The recent introduction of corporate tax has boosted the significance of transfer pricing planning in the UAE for multinational enterprises (MNEs). Transfer pricing is the practice of ensuring that the transactions are priced at arm’s length when products, services or IP are exchanged between the entities of an MNE group that are located in different tax jurisdictions.
Meeting the Arm’s length standard means the MNEs must ensure that transactions are priced as if they were conducted between unrelated parties in an open market. However, without proper planning, MNEs may struggle to comply with transfer pricing regulations in the UAE.
It is advisable to associate with transfer pricing advisers in Dubai to avoid compliance failure. This blog will provide you with valuable guidance on transfer pricing planning in the UAE:
Significance of Transfer Pricing Planning in the UAE
MNEs cannot overlook the importance of transfer pricing planning for the following reasons:
Compliance with tax laws
The UAE Federal Tax Authority (FTA) has the power to examine an entity’s transfer pricing arrangements. The FTA can make adjustments if it realises the price doesn’t meet the criteria of fairness and reasonableness. This may lead to additional tax liabilities for businesses. Such risks can be avoided by availing of transfer pricing planning services from the best transfer pricing consultants in Dubai.
Mitigating tax risk
Transfer pricing planning in the UAE can help companies reduce potential tax risks. This will also minimise the tax investigations that can be exorbitant, labour-intensive, and disruptive for MNEs.
Boosting financial reporting
Proper transfer pricing documentation can aid businesses in enhancing the accuracy, tax planning and transparency of their financial reporting. This clarity could be advantageous for investors, creditors, and other stakeholders, increasing their confidence in the business’s financial position.
Save from costly disputes
Without proper planning for transfer pricing, MNEs may encounter many complications. For example, it will be complex and expensive to resolve a transfer pricing dispute involving two tax jurisdictions. The complexity can be attributed to the size and ambiguity of transfer pricing issues, as well as the requirement to meet the laws in at least two countries.
The UAE Transfer Pricing Planning Process
MNEs need to have a deeper understanding of the global and UAE transfer pricing regulations to mitigate any tax-related risk. Transfer pricing experts in Dubai can help MNEs develop an effective transfer pricing plan for their business.
Given below are some valuable tips for businesses regarding transfer pricing planning in the UAE:
Recognize your related parties
The first step in your transfer pricing planning process in the UAE should be identifying the associated enterprises, including the entities that you have control over and the entities that have control over you.
Document your transfer pricing arrangements
As per the UAE transfer pricing regulations, taxable persons with revenue exceeding AED 50 million must prepare and maintain audited financial statements during the relevant Tax Period. Keeping the threshold at AED 50 million in revenue for audited financials is likely to give great compliance relief to small and medium enterprises (SMEs).
Identify the most appropriate transfer pricing method
Comparable uncontrolled price methods (CUPs) are considered the most reliable methodology for determining the arm’s length price of a transaction. If CUPs cannot be applied, businesses can resort to other methods to ascertain the arm’s length price of a transaction. These methods encompass the Comparable Profits Method (CPM), the Resale Price Method (RPM), the Cost Plus Method (CPM), the Transactional Net Margin Method (TNMM) and the Profit Split Method (PSM).
Frequently review arrangements
MNEs must continually review their transfer pricing arrangement as the prices of goods and services fluctuate over time. This variation in prices could affect the fairness and reasonableness of prices charged between related parties. Transfer pricing advisers in Dubai can help with the review of your transfer pricing arrangements.
Hire the Best Transfer Pricing Consultants in Dubai, UAE
Transfer pricing planning in the UAE is essential for MNEs but it can be complex as well. However, with access to the right expertise and commitment to compliance, businesses can optimize their transfer pricing planning process. Transfer Pricing Advisers in Dubai such as Tax Gian can help MNEs to develop an effective transfer pricing planning strategy.
Tax Gian is a brand of Jitendra Tax Consultants (JTC) consisting of a team of highly experienced tax experts. 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. We can help you navigate the complex provisions of transfer pricing. Call us today to avail yourself of comprehensive corporate tax advisory services in Dubai, UAE.