In the beginning of 2022, the Ministry of Finance (MoF) of the United Arab Emirates declared that they would introduce Federal Corporate Tax (CT) on business profit. These changes were implemented in the financial year staring 1 June 2023. Traditionally the UAE tax system relied on the principles of territorial taxation, which means that taxation is generally applied to income derived within the country’s borders. The UAE has further taken steps towards implementing transfer pricing regulations. The UAE Federal Tax Authority released on 9 December 2022 Federal Decree-Law No. 47 of 2022 (Taxation of Corporations and Businesses). That Decree-Law contains several articles relating to Transfer Pricing which are referred in these FAQs as The UAE Transfer Pricing Regulations.
What are the major changes?
The aim is to prevent MNE’s implementing tax avoiding strategies that includes transfer pricing manipulation. The UAE has committed to adopt Profit Shifting (BEPS) framework and Base Erosion as guided by the Organisation for Economic Co-operation and Development (OECD). The following articles is the central focus of the changes in the Decree-Law form in the UAE Transfer Pricing Regulations.
- Article 34 – Arm’s Length Principle
- Article 35 – Related Parties and Control
- Article 36 – Payments to Connected Persons
- Article 55 – Transfer Pricing Documentation
What are the possible implications?
The UAE Transfer Pricing Regulations introduced through Federal Decree-Law No. 47 of 2022 have several implications for MNE’s and transfer pricing managers and CFO’s will need to adapt to these changes:
It will be essential to understand the scope of the regulations and assess whether company transactions with related parties and connected persons fall within its purview. UAE tax treaties, based on the OECD Model Tax Convention, incorporate the arm’s length standard. CFOs and transfer pricing managers should ensure that their transfer pricing practices comply with both the UAE Transfer Pricing Regulations and relevant tax treaty provisions. Any adjustments made under the regulations should be consistent with the authorized statement of the arm’s length standard in tax treaties.
Documentation and Reporting
The introduction of transfer pricing rules and the associated documentation and reporting requirements will create a significant compliance burden. The regulations require the maintenance of transfer pricing documentation to substantiate the arm’s length nature of transactions. managers must develop robust documentation that includes information on related parties, transactional details, selection of transfer pricing methods, benchmarking analysis, and other relevant data. Existing transfer pricing policies and practices must be reviewed to align them with the new regulations. Adjustments may be necessary to ensure consistency with the results that would have been realized between unrelated parties in similar circumstances.
Transfer Pricing Methods
Managers must understand the five prescribed transfer pricing methods (comparable uncontrolled price, resale price, cost plus, transactional net margin, and transactional profit split) outlined in the regulations. They need to apply these methods appropriately based on the nature of transactions and availability of data. In cases where none of the prescribed methods can be reasonably applied, they can propose alternative methods that satisfy the arm’s length standard.
Impact on Free Zone Companies
Free zone companies are specifically mentioned in the provisions of the tax law, and they need to meet the transfer pricing conditions to qualify as qualifying free zone companies. Leaders of free zone companies should pay particular attention to these requirements.
An effective solution for UAE multinationals
To assist CFOs and companies working with transfer pricing in the UAE, Intra Pricing Solutions offers TPGenie, a comprehensive transfer pricing software solution. TPGenie streamlines the complexities associated with transfer pricing by automating the creation and maintenance of transfer pricing documentation. Here’s how TPGenie can benefit your organization:
Transfer Pricing Compliance
TPGenie ensures compliance with local transfer pricing regulations in the UAE by assisting in calculating and documenting transfer prices in accordance with arm’s length principles. This comprehensive compliance solution minimizes the risk of non-compliance and potential penalties.
Documentation and Reporting
TPGenie simplifies the transfer pricing documentation process, generating the required reports and documentation in line with the UAE tax authorities’ specifications. This feature saves time and effort, ensuring completeness, accuracy, and compliance.
Risk Assessment and Planning
With TPGenie’s advanced analytics and risk assessment tools, companies can proactively identify potential transfer pricing issues in the UAE. The software suggests appropriate strategies to mitigate risks, reducing the chances of audits or penalties.
Compliance with International Standards
TPGenie helps CFOs and companies in the UAE align their transfer pricing policies with international standards, such as the OECD Transfer Pricing Guidelines. It facilitates the implementation of best practices, ensuring compliance with global transfer pricing requirements.
Cost Efficiency and Accuracy
TPGenie automates the transfer pricing process, reducing manual effort and minimizing errors. By saving valuable resources and keeping up to date with regulatory changes, TPGenie ensures accurate and efficient transfer pricing calculations for CFOs and companies in the UAE.
Expert Support and Guidance
Intra Pricing Solutions provides expert support and guidance to CFOs and companies using TPGenie in the UAE. Their team of transfer pricing professionals assists businesses in understanding the complexities of transfer pricing regulations, offering personalized advice for effective decision-making in the UAE context.
TPGenie is your Solution for streamlined transfer pricing compliance in the UAE. By choosing TPGenie from Intra Pricing Solutions, CFOs and companies working with transfer pricing in the UAE can simplify transfer pricing compliance, mitigate risks, ensure accuracy, and benefit from expert support in this complex area of taxation tailored specifically to the UAE regulatory framework.