Transfer pricing audits in the UAE can be a big challenge for taxable persons if the authority finds any gap in compliance practices or documentation. The Federal Tax Authority (FTA) may review the filings and submissions made by the taxpayers and initiate UAE transfer pricing audits as per the Tax Procedures Law.
Failing to navigate the tax audit landscape may lead to transfer pricing disputes or litigation. The UAE Transfer Pricing Guide highlights the following points in relation to the transfer pricing audit and risk assessment. Transfer pricing experts in the UAE can assist you further down the road.
Let’s dive in to learn more about the key considerations related to transfer pricing audits in the UAE:
1. Burden of Proof
The transfer pricing documentation allows the FTA to establish that the tax outcome of the Tax Period has been affected by Transfer Pricing practices that are not in line with the Arm’s Length Principle.
The burden of proof is on the taxable person to maintain adequate supporting documentation and make timely submissions to the FTA to demonstrate the arm’s length nature of the Controlled Transactions.
The proper submission of transfer pricing documentation is critical as the FTA has the right to make queries and request information and data for its review and to arrive at a conclusion regarding the Transfer Pricing practices of the Taxable Person.
2. Transfer Pricing Adjustments
The main objective of transfer pricing adjustments is to make sure that the taxable outcome of the Controlled Transaction is in line with the Arm’s Length Principle. Since the transfer pricing analysis is based on the self-assessment of the taxpayer, transfer pricing adjustments may be required if the controlled transactions are not in line with the Arm’s Length Principle.
Either the FTA or the taxpayer can initiate the transfer pricing adjustment:
a). Transfer Pricing Adjustments by the FTA
As per Article 34 of the UAE Corporate Tax Law, the FTA can adjust the Taxable Income contained within the Tax Return to achieve the arm’s length result that best reflects the facts and circumstances of the transaction or arrangement.
If the adjustment is done by a foreign competent authority, the taxpayer can request the FTA to make a corresponding adjustment to their Taxable Income under the applicable provisions of the relevant Double Taxation Agreement. The FTA will review the foreign tax authority’s position and where appropriate may proceed with a corresponding adjustment.
b). Transfer Pricing Adjustments by the Taxpayer
The UAE Transfer Pricing Guidelines recommend that taxpayers constantly monitor the arm’s length price of the controlled transactions.
Taxable Persons can make real-time adjustments before submitting their Tax Returns.
After submitting their Tax Returns, Taxable Persons may make Transfer Pricing adjustments where these result in increased taxable profits or reduced allowable losses or make adjustments that result in decreased taxable profits or greater allowable losses. A decrease in taxable profits or an increase in allowable losses may only be affected through the operation of the FTA procedures.
As per Article 50 of the UAE Corporate Tax Law, the FTA can counteract or adjust transactions or arrangements that are not entered into or carried out for a valid commercial reason.
If the main purpose of a transaction is to obtain a Corporate Tax advantage that is not consistent with the intention or purpose of the Corporate Tax Law, the FTA may take action to change the outcome of such transaction or arrangement.
If the arrangements made in relation to the Controlled Transaction differ from those which would have been adopted by independent parties, the FTA may, if deemed appropriate, adjust or disregard the Controlled Transaction and replace it with an alternative transaction. Transfer pricing advisers in Dubai can further advise you on these provisions.
Hire the Best Transfer Pricing Consultants in Dubai, UAE
Keeping in mind the complexity of the FTA transfer pricing audits, the UAE taxpayers must put in place the mechanism to prepare and maintain comprehensive TP documentation. It should also be supported by additional supporting information to demonstrate the arm’s length nature of the Controlled Transactions. Transfer Pricing advisers in Dubai such as Tax Gian can help you with this.
Tax Gian, a brand of Jitendra Tax Consultants (JTC), provides the best transfer pricing advisory services in the UAE. Tax Gian and its associate Jitendra Chartered Accountants (JCA) have been revolutionizing the UAE regulatory compliance landscape for over two decades. We have a team of highly qualified tax experts who can guide businesses on all aspects of the UAE transfer pricing regulations. Call us today to avail yourself of comprehensive transfer pricing consulting services in the UAE.