights of the lender to enforce repayment,
- Collateral or security,
- Actual repayment behaviour,
- The purpose of the funds.
A fund transfer may look like a loan, but if there is no fixed repayment or interest, it could be treated as equity. Precise classification ensures compliance with UAE TP requirements and prevents disputes.
- Documentation and Compliance Requirements
Companies with consolidated group revenue above AED 3.15 billion or local revenue exceeding AED 200 million must prepare a Master File and Local File.
Even smaller businesses must file a Transfer Pricing Disclosure Form (TPDF) if related-party transactions cross AED 40 million or payments to a connected person exceed AED 500,000.
Proper documentation acts as a defense mechanism during tax audits. It should clearly explain:
- The nature and purpose of each financial transaction,
- The pricing method used (usually the Comparable Uncontrolled Price method),
- Supporting benchmarking data,
- Credit rating analysis of the borrower.
All financing arrangements must have commercial substance, showing that they were carried out for genuine business purposes, not merely for tax savings. Businesses can seek help in proper documentation from our corporate tax agents in Dubai.
- Determining the Right Pricing for Intra-group Financing
The UAE follows the OECD Transfer Pricing Guidelines, which recommend using the Comparable Uncontrolled Price (CUP) method for intra-group loans. This method compares the loan terms within the group to those available between independent parties.
The process involves:
- Reviewing loan details: issue date, duration, currency, and interest type.
- Assessing the borrower’s credit rating and possible group support.
- Finding comparable third-party loans with similar conditions.
- Adjusting for differences and determining an arm’s length interest range.
- Recognising Shareholder Activities
Not every financial activity between related parties should be charged. Some functions carried out by a parent company, like managing group-level capital or providing funds as part of its ownership role, are considered shareholder activities.
- Practical Steps for UAE Businesses
To stay compliant and efficient, UAE businesses should:
- Identify all inter-company financing transactions.
- Clearly determine whether each transfer is debt or equity.
- Benchmark all loans and guarantee pricing using reliable data sources.
- Maintain detailed TP documentation and credit analyses.
- Review treasury practices regularly to ensure consistency with TP policy.
- Seek assistance from expert corporate tax agents in Dubai.
This structured approach not only satisfies the UAE Federal Tax Authority but also builds trust with investors, auditors, and regulators.
How can Tax Gian help?
Our professional corporate tax agents in the UAE help you in;
- TP documentation, including master file, local file and CbCR report
- TP benchmarking, FAR analysis and due diligence
- TP policy drafting and strategy making
- CT and TP training and advisory services
