UAE Transfer Pricing Guide: Rules for Intragroup Services
The UAE transfer pricing guide defines intragroup services as the services rendered by one or more Group members that provide a benefit to other Group members. When it comes to transfer pricing in the UAE, it is mandatory to ensure such services are priced as per the Arm’s Length Principle.
It means the intragroup service transactions must be priced as if they were carried out between unrelated parties in an open market. Transfer pricing consultants in Dubai can help you comply with the regulations in terms of your intragroup services. Read ahead to learn further about transfer pricing of intragroup services in the UAE context:
What Qualifies Intragroup Services?
Services that are typically available externally from third parties (such as legal and accounting services), in addition to those that are ordinarily performed internally (for example, by an enterprise itself, such as internal auditing or human resources) qualify as intragroup services.
If the services in question qualify as an intragroup service, they should be identified and remunerated as per the Arm’s Length Principle. Consult with transfer pricing consultants in Dubai to analyse your intragroup services.
Transfer Pricing Analysis for intra-group services
The analysis of Transfer Pricing considerations for intra-group services involves two main areas:
- Whether intra-group services have in fact been provided; and
- Whether the charge for the intra-group service meets the Arm’s Length Principle
How to determine whether an intra-group service has been rendered?
You need to first determine whether an intra-group service has been rendered. The following considerations will help you determine whether an intra-group service has been rendered or not:
Benefits Test
The question of whether an intra-group service has been rendered depends on whether the activity provides a respective Group member with economic or commercial value to enhance or maintain its business position. This can be determined by considering the following non-exhaustive factors
- Whether the benefits have economic or commercial value such that an independent party in comparable circumstances would be willing to pay for the activity if performed by an independent party or would have undertaken to perform the activity for itself
- Whether activities are performed for another party which receives, or reasonably expects to receive, benefits from such activities. If so, there may be a service provided even if the expected benefits do not eventually materialise.
- Whether objectively there is any commercial or practical necessity for the activities to be performed for the service recipient an independent party would be willing to pay the service provider for the performance of those activities. If not, the benefit may be too remote or incidental
- Whether the benefits are identifiable and capable of being valued. Otherwise, there is no service provided
- Shareholder activities
Sometimes in an MNE Group, an intra-group activity is performed relating to Group members even though those Group members do not need the activity (and would not be willing to pay for it were they independent of the Group). Such activities may be performed by a group member solely because of its ownership interest in one or more other group members or due to compliance reasons. These are considered shareholder activities and won’t be treated as intra-group services.
Treatment of pass-through cost/reimbursement of expenses
Sometimes, a Group company may arrange and pay for, on behalf of its Related Parties or Connected Persons, goods or services acquired from various vendors. These are generally called pass-through costs and are subject to reimbursement.
Duplication
Duplication of services occurs when a service is provided to a Related Party that has already incurred costs for the same activity performed either by itself or on its behalf by an independent provider. There is no commercial or practical necessity for such duplicative service and thus, applying the benefit test, no service is considered provided.
Incidental benefits
In certain situations, an intra-group service relates only to some Group members but incidentally provides benefits to other Group members. These services will not help other group members to be treated as receiving an intragroup service.
- Intra-group services rising from several layers of management
An MNE Group can include several businesses and service lines. It can have several layers of management oversight and supervision. The MNE Group may decide to perform an allocation of the cost of its global and regional business leadership teams across all the countries of operations. However, in such a case, they must perform a benefits test.
If a cost allocation does not pass the benefits test, the expenditure needs to be adjusted while determining the Taxable Income of the Taxable Person. Further, a close evaluation should be performed to ensure that multiple layering in management does not result in duplication in the allocation of cost to the members of the Group.
Centralised services
Certain activities may centralised in the parent entity, or in one or more group service centres (such as a regional headquartered company) and made available to the group (or multiple group members).
These types of activities ordinarily will be considered intra-group services because they are the type of activities that independent parties would be willing to pay for or perform in-house.
Determining the arm’s length charge for intra-group services
This should include the following actions:
- Comparability analysis
- Selection of the most appropriate Transfer Pricing method
- Direct and indirect charge methods
- Determination of the cost base
- Profit mark-up
- Documentation
Hire the Best Transfer Pricing Advisers in Dubai
When intra-group services are involved, determining the arm’s length prices can be complex for MNEs. Tax Gian, a brand of Jitendra Tax Consultants (JTC), provides bespoke transfer pricing services in Dubai so that transfer pricing compliance becomes easier for MNEs. We have a team of highly qualified tax experts who can assist in analysing Intragroup services, determining arm’s length prices for Intra-group services, and analysing Low value-adding services.
Tax Gian is one of the top transfer pricing advisers in Dubai with years of experience. 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. Call us today for any matter related to transfer pricing compliance in the UAE.
