February 16, 2024Dated: | ByMarketing Marketing | Corporate Tax | Transfer Pricing Guide Corporate Tax The Federal tax authority issues the guide for Transfer Pricing regulations in UAE on 23 October 2023. The guide provides taxpayers with insight and practical guidance on the Transfer Pricing (TP) rules and regulations per the Corporate Tax Law of the United Arab Emirates (UAE CT Law). The Transfer Pricing guide is broadly aligned with the Transfer Pricing Guidelines issued by the Organization for Economic Co-operation and Development (OECD Guidelines). It offers you with general guidance on the TP regime in the United Arab Emirates, and practical examples on, for instance, how to identify Related Parties and Connected Persons, the method to undertake a functional analysis, and the method to price intra-group financing transactions. If you are desperate to know everything about Transfer Pricing Regulations in UAE, then you are required to read this article. In this article, we will provide you with an in-depth guide to UAE New Transfer Pricing rules. Executive summary The Ministry of Finance of the UAE United Arab Emirates released Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law or the Law) in order to enact a new corporate tax (CT) regime in the United Arab Emirates. The same law has been segmented with almost 158 FAQs or frequently asked questions, additionally released on the same date. Remember, the new Corporate Tax or CT regime will become effective for the accounting period coming on or after 1st June 2023 with a headline rate of 9 per cent. For the business group with a December year-end, this provides these groups with 12 12-month periods in an effort to prepare along with access to the impact ahead of the effective date. However, the General Anti-Avoidance and Transitional Rules and regulations do apply from the date the law is published in the Official Gazette. The laws additionally come with the TP rules that apply to the businesses in the UAE with respect to the related 3rd party and connected person transactions. Related parties The guide for Transfer Pricing for Corporate Tax UAE provides you with an example of when a person may exercise control over another person and hence may considered related parties for Transfer Pricing purposes. The following is the common example: Significant influence based on debt: when a 3rd party provides debt to a borrower, that constitutes 50 per cent of the total capital of the borrower; Exercising key management and strategic functions: when a minority shareholder (or shareholder with below 50% of the shares) plays a crucial role in the management of day-to-day operations, development of strategies, and formulation of crucial market decisions in decision-making. The examples mentioned above clarify the exact definition of the related parties more. Moreover, the UAE or United Arab Emirates have further entered into agreements with other jurisdictions, which are additionally known as “Associated Enterprises.” The guide for UAE New Transfer Pricing rules clarifies that there is a big difference between a related party definition and an international agreement in force in the UAE; the provisions of the international agreement will prevail for cross-border transactions. Connected persons A person is constructed as a “connected person” after meeting specific eligibility criteria. The following is the list of criteria that make a person as a connected person: If a person is an owner of the business. If a person is a director or an officer of the business. A related party, i.e., a relative within the fourth degree of kinship or affiliation) Calculating the arm’s length value The essence of an arm’s length value is that a transaction should be valued as if the transaction has been carried out between unrelated parties; each of these parties’ acts in their own interest.it is essential to note that the valuation should not be affected by one party’s influence over the other party. The Corporate Tax decree law verifies that the following transfer pricing practices are approved for use when calculating the arm’s length value: The Transactional Net Margin Method The Transactional Profit Split Method The Cost-Plus Method The Comparable Uncontrolled Price Method The Resale Price Method The name methods are well-established methods that are consistent with OECD transfer pricing guidelines. The standard method is usually followed when carrying out a valuation with the help of these methods, and this is an area in which taxpayers may require the suggestion of a transfer pricing specialist with Transfer Pricing Advisory Services UAE. It’s worth noting that the decree law additionally allows the use of an alternative practice if it can be represented that none of the listed practices can be reasonably applied. Transfer pricing reporting and recordkeeping. The decree-laws provide you with a broad guide on UAE Transfer Pricing Regulations documentation that a taxpayer may be required to keep. A Cabinet Decision will be issued in order to clarify which taxpayers will be affected by the documentation and reporting requirements. A master file and a local file, both of which are standard OECD documents, are some of the necessary documents that are mentioned in the decree laws. This law additionally mentioned that these documents must be kept in a form specified by the FTA, but it seems likely the format will be similar or the same as called for in the OECD guidance. Generally, the master file includes information on the global business operation of the group to which a taxable person belongs. Here is the list of information required to include in the master file: Intercompany financing arrangements Financial and tax position of the group Description of the group business Intangibles of the group Group structure The local files usually include the following information: Documentation on material local transactions subject to transfer UAE New transfer pricing rules Information on the taxable person, like organizational chart, business strategy, etc. These documents must not to be submitted to the FTA as part of the regular reporting process, but the FTA can request them at any time. If a request is made, the taxpayer will have 30 days to develop the files. In addition to the requirement to keep a master file and a local file, the decree-law also refers to the possibility that a notice or decision might be issued that needs a taxpayer to file a transfer pricing disclosure at the time the tax return is filed. At this stage, there is no indication of whether any such notice or decision might be issued and whether it will apply generally or only to specific taxpayers. Why should you consult Flyingcolour tax? Flyingcolour Tax provides taxpayers with excellent Transfer Pricing Advisory Services UAE. We can provide you with every crucial detail about these rules. Furthermore, we can help you develop your Transfer pricing reporting and recordkeeping. To learn more about Transfer Pricing Rules in Corporate Tax in UAE, book a free consultation with one of Flyingcolour team advisors, simply call +971 50 5585305 or send WhatsApp messages to +971 4 4542366. you can also drop an email to info (at) flyingcolour (dot) com. This article was published on 16-02-2024. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent updates or changes.