Transfer Pricing represents the price agreed upon for transactions between related parties. Companies carrying out transactions with related parties should charge similar prices for these transactions as compared to transactions with independent parties, thus observing the arm´s length principle.
WHICH SUBJECTS ARE OBLIGED TO KEEP DOCUMENTATION?
UAE taxpayers that carry out transactions with foreign related parties OR Domestic related parties.
MANDATORY CONTENT OF DOCUMENTATION
The Transfer Pricing file should contain a minimum following information:
- Information about the Group
- Information about the Company
- Industry analysis
- Functional analysis
- Information about the related party transactions
- Economic analysis
WHEN SHOULD THE DOCUMENTATION BE SUBMITTED?
The Federal Tax Authority can ask taxpayers to provide the Transfer Pricing documentation in justified cases at any time (i.e. not only during the tax inspection). Therefore, we recommend preparing the documentation at the same time controlled transactions between related parties are carried out.
If you carry out controlled transactions with the same members of the group on regular basis, and there are no factors that may influence the determination of prices, you can refer to the documentation for the last period.
WHAT METHODS CAN BE APPLIED?
Traditional methods and other methods according to the OECD Guideline can be used. The principle of the best method shall be applied.
- Comparable Uncontrolled Price: Used mainly for transactions with tangible and intangible assets and financial transactions;
- Resale Price Method: Used mainly for distributors of products;
- Cost Plus Method: Used mainly for transactions related to manufacturing and sale of semi-finished products/ finished products which do not include high added value
- Profit Split Method: Suitable for very integrated transactions when the parties contribute in a unique way or they possess valuable tangible assets
- Net Margin Method: Mainly used for comparable transactions that significantly differ in functions. Data about gross margin are not reliable.
ADVANCED PRICING AGREEMENTS
You can ask the Tax Authority to issue a decision on the approval of a particular method of Transfer Pricing. In this way, you can secure a period of up to 5 years. As long as the transactions are carried out as described in the advanced pricing agreements, the Tax Authorities will not audit these transactions.