Published: Apr 2, 2024

Corporate Tax – Transfer Pricing Guide – Key features

Since the introduction of Federal Decree Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“CT Law”), the Federal Tax Authority (“FTA”) has produced several publications to provide detailed practical guidance on a range of topics covered in the CT Law. On October 2023, the FTA published an extensive Transfer Pricing Guide (“TP Guide”).

  • Although the TP Guide is not a legally binding, it is a useful resource which provides insight into the intended application of the Transfer Pricing (“TP”) provisions of the CT Law, and particularly, clarification on the scope of the Arm’s Length Principle. The TP Guide takes into consideration the guidance provided by the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, January 2022 (“OECD TP Guidelines”), bringing the UAE TP regime in line with international standards.
  • The TP Guide emphasizes the need for keeping supporting documentation to justify the application of the TP method or specific rules for the relevant taxable persons.
  • Summarised in this article are some of the key points contained within the TP Guide which provide additional clarity and guidance to the taxpayers. Click here to read the full TP Guide.

Arm’s length principle

The TP Guide states that the arm’s length principle requires that transactions and arrangements between Related Parties or Connected Persons are priced as if the transactions or arrangements had occurred between independent parties under similar circumstances. This definition is in line with the OECD TP Guidelines. It should be noted that TP Guide requires the application of the arm’s length principle to domestic as well as cross-border controlled transactions.

Related parties

The TP Guide expands on the definitions of Connected Persons and Related Parties provided in Articles 36 and 35 of the CT Law. The TP Guide provides numerous examples of how taxpayers can apply the concepts of Related Parties or Connected Persons in relation to their operations in the UAE to gauge the exercise of ‘control” for TP purposes.

The different illustrations offered in the Guide demonstrate that determining ‘Control’ is not only based on a predetermined 50% ownership threshold. Rather, ‘‘control” can be demonstrated when a Person has ‘significant influence’ over another. This includes, but is not limited to:

Significant influence based on debt (eg. more than 50% of total capital of the borrower) or entitlement to profit sharing (eg. royalty agreement that gives the right to 50% of profits) are some of the examples that can indicate ‘significant influence’.

The onus is on the Taxable Person to identify any relationships, with both natural and juridical Persons, which may constitute ‘significant influence’, thus potentially triggering the applicability of the Related Party or Connected Persons definitions and obligations.

Application of the arm’s length principle

The TP Guide provides a three-step methodology for application of the Arm’s Length Principle to a Controlled Transaction. A Taxable Person must:

  1. Identify Related Parties, Connected Persons, relevant transactions and arrangements and perform a comparability analysis accordingly;
  2. Select of the most appropriate TP method; and
  3. Determine the Arm’s Length Price.

A comparability analysis is at the heart of application of the arm’s length principle. It refers to the comparison of a Controlled Transaction with comparable uncontrolled transactions. Further to this, the TP Guide stipulates the significance of the ‘accurate delineation’ of a Controlled transaction. Accurate delineation refers to the recognition of the actual Controlled Transaction based on actual conduct over contractual form by analysing the functions performed, risks assumed and assets used by each party to the transaction.

With regard to the TP methods, the TP Guide makes reference to five internationally accepted TP methods detailed in the OECD TP Guidelines and under Article 34(3) of the CT Law. The TP Guide reiterates that there may be instances where none of the five methods can be utilized and ‘Other methods’ can be considered for the purpose of the application of the arm’s length principle.

Furthermore, the FTA suggests that the TP methods to be applied on a transactional level where possible, which practically means that most appropriate method should be applied to each relevant transaction. The TP Guide recognizes that there may be cases that TP methods could be applied on an aggregated basis, for example applying the Transactional Net Margin Method on a company-wide basis to test the overall profitability.

With regard to the determination of an arm’s length price, the FTA suggests that the interquartile range is an appropriate approach for determining an arm’s length range of financial results or indicators as it provides a more robust measure of central tendency and variability than other statistical measures, such as the arithmetic mean or median.

