Transfer Pricing Regime: A Guide for safe harbour provision
Multinational Enterprises (MNEs) need to comply with transfer pricing rules since the introduction of the corporate tax in the UAE. The rules of transfer pricing kick in when products or services are exchanged between the divisions of a company that are located in different tax jurisdictions. The prices of these transactions should be at arm’s length, which means the pricing should be the same between intercompany transactions as it would have been had the MNE done the transaction outside the company.
However, applying the arm’s length comes with certain challenges that can be avoided by using the safe harbour provisions in the transfer pricing regime. Transfer pricing consultants in Dubai can advise you on the circumstances where safe harbour rules can be applied.
In this blog, you can learn more about the definition and concept of safe harbours. Let us dive in:
What is the concept of safe harbours in transfer pricing?
The provision of safe harbour under the transfer pricing regime applies to a defined category of taxpayers or transactions that relieve the eligible taxpayers from some obligations otherwise imposed by a jurisdiction’s general transfer pricing rules. Safe Harbour provides simpler obligations for those under the general transfer-pricing regime.
It allows taxpayers to establish transfer prices in a specific way, e.g. by applying a simplified transfer pricing approach provided by the tax administration. Alternatively, a safe harbour could exempt a defined category of taxpayers or transactions from the application of all or part of the general transfer pricing rules. Often, eligible taxpayers complying with the safe harbour provision will be relieved from burdensome compliance obligations, including some or all associated transfer pricing documentation requirements.
Benefits of Safe Harbours
Opting for the safe harbour provision in the transfer pricing regime provides the MNEs with the following benefits:
- Compliance Relief
The safe harbour provision simplifies transfer pricing compliance and reduces compliance costs for eligible taxpayers in determining and documenting appropriate conditions for qualifying controlled transactions
- Certainty
The eligible taxpayers can have a certainty that the price charged or paid on qualifying controlled transactions will be accepted by the tax administrations that have adopted the safe harbour with a limited audit or without an audit beyond ensuring the taxpayer has met the eligibility conditions of, and complied with, the safe harbour provisions.
- Administrative simplicity
Opting for the safe harbour provision allows tax administrations to redirect their administrative resources from the examination of lower-risk transactions to examinations of more complex or higher-risk transactions and taxpayers.
Disadvantages of Safe Harbour Provision
Apart from its benefits, the safe harbour provision raises certain concerns as well. MNEs need to weigh the pros and cons of the provision with the help of transfer pricing advisers in Dubai before using the provision. The following are some of the disadvantages of the safe harbour provision:
- The implementation of a safe harbour in a given jurisdiction may lead to taxable income being reported that is not in accordance with the arm’s length principle
- Safe harbours may increase the risk of double taxation or double non-taxation when adopted unilaterally
- Safe harbours potentially open avenues for inappropriate tax planning
- Safe harbours may raise issues of equity and uniformity
Consult with the Best Transfer Pricing Experts in Dubai, UAE
Transfer pricing compliance and administration can be complex for businesses. It can take a great deal of time and can turn out to be costly. However, applying properly designed safe harbour provisions in appropriate circumstances can help MNEs relieve some of these burdens and provide them with a greater level of certainty. MNEs can consult with the best transfer pricing advisers in Dubai such as Tax Gian before opting for safe harbour provisions.
Tax Gian is the flagship 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.
