Many companies in the UAE are still finding it challenging to deal with new corporate tax regulations. One central area of concern is transfer pricing. Corporate tax law becomes intricate when it comes to pricing transactions with related parties and connected persons. This often leads to mistakes, reporting errors, or even tax audits.
By comparing related-party transactions with market-based standards, businesses can avoid trouble and stay tax-compliant. And to make sure that every transaction is in line, transfer pricing benchmarking studies are beneficial.
Tax Gian provides you with proper transfer pricing benchmarking services, assisted by professional transfer pricing agents in the UAE.
What Is Transfer Pricing Benchmarking?
Transfer pricing is about how companies price transactions between related entities, like a parent company and its branch or sister company. This could involve sales of goods, services, or even loans. The UAE requires that these transactions follow the arm’s length principle. That means the price must match what independent companies would agree on under similar conditions.
A benchmarking study helps check whether related-party transactions meet this standard. It gives a fair range of prices or profit levels found in the open market. If your pricing falls within this range, you’re usually safe.
Why UAE Businesses Must Pay Attention
In 2022, the UAE introduced a new Corporate Tax (CT) law. It included strict rules on transfer pricing. Since then, the Ministry of Finance (MoF) and the Federal Tax Authority (FTA) have issued more guidelines.
Here are the key requirements:
- All businessesmust follow the arm’s length principle, even if they operate in free zones.
- A TP disclosure formmust be filed with your tax return if certain thresholds are met.
- Detailed reportingis needed when related-party transactions go above AED 40 million in total.
- Specific thresholds:
- Individual categories (goods, services, etc.) over AED 4 million.
- Payments to connected persons over AED 500,000.
- If your turnover is above AED 200 millionor you are part of a multinational group with global turnover over AED 3.15 billion, you must prepare both a local file and a master file every year.
Small businesses claiming relief and not meeting these thresholds are exempt from preparing full TP documentation. However, others must perform proper benchmarking. Are you a small business or a multinational firm? Get a clearer understanding of your liabilities from transfer pricing agents in the UAE.
What does a Benchmarking Study involve?
A benchmarking study involves comparing your internal transactions with what happens in the open market. This includes identifying similar companies and analysing their pricing or profit margins.
Here’s what a transfer pricing agent in Dubai generally does:
- Define the years for analysis
You choose whether to use single-year or multi-year data based on business needs. - Study your own business
Understand your functions, risks, and what value you add in each transaction. - Check your internal comparables
If you’ve made similar deals with outside parties, the TP agent will use that data. - Search external comparables
If internal data isn’t available, the agent will turn to commercial databases like TP Catalyst, Bloomberg, or TP Orbis. - Apply filters
These help narrow the list of comparables to relevant businesses. Filters include:- Geography (e.g., UAE, GCC, global)
- Industry codes (NACE or SIC)
- Revenue limits and profit margins
- Business activities confirmed through public sources
- Select suitable companies
Your TP agent will pick independent firms with similar roles and risk levels. - Adjust the data
Your TP agent will make any necessary changes to improve comparability. - Calculate your results
The transfer pricing agent in the UAE will use the interquartile range to determine if your pricing fits within the arm’s length standard.
Why Benchmarking Matters
Tax authorities are paying closer attention to transfer pricing. Mistakes or missing documentation can lead to fines, audits, and even reputational damage. A proper benchmarking study proves that your prices are fair.
Benchmarking also helps:
- Reduce the risk of disputes with tax authorities
- Set reasonable profit margins for internal deals
- Create solid support for your TP documentation
How can Tax Gian Help?
Tax Gian is one of the top brands in the UAE for TP benchmarking services. Since TP benchmarking entails intricate tasks and activities, like gathering comparable transactions data, interpreting market circumstances, and choosing the correct comparables, MNEs frequently require expert help of tax professionals like Tax Gian in order to evaluate the suitability of the customer’s transfer pricing methods.
For more than 20 years, Tax Gian, a brand of Jitendra Chartered Accountants (JCA), has been providing services to clients all across the UAE. By working with a seasoned company like Tax Gian, that offers expert and specialised CT and TP services, you can confidently and easily manage the country’s complicated corporate tax environment.
