Multinational Enterprises (MNEs) and their associated enterprises are required to comply with the transfer pricing requirements in the UAE. Transfer pricing involves setting the prices of products, services and intangibles transferred between the associated enterprises of an MNE group located in different tax jurisdictions.
The prices should meet the arm’s length standard, which means the transactions must be priced as if they were carried out between unrelated parties in an open market. However, tax authorities across various countries have made transfer pricing documentation a mandatory requirement to verify whether the entities have complied with the arm’s length principle.
The Corporate Tax Law and the transfer pricing guide (CTGTP1) clearly describe the transfer pricing documentation requirements in the UAE. To avoid compliance failure, you may hire the best transfer pricing documentation services in the UAE. Let’s dive deeper into the latest guidelines for UAE transfer pricing documentation requirements:
The OECD’s Three-Tiered Approach
The UAE and many other tax jurisdictions follow the OECD Transfer Pricing Guidelines. However, each country has its legislation for transfer pricing documentation.
The OECD recommends a three-tiered approach for transfer pricing documentation. The OECD’s three-tiered approach consists of:
- The Master File
- The Local File
- Country-by-Country Reporting (CbCR)
Transfer Pricing Documentation Requirements in UAE
To comply with the UAE transfer pricing documentation rules, taxable persons need to meet five requirements. The five transfer pricing documentation requirements in the UAE are:
- Transfer Pricing disclosure form
- Master File
- Local File
- Country-by-Country Report
- Additional supporting information
What is a UAE transfer Pricing disclosure form?
A transfer pricing disclosure form is a document covering details of the Controlled Transactions during a Tax Period. The document must contain information such as Controlled Transactions, the value of the Controlled Transactions, details of the Related Parties and the Transfer Pricing methods used to determine the arm’s length value of the Controlled Transactions.
Taxable persons must submit the transfer pricing disclosure form along with the Tax return within nine months from the end of the relevant Tax Period. Transfer pricing advisers in the UAE can help you submit the disclosure form in line with the Federal Tax Authority (FTA) rules.
What is a Transfer Pricing Master File?
A Master File is an important transfer pricing document that provides a high-level overview of the MNE Group’s global business operations, transfer pricing policies, information on key value drivers, and a global allocation of income and economic activity.
The Master File helps the tax authority in evaluating significant Transfer Pricing risks and determining the MNE Group’s Transfer Pricing practices in their global economic, legal, financial, and tax context. It should contain the information that can be broadly encapsulated in the following categories:
- Organizational structure of the MNE Group
- A description of the MNE Group’s businesses
- MNE Group’s intangibles
- The MNE Group’s intercompany financial activities
- The MNE Group’s financial and tax positions
What is a Transfer Pricing Local File?
A Local File is a mandatory transfer pricing document containing more detailed information on specific Controlled Transactions in the relevant Tax Period. The Local File covers transactions taking place between local country affiliates and associated enterprises. Transfer pricing consultants in Dubai can help the MNEs prepare the Local File.
The following categories of information must be included in the Local File:
- Information on the local entity
- Detailed information on each material category of controlled transactions in which the entity is involved, including a functional analysis of each, an indication of the most appropriate Transfer Pricing method (including which party is selected as the ‘tested party’) and the application of that method
- Financial information
What is Country-by-Country Reporting?
CbCR is the third tier of the OECD approach towards transfer pricing. The CbCR is a standardised report containing aggregate tax jurisdiction information relating to the global allocation of income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which the MNE Group operates.
The report also requires a listing of all the Constituent Companies for which financial information is reported, including the tax jurisdiction of incorporation, where different from the tax jurisdiction of residence, as well as the nature of the main Business Activities carried out by that Constituent Company. The UAE introduced CbCR requirements through Cabinet Resolution No.44 of 2020.
Conditions for Maintaining Master & Local Files in the UAE
The government released Cabinet Decision No. 97 of 2023, which lists the conditions for maintaining the Master and Local Files in the UAE. As per the Decision, a Taxable Person must maintain both a master file and a local file if they meet either of the following conditions in the relevant Tax Period:
- A)If the Taxable Person, for any time during the relevant Tax Period, is a Constituent Company of a Multinational Enterprises Group as defined in the Cabinet Resolution No. 44 of 2020 that has a total consolidated group Revenue of AED 3,150,000,000 or more in the relevant Tax Period
- B)If the Taxable Person’s Revenue in the relevant Tax Period is AED 200,000,000 or more.
Exceptions for Maintaining a Master File in the UAE
Any Taxable Person who is part of a UAE headquartered group that is not an MNE Group is not required to maintain a Master File. However, they should maintain a Local File as per the UAE threshold limits. Consult with transfer pricing documentation service providers in the UAE to learn more about the exceptions.
Conditions for Maintaining a CbCR in the UAE
The UAE CbCR requirements are applicable to MNE Groups headquartered in the UAE with consolidated Group revenue equal to or above AED 3.15 billion (approximately EUR 750 million) during the Fiscal Year immediately preceding the reporting Fiscal Year. Avail of transfer pricing documentation services in Dubai for properly maintaining CbCRs.
Hire the Best Transfer Pricing Advisers in Dubai, UAE
Adopting a risk-based approach towards transfer pricing documentation requirements in the UAE will allow MNEs to align their company‘s business and tax strategies with their risk profile. Tax Gian’s Transfer Pricing Documentation Services are designed to ensure compliance, reduce disputes, and support your business decisions while demonstrating adherence to the arm’s length principle.
Tax Gian is a flagship brand of Jitendra Tax Consultants (JTC), a leading transfer pricing documentation service provider in Dubai. We have a team of highly qualified tax experts who can guide businesses on all aspects of the UAE corporate tax law. Call us today to avail yourself of comprehensive transfer pricing advisory services in the UAE.