Transfer Pricing Disclosure - What UAE businesses need to know
Transfer Pricing Disclosure - What UAE businesses need to know
The introduction of the UAE’s Corporate Tax Regime under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (‘the UAE CT Law’) has brought about significant changes to the country’s taxation landscape.
A critical component of this new regulatory framework is the Transfer Pricing (TP) compliance requirements encapsulated in Article 55 of the UAE CT Law. This Article mandates that taxable persons, alongside their Corporate Tax (CT) return, must submit a disclosure regarding their transactions and arrangements with related parties and connected persons in a format prescribed by the Federal Tax Authority (FTA).
While Article 55 established the requirements for the filing of disclosure related to transactions and arrangements with related parties and connected persons, the specific mechanics of filing—particularly the disclosure format —remained ambiguous for some time. This lack of clarity has raised concerns among businesses and tax professionals about compliance expectations, particularly for businesses facing fast-approaching deadlines.
Recently, certain taxpayers with imminent CT return deadlines have reported the appearance of disclosure schedules as a part of their CT return on the Emara tax portal. This is a key indicator that the FTA is now rolling out the compliance mechanism, starting with taxpayers whose CT filings are due.
Although the disclosure format has not been publicly disclosed, the fact that it is now visible to select taxpayers suggests that the FTA expects businesses to proactively disclose detailed information about their transactions with related parties and connected persons in the upcoming filings. These disclosures require detailed reporting of transactions and arrangements with related parties and connected persons in two separate schedules, i.e., Related Party Transaction Schedule and Connected Persons Schedule, respectively. Also, it appears that these schedules will be included as a part of the CT return rather than separate disclosure forms.
Who Needs to Submit?
The Transfer Pricing Guide, CTGTP1 (UAE TP Guide), mandates that transactions exceeding certain thresholds (to be set by an FTA decision) must be reported in a TP disclosure form. However, as of now, the FTA has not issued any decision on this requirement. Despite this, the CT return available on the Emara tax portal indicates that both the related party transaction schedule and connected person schedule must be submitted by all taxable persons having transactions with related parties and connected persons. The aspect should be closely monitored.
What Needs to be Reported?
Related Party Schedule
Connected Person Schedule
These disclosures will help the Federal Tax Authority (FTA) gain critical insights into how entities in the UAE structure their transactions with related parties and connected persons, ensuring compliance with arm’s length principles and preventing base erosion and profit shifting.
Consequences of Non-Compliance
Failure to submit the TP disclosure schedules could result in penalties by the Federal Tax Authority (FTA), which may vary from AED 500 to AED 1,000 per month.
Key Observations and Takeaways
With the related party and connected person schedules now appearing on the Emara tax portal for some entities, the FTA is signalling that TP Compliance will be rigorously enforced. Entities with an imminent filing deadline must take immediate steps to assess their transactions with related parties and connected persons, ensure adherence to arm’s length principles, and submit the required disclosures.
As the TP disclosure is progressively introduced, businesses should not view this requirement in isolation but as part of a broader shift towards greater tax transparency. Given the UAE’s strategic importance as a regional hub, the government’s adoption of TP requirements will likely intensify in the coming years.
As the country continues to align its tax policies with global standards, businesses that approach TP proactively will be better positioned to navigate the evolving landscape.
A critical component of this new regulatory framework is the Transfer Pricing (TP) compliance requirements encapsulated in Article 55 of the UAE CT Law. This Article mandates that taxable persons, alongside their Corporate Tax (CT) return, must submit a disclosure regarding their transactions and arrangements with related parties and connected persons in a format prescribed by the Federal Tax Authority (FTA).
While Article 55 established the requirements for the filing of disclosure related to transactions and arrangements with related parties and connected persons, the specific mechanics of filing—particularly the disclosure format —remained ambiguous for some time. This lack of clarity has raised concerns among businesses and tax professionals about compliance expectations, particularly for businesses facing fast-approaching deadlines.
