A critical aspect of multinational business operations, involves determining the prices of transactions between related entities within a multinational enterprise (MNE). To ensure fairness, transparency, and compliance with tax regulations, transfer pricing documentation becomes paramount.
Companies are obliged to retain transfer pricing (TP) documentation if they meet specific conditions, which will be detailed in an upcoming Ministerial Decision. This documentation includes a master file and a local file. Upon receiving a request, the Federal Tax Authority (FTA) must be provided with the TP documents within 30 days. Additionally, the FTA reserves the right to request additional substantiating evidence from taxpayers within 30 days of receiving the request.
Master file : The Master file encompasses an overview of the multinational group’s activities, encompassing details about its international business operations, general transfer pricing principles, and the global distribution of revenue and economic activity.
Local file : Complementing the Master file, the Local file contains more comprehensive information regarding specific intra-group transactions. It focuses on data relevant to the local entity’s intra-group transactions, evaluating whether these transactions adhere to the arm’s length principle.
It is worth noting that the anticipated requirements, as disclosed in the UAE CT Public Consultation Document by the Ministry of Finance, are expected to align closely with the standards set by the Organisation for Economic Co-operation and Development (OECD). However, the Law does not provide additional specifics on the specific content to be included in the master file and the local file
CbCR (Country-by-Country Reporting) : Includes a report that presents consolidated data categorized by jurisdiction, outlining the multinational group’s revenues, profits, taxes, stated capital, accumulated earnings, employees, and assets. Additionally, the CbCR offers insights into the geographical locations and business activities of the group’s global operations.
In conclusion, transfer pricing and its documentation play a crucial role in ensuring fair and transparent pricing of cross-border transactions within multinational enterprises (MNEs). Compliance with transfer pricing regulations and maintaining comprehensive documentation is essential for businesses to mitigate tax risks, demonstrate compliance with the arm’s length principle, and avoid potential disputes with tax authorities.
This article was published on 1 July 2023
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