Transfer Pricing is one of the most challenging tax issues that multinationals across the world face today, as international regulations now require stricter compliances and detailed information about pricing intercompany transactions. Transfer Pricing Regulations across the globe demand that every transaction between a related party be at arm’s length.
The "arm's-length principle" of Transfer Pricing states that the amount charged by one related party to another for a given product must be the same as if the parties were not related.
Transfer Pricing provisions come into play under the following circumstances:
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The United Arab Emirates (“UAE”) joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) on 16 May 2018.
Through joining the Inclusive Framework, the UAE has (for now) committed to implement BEPS minimum standards, one of which is Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”).
UAE has already issued Regulations relating to CbCR, but TP legislation requiring related party transactions to be at arm’s length has not been introduced. However, international reporting requirements compel entities to align and rationalize intercompany transactions and adhere to the Transfer Pricing guidelines in the country of transaction. Therefore, a company having global presence would be required put in place their Transfer Pricing Mechanism.
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Ans: Kingdom of Saudi Arabia has issued detailed byelaws and guidelines and prescribed Transfer Pricing documentation.
Kuwait, Oman, Qatar, Bahrain does not have detailed byelaws and penalties regulations for Transfer Pricing but have incorporated the concept of arm’s length price in dealing with related party transactions.
Ans: UAE does not have byelaws for reporting or documentation of arm’s length price, and therefore not preparing documents in relation to transfer pricing would not attract any penal provisions in UAE. However, if the company undertakes business in other jurisdictions where Transfer Pricing Regulations are in place, they would be required to prepare reports and compile documentation for the UAE company as well.
For Eg. If your company supplies goods to the subsidiary or related party in Kingdom of Saudi Arabia(‘KSA’), the company will have to comply with all the Transfer Pricing provisions of KSA and therefore have a local file for Transfer Pricing documentation and arrival of arm’s length prices for the transactions between the two entities.