Article 55 of UAE Corporate Tax Law: This article pertains to transfer pricing regulations and applies when a taxable person engages in transactions with related parties or connected persons.

• Transfer Pricing Guidelines: The article specifies that there are additional guidelines concerning compliance with transfer pricing regulations.

• Conditions for Compliance: Under the law, compliance with transfer pricing guidelines is mandatory in the following situations:

  1. Constituent Entity of Multinational Group: If a company is a constituent entity of a multinational group and the group’s turnover exceeds AED 3.15 billion.
  2. Independent Taxable Person: If a company is an independent taxable person (not part of any group) and its turnover exceeds AED 200 million in a tax period.

• Obligation to Prepare Masterfile and Local File: Companies meeting either of the two criteria mentioned above and engaging in transactions with related parties or connected persons must prepare a masterfile and a local file as part of their transfer pricing compliance.

• Transfer Pricing Documentation: This means that any company satisfying either turnover criteria and having transactions with related parties or connected persons is required to maintain comprehensive transfer pricing documentation, including the preparation of a masterfile and a local file.

Practical Based Case Study

Background: XYZ Holdings is a multinational conglomerate with various subsidiaries operating in different sectors across the globe. One of its subsidiaries, XYZ LLC, conducts substantial business operations in the UAE. 

Company Status:

1. Nature of Business: XYZ LLC is involved in manufacturing and distributing high-tech electronic equipment in the UAE market.

2. Multinational Group Affiliation: XYZ LLC is a constituent entity of the larger XYZ Holdings multinational group, which operates globally with turnover of AED 4 billion.

Key Questions:

1. Does XYZ UAE Ltd. meet the turnover threshold required for transfer pricing compliance as a constituent entity of a multinational group?
2. What are the implications for their compliance obligations based on their turnover?

Resolution:

1. Turnover Assessment: XYZ LLC’s annual turnover as a constituent entity of the multinational group, XYZ Holdings exceeds AED 3.15 billion.

2. Compliance Obligations: Based on the turnover, XYZ is obligated to prepare a masterfile and a local file to comply with the transfer pricing guidelines outlined in Article 55 of the UAE Corporate Tax Law.

3. Related Party Transactions: Given that XYZ UAE Ltd. engages in transactions with related parties within the XYZ Holdings group, they must ensure that their transfer pricing documentation is comprehensive and compliant with the local file and masterfile requirements.

Conclusion: In the case of XYZ LLC, being a constituent entity of a multinational group with a substantial turnover exceeding AED 3.15 billion triggers the obligation to prepare a masterfile and a local file for transfer pricing compliance in the UAE. This example illustrates how multinational entities with significant turnover must adhere to transfer pricing regulations when conducting related party transactions in the UAE, as mandated by Article 55 of the UAE Corporate Tax Law.