Transfer Pricing Services in Dubai, UAE

The finance team serves as the primary source of financial and operational information used by the TP team to assess related-party transactions, guiding the task to its relevant scope, reducing the extra efforts that might be wasted in scanning the companies’ transactions, and helping the TP team to focus on areas that potential related parties might contribute to.

In the context of UAE Corporate Tax and Transfer Pricing regulations, identifying connected persons requires businesses to look beyond legal ownership and assess the actual level of control and influence exercised within the organization, the transactions which lead to profit allocation within related parties should reflect the arm’s length principle.

In many cases, related-party relationships may not be immediately visible from the legal structure alone, many indirect ownerships might be considered related parties, especially when we have holding companies, accordingly businesses should maintain accurate and updated organizational charts, shareholder registers, ownership percentages, voting rights details, and supporting legal documentation to demonstrate the relationships between group entities and connected persons.

Under UAE Corporate Tax and OECD Transfer Pricing principles, intercompany financing transactions must be evaluated based on their actual economic substance and commercial nature, where one group entity provides financial support, advances funds, or allows another entity to benefit from debit balances or financing arrangements, the transaction may be viewed as a loan or financing activity that should ordinarily attract an arm’s length return.

Only legal ownership of intellectual property does not automatically mean an entity can simply recognize all derived returns, the allocation of profits relating to intellectual property should reflect the actual economic contributions made by each entity within the group, so companies should perform a proper DEMPE analysis, which evaluates the functions related to the Development, Enhancement, Maintenance, Protection, and Exploitation of the intellectual property, this analysis helps determine which entities are genuinely contributing to the creation and management of the intangible asset, and whether the financial returns allocated to each entity are consistent with their functional contributions and risks assumed.

The selected method should produce a reliable arm’s length outcome given the available data and circumstances, for example if traditional comparable uncontrolled price (CUP), resale price, or cost plus methods cannot be reliably applied due to a lack of data, companies may consider profit-based methods such as the Transactional Net Margin Method (TNMM) or the Profit Split Method.

Proper allocation methodology should reflect the actual benefit received by each group entity and be based on appropriate allocation keys, companies must ensure that shared services or centralized procurement activities provide a demonstrable benefit to the recipients, businesses should maintain supporting documentation such as service level agreements, cost breakdowns, time records, and evidence of service delivery.

Transfer Pricing compliance often requires companies to clearly define and document their value chain, ensuring that functions, assets, and risks are appropriately allocated across different entities like free zone and non-free zone entities, this may lead businesses to reassess their group structure, especially where activities are split across jurisdictions, to ensure that the Free Zone entity has sufficient economic substance and is appropriately remunerated for the functions it performs.

Insufficient awareness at the board level can lead to underestimation of key risks, including transfer pricing adjustments, penalties, and potential challenges to tax incentives such as Free Zone benefits, under UAE Corporate Tax rules, transfer pricing is not merely a compliance obligation but a core element of demonstrating that profits are aligned with economic substance and value creation within the group, senior management should be aware that non-compliance may result in significant financial exposure, including retrospective tax assessments by the Federal Tax Authority, interest charges, and administrative penalties, in addition inadequate transfer pricing governance may weaken the company’s position during audits or reviews, particularly where documentation such as the Master File, Local File, and benchmarking studies is incomplete or inconsistent.

While larger multinational groups are generally more familiar with these requirements due to existing global compliance frameworks, smaller or newly established groups in the UAE may have lower awareness. FTA expects taxpayers to maintain TP documentation, meaning that the Master File and Local File should be prepared on a timely basis and not only in response to an audit.