UAE Transfer Pricing: FTA issues detailed Transfer Pricing Guidelines
24 October 2023
The Federal Tax Authority has issued its eagerly awaited Transfer Pricing Guide (the TP Guide), which will act as a guiding force for applying the Transfer Pricing Rules in the UAE. It outlines how the TP rules will be applied and the documentation to maintain.
The Guide references the 2022 Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration. However, the FTA has emphasised that the TP Guide should be considered the first source of reference, and the OECD Guidelines should be referred to if any issue is not primarily addressed by the TP Guide.
The issue of the TP Guide is a welcome move from the FTA, providing greater detail and guidance on various topics, including:
- The scope of the Transfer Pricing Rules
- The application of the Arm’s Length Price:
- Identification of related parties/ connected persons and relevant transactions and arrangements
- Selection of the most appropriate pricing method
- Determination of the Arm’s Length Price
- An overview of the Transfer Pricing Documentation:
- TP Disclosure Form
- Country-by-Country Reporting (CbCR)
- Master File and Local File
- TP documentation
- An overview of the aspects to be considered for financial transactions.
In addition to the above, the TP Guide provides clarity on:
- The frequency for updating searches for comparables: The Guide states that searches for comparables should be updated every three years, with an annual financial update in the interim years.
- Master File and Local File: The TP Guide confirms that the content requirement for both Master File and Local File is as per Annexure I and II of Chapter V of the OECD Transfer Pricing Guidelines.
- TP Disclosure Form: The form, which is to be prepared for each tax period, is to include the nature of transactions, related parties or connected persons, the value of transactions and the method selected to determine the arm’s length price.
The TP Guide also confirms that in due course, a materiality threshold will be set by an FTA Decision. Transactions that exceed the materiality threshold will need to be disclosed for the purpose of transfer pricing documentation.
This is an excellent guide that provides a great deal of very detailed information. However, there are still several areas where additional guidance and information will be required in due course, for example, confirmation of the materiality thresholds and the precise form of the annual disclosure.
If you have any queries or need support evaluating the implications of transfer pricing for your business, please get in touch with one of our corporate tax or transfer pricing experts.