Recently, certain taxpayers with imminent CT return deadlines have reported the appearance of disclosure schedules as a part of their CT return on the Emara tax portal. This is a key indicator that the FTA is now rolling out the compliance mechanism, starting with taxpayers whose CT filings are due.
Although the disclosure format has not been publicly disclosed, the fact that it is now visible to select taxpayers suggests that the FTA expects businesses to proactively disclose detailed information about their transactions with related parties and connected persons in the upcoming filings. These disclosures require detailed reporting of transactions and arrangements with related parties and connected persons in two separate schedules, i.e., Related Party Transaction Schedule and Connected Persons Schedule, respectively. Also, it appears that these schedules will be included as a part of the CT return rather than separate disclosure forms.
Who Needs to Submit?
The Transfer Pricing Guide, CTGTP1 (UAE TP Guide), mandates that transactions exceeding certain thresholds (to be set by an FTA decision) must be reported in a TP disclosure form. However, as of now, the FTA has not issued any decision on this requirement. Despite this, the CT return available on the Emara tax portal indicates that both the related party transaction schedule and connected person schedule must be submitted by all taxable persons having transactions with related parties and connected persons. The aspect should be closely monitored.
What Needs to be Reported?
Related Party Schedule
Sr. No | Particulars | Details to be reported |
1 | Gross Income and Expenditure |
|
2 | Details of Transactions with Related Parties |
|
3 | Nature of Transactions |
|
4 | Value of Transactions |
|
5 | Method Used for Determining Arm’s Length Transactions |
|
6 | Tax Adjustments and Action Items |
|
Connected Person Schedule
Sr. No | Particulars | Details to be reported |
1 | Details of Transactions with Connected Persons |
|
2 | Nature of Payment or Benefits |
|
3 | Value of Payments or Benefits |
|
4 | Adjustments and Action Items |
|
These disclosures will help the Federal Tax Authority (FTA) gain critical insights into how entities in the UAE structure their transactions with related parties and connected persons, ensuring compliance with arm’s length principles and preventing base erosion and profit shifting.
Consequences of Non-Compliance
Failure to submit the TP disclosure schedules could result in penalties by the Federal Tax Authority (FTA), which may vary from AED 500 to AED 1,000 per month.
Key Observations and Takeaways
- Gross Income Reporting: The related party schedule requires the taxable person to report gross income received from the related parties and not the net income. This implies that any discount or returns must be disclosed separately.
- Materiality Threshold: It appears that the TP disclosure schedules are available to all the taxable persons having transactions with their related parties and connected persons, regardless of the transaction value. This necessitates clarification from the FTA on the materiality threshold for TP disclosure, as provided in the UAE TP Guide.
- Other TP methods: While Article 34(4) of the UAE CT Law allows the use of methods other than the five recognized TP methods (I.e., comparable uncontrolled price method, resale price method, cost plus method, profit split method, and transactional net margin method), the current related party schedule available on Emara tax portal does not provide an option to select other methods.
- Submission of Local File and Master File: Article 55(2) of the UAE CT Law requires a taxable person to submit a local file and master to the FTA within 30 days upon such request. However, the current CT return available on the Emara tax portal requires taxable persons to upload local file and master file, along with the CT return creating further ambiguity that needs clarification from the FTA.
With the related party and connected person schedules now appearing on the Emara tax portal for some entities, the FTA is signalling that TP Compliance will be rigorously enforced. Entities with an imminent filing deadline must take immediate steps to assess their transactions with related parties and connected persons, ensure adherence to arm’s length principles, and submit the required disclosures.
As the TP disclosure is progressively introduced, businesses should not view this requirement in isolation but as part of a broader shift towards greater tax transparency. Given the UAE’s strategic importance as a regional hub, the government’s adoption of TP requirements will likely intensify in the coming years.
As the country continues to align its tax policies with global standards, businesses that approach TP proactively will be better positioned to navigate the evolving landscape.