Transfer pricing refers to the pricing of goods, services, and intellectual property exchanged between associated enterprises within a multinational enterprise (MNE) that are located in different jurisdictions. As businesses expand globally, they often transfer assets or services across borders, and it becomes imperative to establish a fair and arm’s length price for these transactions. Transfer price compliance ensures that transactions between related entities are conducted at market rates, preventing tax evasion and ensuring a fair distribution of profits among jurisdictions.
Businesses are required to navigate the complex web of regulations to mitigate financial and reputational risks. Transfer pricing advisers in Dubai can help MNEs ensure compliance with related regulations.
In this blog post, we will explore the importance of TP compliance, the risks associated with non-compliance, and practical tips to safeguard your business. Read ahead to learn about the key transfer pricing compliance tips and best practices:
Conduct a Thorough TP Risk Assessment
Regularly assess your company’s TP risks by reviewing intra-group transactions. Identify areas where pricing misalignments might occur and implement strategies to mitigate these risks.
Know the “arm’s length” principle
The arm’s length principle is the chief guiding standard for transfer pricing regulations in most jurisdictions. As per the arm’s length standard, the MNEs should price a transaction between associated enterprises as if the two entities involved were independent companies, under completely separate ownership.
Create thorough documentation
The Organization for Economic Co-operation and Development (OECD) mandates that firms should maintain proper documentation in a three-tiered way: the Master File, the Local File and Country-by-Country Reporting. In the UAE, taxpayers that are part of an MNE group with consolidated revenues of more than or equal to AED 3.15 billion or taxpayers with more than or equal to AED 200 million revenues in the relevant tax period are required to maintain UAE transfer pricing documentation.
However, it does not mean that taxpayers are free to transfer goods or products or provide services to associate enterprises at will and charge prices that are not at arm’s length. Since the UAE is a member of the OECD, hence UAE tax administration (FTA) and taxpayers have to follow the OECD guidelines for transfer pricing transactions.
Stay Abreast of Regulatory Changes
Transfer pricing regulations are subject to change, and staying informed is crucial. Regularly monitor updates in tax laws and regulations in the jurisdictions where your business operates, ensuring that your transfer pricing policies align with the latest standards.
Engage in Advance Pricing Agreements
Advance Pricing Agreements (APAs) provide a mechanism for companies to proactively agree with tax authorities on transfer pricing methods. These agreements offer certainty and reduce the risk of disputes, providing a clear framework for compliance.
Invest in Transfer Pricing Training
Equip your finance and tax teams with the necessary skills and knowledge through ongoing training programs. This ensures that your staff understands the intricacies of transfer pricing regulations and can implement best practices effectively.
Seek Professional Assistance
Engage with transfer pricing experts and professionals who can provide guidance tailored to your business. Transfer pricing consultants in Dubai can offer valuable insights, helping you navigate the complexities of transfer pricing compliance.
Implement a Transfer Pricing Policy
Develop a comprehensive transfer pricing policy that aligns with your business strategy. Clearly outline methodologies for determining transfer prices, and ensure that this policy is consistently applied across all relevant transactions.
Regularly assess your policy
After creating a solid transfer pricing policy, you will need to assess your transfer pricing documentation annually, and compare it to requirements in each jurisdiction where your business operates. An easy way to simplify agreements globally is to have one policy, with modifications made as needed to meet specific local requirements.
Always be audit-ready
Businesses need to assume the worst and be ready always. If an audit occurs, you may not get adequate time to prepare. Ensure that you have proper documentation at all times. Having a transfer-pricing advisor by your side can help you meet all of your transfer pricing obligations and assist you with a comprehensive defense.
Hire Qualified Transfer Pricing Advisers in Dubai, UAE
Transfer pricing compliance in the UAE is a grey area as the country is new to the direct tax regime. However, reliable advice from qualified transfer pricing consultants in Dubai such as Tax Gian can help you navigate this complex maze. Tax Gian is a brand of Jitendra Tax Consultants (JTC), which is one of the well-known tax consultants in Dubai.
We have a team of qualified tax experts in Dubai who can ensure you are complying with the UAE corporate tax law and related transfer pricing obligations. Since 2001, Jitendra Chartered Accountants, an associate of JTC, has been providing end-to-end advisory services including tax solutions in Dubai, UAE to its clients globally. Avail of our tax advisory services in Dubai to ensure seamless compliance.