As per Article 34(7) of the CT Law, any point within the arm’s length range is acceptable in establishing the Arm’s Length Price of the Controlled Transactions of a Taxable Person.

Further to this, the TP Guide emphasises the necessity of assessing extreme results, particularly loss-making companies, and determining whether they should be preserved or eliminated from the list of comparables.

In general, a loss-making uncontrolled transaction or loss-making company should engage in further analysis to determine whether or not it is comparable to the Controlled Transaction. Loss-making transactions/enterprises should be excluded from the list of comparables in cases where losses do not reflect normal business conditions and where third-party losses reflect a level of risk that is not comparable to the one assumed by the Taxable Person in its Controlled Transactions.

The TP Guide requires Taxable Persons to use domestic comparables in their comparability analysis as these comparables generally have a higher degree of comparability in terms of their market and economic circumstances compared to foreign comparables. However, where insufficient data is available at the domestic level, Taxable Persons can consider regional or global comparables. Practically, this means that Taxpayers should perform local/ regional benchmarking studies and should not rely on studies performed at group level.

TP Documentation

To maintain compliance with TP requirements and safeguard the integrity of their Corporate Tax positions, Taxable Persons must compile contemporaneous TP documentation in relation to their Controlled Transactions. The TP Guide details the approach to TP documentation, including:

1. TP disclosure form

All Taxable Persons who conduct transactions with Related Parties or Connected Persons (domestic or international) are required to prepare and submit a TP disclosure form alongside the Tax return (i.e. within 9 months from the end of the relevant Tax Period). The TP Guide has now proposed a materiality threshold for this TP disclosure form, however the threshold is yet to be prescribed.

The FTA has indicated that a sample form will be made available on the FTA’s website, and will require a Taxable Person to submit information such as the nature of the Controlled Transaction(s), the value of the Controlled Transaction(s), details of the Related Party(ies) and the Transfer Pricing method(s) used to determine the arm’s length value of the Controlled Transactions.

2. Master File and Local File

Taxable Persons who are a Constituent Company of a Multinational (“MNE”) Group with a total consolidated group of AED 3.15 billion or more; or where the Taxable Person’s revenue in the relevant tax year is AED 200 million or more, must keep both a Master File and a Local File. The requirements prescribed by the FTA align with the requirements under Chapter V of the OECD TP Guidelines.

Any Taxable Person who is part of a UAE-headquartered organisation that is not an MNE organisation (i.e. a group with no commercial premises outside the UAE) is exempt from maintaining a Master File. However, they must keep a Local File in accordance with the prescribed thresholds.

The Master file should provide an overview of the multinational group business, including the nature of its global business operations, its overall transfer pricing policies, and its global allocation of income and economic activity. On the other hand, the Local file focuses on information relevant to the related party transactions that the Taxable Person undertakes and evaluates the arm’s length nature of these transactions.

A Taxable Person who does not fulfil the requirements for a Master File or Local File is nonetheless required to keep records demonstrating the arm’s length character of their dealings with Related Parties/ Connected Persons, and the FTA may seek supporting documentation from all taxpayers. Functional analysis, benchmarking studies, intercompany agreements, meeting minutes, documentation of decisions taken, emails, invoices, workpapers estimating transfer prices, and so on are examples of such information.

This information can be requested by the FTA within 30 days or as ordered by the FTA.

It is crucial to mention that the FTA expects that documentation is maintained either at the time of the Controlled Transaction or, by the time the Taxable Person submits its Tax Return for the Tax Period in which the Controlled Transaction is undertaken.

  • Country-by-Country Reporting (“CbCR”)

The CbCR is a standardised report that provides information regarding the MNE Group’s global income allocation, taxes paid, and economic activity indicators across tax jurisdictions. It also identifies the MNE Group’s Constituent Entities for which financial information is disclosed, including the tax jurisdiction of incorporation and details of the Constituent Entity’s major economic operations. The CbCR rules apply to multinational groups headquarted in the UAE that have a total consolidated group revenue of AED 3.15 billion or above. The CbC report should be filed within 12 months from the end of the financial year of the Group.

