• The UAE TP rules apply to all taxable persons, including:

  1. UAE-based entities engaged in transactions with related parties (e.g., subsidiaries, parent companies, affiliates).
  2. UAE businesses with cross-border intercompany transactions.
  3. Multinational enterprises (MNEs) operating in the UAE.
  4. Free Zone entities subject to corporate tax.

  Exemptions:

  • Small businesses eligible for the Small Business Relief under UAE tax laws.
  • Certain categories of government entities, pension funds, and non-profit organizations.

The arm’s length principle requires that related-party transactions be conducted under terms similar to those agreed upon by independent entities in comparable circumstances.

The UAE follows OECD-approved TP methods to assess compliance:

1. Comparable Uncontrolled Price (CUP) Method
2. Resale Price Method (RPM)
3. Cost-Plus Method (CPM)
4. Transactional Net Margin Method (TNMM)
5. Profit Split Method (PSM)

Taxpayers must justify the selection of the most appropriate method based on their business model and transaction nature.

The UAE TP regulations impose three levels of documentation requirements in line with OECD’s BEPS Action 13:

(A) Transfer Pricing Disclosure Form

• Required for all businesses meeting the revenue threshold (to be defined in future regulations).
• Must be submitted along with the corporate tax return.
• Includes details of related-party transactions and transfer pricing methods applied.

(B) Master File & Local File

Taxpayers meeting certain thresholds must maintain Master File and Local File documentation to support their TP policies.

1. Master File – Provides an overview of the MNE group, including:

   • Organizational structure
   • Description of business operations
   • Global TP policies
   • Intangible assets and financial arrangements

2. Local File – Focuses on UAE-specific transactions, including:

   • Detailed financial information of the UAE entity
   • Documentation of related-party transactions
   • Economic analysis supporting arm’s length pricing

Thresholds for Master File & Local File Compliance

• Businesses with revenues of AED 200 million or more (approx. SAR 204 million) must maintain Master File and Local File.
• Businesses below this threshold are exempt from detailed TP documentation requirements but must still ensure compliance with arm’s length pricing.

The UAE has adopted CbC Reporting regulations for MNEs with significant global operations.

Who Needs to File a CbC Report?

• MNEs with consolidated group revenue exceeding AED 3.15 billion (approx. SAR 3.22 billion) in the preceding financial year.
• The Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE) in the UAE must submit the CbC report to the FTA.

CbC Reporting Deadlines

• CbC Notification: Due within 120 days after the financial year-end.
• CbC Report Filing: Due within 12 months after the financial year-end.

Exemptions from CbC Filing

• Entities that do not meet the global revenue threshold.
• Businesses that are only subject to UAE corporate tax but do not belong to an MNE group.

Failure to comply with UAE TP regulations can result in financial penalties and increased scrutiny from the FTA.

Potential Penalties Include:

• Failure to submit the TP Disclosure Form – Penalty yet to be announced by FTA.
• Failure to maintain Master File/Local File (if required) – Subject to fines and tax adjustments.
• Incorrect or misleading TP documentation – Heavy penalties based on revenue impact.
• Non-compliance with CbC reporting obligations – Significant monetary fines as per OECD standards.

The FTA has the right to audit and challenge any related-party transaction that does not meet arm’s length requirements, potentially leading to tax adjustments and additional tax liabilities