MNEs have to adopt “The Tortoise and Hare ” approach while designing and planning the transfer pricing infrastructure while carrying out cross-border transactions in various foreign jurisdictions because slow and steady wins the race. Multinational enterprises (MNEs) have a new obligation to fulfil: ensure transfer pricing compliance in the UAE. Transfer pricing refers to the price at which goods, services and IP are transferred between the associated enterprises of an MNE group located in different tax jurisdictions.
Transfer pricing has its own complexities because the associated enterprises have to ensure that the prices meet the arm’s length principle. MNEs navigate the complexities of transfer pricing by hiring the expertise of the best transfer pricing consultants in Dubai.
By associating with experts in the field, MNEs can learn how to implement a robust strategy for transfer pricing compliance in the UAE. In this blog, we’ll provide you with some tips for simplifying the transfer pricing process. Here are some useful tips to simplify the transfer pricing process:
Start with the Arm’s Length Principle
Understanding the arm’s length principle should be the starting point of your transfer pricing compliance journey.
The arm’s length standard requires transactions between associated enterprises to be priced as if they were conducted between independent enterprises in the open market.
Transfer pricing advisers in Dubai can help you gain a clear picture of what constitutes an arm’s length price and how to apply it to your group’s transfer pricing strategies.
Perform Functional and Risk Analysis
You should carry out a full analysis of the functions performed, assets deployed and risks assumed by each entity that is part of the transaction. This analysis will help you determine the accurate profit allocation and select the most appropriate transfer pricing method.
Choose the Right Transfer Pricing Method
To select the most appropriate transfer pricing method, you need to ponder over the transaction’s nature and available data. However, is there any best transfer pricing method?
The OECD recommends that corporate groups choose the most appropriate transfer pricing method from commonly used methods such as the comparable uncontrolled price (CUP), resale price method (RPM), cost-plus method (CPM), profit split method (PSM), and transactional net margin method (TNMM).
Transfer pricing professionals in Dubai can make you aware of the pros and cons of each transfer pricing method.
Conduct Benchmarking Studies
Conducting independent benchmarking studies is essential for identifying comparable transactions between unrelated parties. It provides you with external evidence of the arm’s length pricing and supports the fairness of your transfer pricing arrangements.
Focus on Transfer Pricing Documentation
The OECD recommends a three-tiered approach for transfer pricing documentation. It includes the Local File, the Master File and the Country by Country Report (CbCR).
However, documentation requirements are subject to the transfer pricing legislations of different tax jurisdictions.
As per the UAE transfer pricing documentation requirements, 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).
Consider Advance Pricing Agreements
Engaging in Consider Advance Pricing Agreements (APAs) with tax authorities may give you certainty and establish agreed-upon transfer pricing arrangements for future transactions. APAs are key to reducing transfer pricing disputes.
Talk to a Transfer Pricing Adviser
Hiring transfer pricing specialists in Dubai will help you wade through the complex web of transfer pricing implementation. They may come in handy for ensuring seamless transfer pricing compliance in the UAE.
Ensure effective internal coordination
MNEs may have apprehensions about transfer pricing implementation in the UAE as the country is new to the corporate tax regime. The transfer pricing implementation process should not be restricted to the tax function alone.
Effective implementation of transfer pricing in the UAE requires coordination among operations, finance and tax functions in the corporate group. You must define exactly what will be needed from each function and assign responsibilities accordingly.
Hire the Best Transfer Pricing Advisers in Dubai, UAE
Complexities of transfer pricing regulations may act as a major roadblock for MNEs planning for a seamless transfer pricing implementation process in the UAE. Hiring experienced transfer pricing service providers in the UAE such as Tax Gian can help you implement transfer pricing policies without hassle.
Tax Gian, a brand of Jitendra Tax Consultants (JTC), has succeeded in charting a course for businesses seeking effective tax compliance in the UAE. Our team of highly tax experts provides you with robust Transfer Pricing services in the UAE. Our tax advisors in Dubai possess deep expertise in Global Transfer Pricing regulations and best practices.