The CbCR notification provides information with respect to the filing entity. The CbCR notification should be submitted no later than the last day of the financial year that of the multinational group. The CbCR rules apply to multinational groups that are headquarted in the UAE and have a total consolidated group revenue of AED 3.15 billion or above.

The CbCR requirements were introduced through the Cabinet Resolution No. 44 of 2020. It should be noted that the CbCR follows the Standard Template attached in Chapter V of the OECD TP Guidelines.

Financial Transactions

The TP Guide adheres to Chapter X of the OECD Guidelines for Financial Transactions. The TP Guide addresses many elements of intra-group financing arrangements, with illustrative examples explaining how the Arm’s Length Principle is applied to intra-group financing arrangements and how comparability adjustments can be conducted in the absence of sufficient comparables.

The TP Guide includes guidance on intra-group loans and determining the arm’s length pricing for such arrangements. Further to this, the TP Guide discusses TP implications on treasury activities, cash pooling, hedging, financial guarantees and captive insurance arrangements.

Intra-group Services

The TP Guide provides specific guidance on intra-group services that is mostly in line with Chapter VII of the OECD TP Guidelines. From a TP perspective, there are two main areas of concern with regard to intra-group services:

  • whether intra-group services have in fact been provided; and
  • whether the charge for the intra-group service is in accordance with the Arm’s Length Principle.

The first area of concern relates to the so-called “benefit test” – has the service recipient received any benefit from the services provided? Further to this, the taxpayers should assess the TP implications of specific type of costs, such as shareholder costs, duplicative costs, pass-through costs etc. Once, the pool of costs has been determined, then the Taxpayer should consider an appropriate allocation and the arm’s length charge of these costs.

The Taxable Person is responsible for preparing and maintaining supporting paperwork that will be supplied to the FTA upon request. The documentation should include a clear explanation of the intra-group services provided, the identity of the beneficiaries, a summary of the benefits received, the approach used to determine and calculate the charges, as well as justification for the allocation key(s) used, an explanation of how the underlying costs relate to the service provided, and support for any mark-up applied. This should be included in the Transfer Pricing paperwork for each Tax Period.

Permanent Establishment (“PE”)

According to Article 24(4) of the CT Law, when determining the income and associated expenditure of a PE, a Resident Person and each of its PEs should be treated as separate and independent entities. This approach is known as the “separate entity approach”. The arm’s length principle requires treating a PE as if it is a separate entity that operates independently from other parts of the Group and the parent to whom the PE belongs (i.e. a head office).

In accordance with the Arm’s Length Principle, the FTA expects Taxable Persons to assign the appropriate amount of earnings and related expenses to PEs. In order to accurately attribute the profit between the PE and its parent, a two-step analysis is required:

  • A functional analysis taking into account the functions performed, assets used and risks assumed by the PE and the Head office.
  • Determine the compensation of any transactions between the Head office and the PE.

As a result, transactions involving Related Parties or Connected Persons in which one of the parties is a PE must follow the Arm’s Length Principle.

Burden of Proof

The TP Guide emphasises that the burden of proof lies with the Taxable Persons in maintaining sufficient supporting documentation and making timely submissions to the FTA to support their transfer pricing positions. There is an incentive for Taxable Persons to ensure TP documentations is effectively preserved, as in the event of a tax dispute, the burden of proof shifts to the FTA.


Shiraz Khan, Partner, Head of Taxation – M: +971 56 422 9435

Ioannis Nanos, Transfer Pricing Lead, Tax – M: +971 50 467 2335

Key Contacts

Shiraz Khan

Partner, Head of Taxation
Ioannis Nanos

Transfer Pricing Lead