Designing structure for Transfer Pricing

Approaching transfer pricing compliance in the UAE without proper planning heralds disaster for multinational enterprises (MNEs) or local groups having divisions in multiple countries. Designing a proper transfer pricing structure helps you avoid compliance failure and makes you confident enough to make the right transfer pricing decisions.

This is a complex endeavour as transfer pricing refers to the pricing of goods, services, and intellectual property exchanged between the associated enterprises of an MNE that are located in different or the same tax jurisdictions.

The prices should be at arm’s length, which means the prices should reflect the price that unrelated parties would agree upon. A well-designed transfer pricing structure ensures compliance with local tax regulations while minimizing the risk of double taxation or disputes.

Establishing a robust transfer pricing structure within an MNE group can be quite demanding for MNEs. Associating with the best companies providing transfer pricing services in the UAE can make the task effortless for you. Tax Gian, a brand of Jitendra Tax Consultants (JTC), is one of the top transfer pricing consultants in the UAE offering bespoke transfer pricing services.

Understanding Transfer Pricing Structure

Transfer pricing structure refers to the system or framework an MNE group establishes for pricing transactions between its affiliated entities, commonly known as intercompany transactions. These transactions involve the exchange of goods, services, or intellectual property across different divisions or subsidiaries of the same corporate group, often located in other countries.

Components of Transfer Pricing Structure

  1. Transaction with Local related parties/companies
  2. Transaction with Foreign (Non-UAE) related parties/companies
  3. Payments to connected persons like shareholders, directors, key management personnel, etc.
  4. Transfer pricing documentation and policies
  5. The local and master files for the companies having more than AED 200 million or MNEs having a turnover of more than 3.15 Billion AED

The Key Goal of Transfer Pricing Structure

The primary objective of a transfer pricing structure is to determine the appropriate price for these transactions, ensuring that they are conducted at arm’s length—meaning the prices are comparable to what unrelated, independent entities would agree upon in similar circumstances. The arm’s length principle is a fundamental concept in transfer pricing, and it is crucial for complying with tax regulations and preventing tax evasion or manipulation of profits.

Setting a Transfer Pricing Policy

Setting up a transfer pricing policy forms the key component of an MNE’s transfer pricing structure. Creating and documenting a transfer pricing policy facilitates the smooth conduct of the transactions. Transfer pricing consultants in the UAE can help the MNE groups document the transfer pricing policy effectively.

Intercompany Agreements

Intercompany agreements (ICA) are written contracts that set out the legal terms on which services, products, intangible assets and financial support are rendered within the group. Tax auditors rely upon ICAs to better understand the transaction and assess whether it has met the arm’s length standard during tax audits. We can advise you on how to create effective ICAs to make transfer pricing compliance easier for you.

Transfer Pricing Risk Assessment

A thorough analysis of your intercompany transactions helps you identify potential risks. Tax Gian’s experts will assess the alignment of your current transfer pricing policies with local regulations, minimizing the risk of audits and disputes.

Economic Analysis and Benchmarking

We have expertise in economic analysis techniques to benchmark your transfer pricing against industry standards. This helps you substantiate the arm’s length nature of your transactions, using both internal and external comparables.

Dispute Resolution and Defense

In the event of a tax audit or dispute, our experts provide robust defence strategies. We leverage our expertise to engage with tax authorities, presenting a clear and well-documented case to support the legitimacy of your transfer pricing practices.

Transfer Pricing Review

Everything in the world is susceptible to change and that applies to your well-built transfer pricing structure as well. You must carry out periodic reviews and checks to ensure the process is working well. We can assist you in this process by analysing the management reports/ MIS etc.

Services we provide under Transfer Pricing

Tax Gian’s transfer pricing services in the UAE encompass the following:

  1. Benchmarking (Selection of appropriate method)
  2. Economic Analysis (Justification for the method selection)
  3. FAR (Functions, Assets, and Risks) Analysis
  4. Transfer pricing policy
  5. Inter-corporate agreements
  6. Master & Local Files preparations

Tax Gian Provides the Best Transfer Pricing Services in Dubai, UAE

MNEs require a solid foundation to navigate the challenges of transfer pricing compliance in the UAE. A robust transfer pricing structure is the key to achieving this goal. Even though building a transfer pricing structure is complex, transfer pricing consultants in the UAE such as Tax Gian can simplify it for MNE groups.

Tax Gian, along with its associate entity Jitendra Chartered Accountants (JCA), has been providing tax assistance to businesses in the UAE for more than two decades. Tax Gian’s top-notch transfer pricing solutions help businesses transform, grow and operate in compliance. with the law of the land.

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