UAE Transfer Pricing Essentials: A Guide to Compliance
The United Arab Emirates’ corporate Tax (CT) regime introduces transfer pricing (TP) obligations for taxable persons engaged in transactions with related parties or connected persons. While the full local file isn’t immediately required upon filing the CT return, proactive preparation is strongly advised to ensure compliance and minimize potential scrutiny from the Federal Tax Authority (FTA).
Local File & Disclosure Requirements
Currently, the master/local file is only required for submission upon specific request by the FTA. This leads many taxpayers to consider preparing the local file after filing the CT return, only when prompted. Though,the disclosure form,submitted alongside the CT return,necessitates taxpayers to identify the most appropriate TP method for each disclosed transaction. Thus, finalizing the TP methodology and its underlying basis before filing is crucial to avoid inconsistencies should a local file be subsequently requested.
Although submission isn’t mandatory upfront, it’s highly recommended to prepare local files in advance of the CT return filing deadline.
Key Checks Before CT Return Submission
Before submitting your CT return, consider these TP-related points:
* Financial Statement Traceability: Ensure reported amounts directly correlate with the tax group’s financial statements.
* Cross-File Consistency: Verify consistent reporting of transactions (goods,services,intellectual property,financing,etc.) across the Disclosure Form, Local File, and Master File for both the UAE and other relevant jurisdictions.
* Methodology Finalization: Confirm the TP methodology and the basis for determining arm’s length values are finalized, and that a Local File could be prepared to support all disclosed transactions if requested by the FTA.
* Supporting Analysis Documentation: Document the supporting analysis for any arm’s length adjustments made outside the books, including obtaining FTA approval for downward adjustments as outlined in paragraph 16.1.9 of the Tax Return Guide.
* Schedule Overlap: Identify and resolve any overlap between Related Party and Connected Person schedules.
The Importance of Proactive Compliance
inaccurate or incomplete disclosures can result in penalties and increased attention from the FTA. Given that the first year of compliance will establish the precedent for future years, a diligent approach to these recommendations is paramount.
How FTI Consulting Can Help
FTI Consulting offers comprehensive support for businesses navigating the UAE’s transfer pricing landscape, leveraging a strong global team with local expertise. Services include:
* TP Policy Progress and Implementation: Designing and formalizing internal TP policies aligned with business models and regulatory expectations,ensuring consistency across jurisdictions.
* Transaction Mapping: Identifying and classifying all Related Party and Connected Person transactions, aligning them with financial statement disclosures and TP requirements and thresholds.
* Arm’s Length Analysis: Applying appropriate TP methods and benchmarking results to justify the pricing of controlled transactions.
* UAE TP Compliance and Documentation: Accurately completing the TP Disclosure Form, ensuring consistency with the CT return and supporting documentation that meets OECD and UAE requirements, including functional analysis and economic rationale.
* Audit Readiness and Risk Mitigation: Preparing position papers and advising on documentation strategies to mitigate potential exposure and penalties in compliance with UAE CT Law.
FTI Consulting can partner with you throughout your UAE transfer pricing journey, providing guidance and support to ensure a smooth and compliant process.
