Introduction to UAE Transfer Pricing Documentation
UAE MOF has come up with requirements regarding the maintenance of transfer pricing documentation requirements.
What is Transfer Pricing under UAE Corporate Tax Law?
The practice of determining prices for goods, services, or intellectual property that is transferred between two or more related parties, such as a parent company and a subsidiary, or two subsidiaries of the same parent company, is known as transfer pricing.
Transfer pricing is used to make sure that, as if the transaction were between two unrelated parties, the prices charged for such transactions accurately reflect the fair market worth of the goods or services being transferred.
Conditions for Maintaining Master File and Local File
A Taxable Person must maintain both files if either of the following conditions is met:
- The Taxable Person is a Constituent Company of a Multinational Enterprises (MNE) Group with a total consolidated group revenue of AED 3,150,000,000 or more in the relevant Tax Period.
- The Taxable Person’s revenue in the relevant Tax Period is AED 200,000,000 (AED 200 million) or more.
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What is to be included in the Local File under Transfer Pricing?
The Local File must include transactions or arrangements with Related Parties and Connected Persons:
- Non-Resident person,
- Exempt Person,
- Resident Person who has made an election for the small business relief under Article 21 of the UAE Corporate Tax Law and meets the conditions of such election
- Resident Person whose income is subject to a different Corporate Tax Rate as that applicable to the income of the Taxable Person.
What is not to be included in the Local File under Transfer Pricing?
However, the Local File must not include transactions or arrangements with the Related Party or Connected Person:
- Resident Persons other than:
- Exempt Person
- Resident Person who has made an election for small business relief under Article 21 of the UAE Corporate Tax Law
- Resident Person whose income is subject to a different Corporate Tax Rate
- A natural person where parties are acting independently of each other
- A juridical person that is considered to be a Related Party or a Connected Person by being a partner in an Unincorporated Partnership where parties are acting independently of each other
- Permanent Establishment of a Non-Resident person in the UAE whose income is subject to the same Corporate Tax rate as the income of the Taxable Person.
What is the meaning of “independent of each other”?
If both the conditions are met, then the parties to the transaction will be considered independent of each other:
- If the transaction or arrangement is carried out in the ordinary course of business and
- The parties are not exclusively or almost exclusively transacting with each other.
Exception: However, they will not be regarded as independent of each other if the activities of one person in the transaction or arrangement are subject to:
- Detailed instruction or
- Comprehensive control of the other person in the same transaction or arrangement
The FTA will take into account all relevant facts and circumstances to ascertain if the parties are acting as if they were independent of each other.
Documentation Requirements for Transfer Pricing
Article 3 states that the Federal Tax Authority (FTA)will issue further guidelines that provide detailed information on how taxpayers should comply with the transfer pricing documentation requirements set out in this Decision. These guidelines will help taxpayers understand how to prepare and maintain the necessary transfer pricing documentation.
To know more about Transfer Pricing conditions under the UAE Corporate Tax refer to our blog on- Transfer Pricing in the UAE
Conclusion
The transfer pricing documentation rules and regulations will be applicable to Taxable Persons who satisfy the criteria outlined.
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