Under
the UAE Corporate Tax Law, related party and connected person transactions
must be conducted at arm’s length. To justify this, taxpayers must
maintain adequate documentation and disclosures as prescribed by the Federal
Tax Authority (FTA).
Failing
to comply may result in:
Key TP
Documentation Requirements
1.
Master File & Local File
Must
be prepared and maintained by the taxpayer upon satisfaction of either of the
conditions mentioned below:
Exception
to maintain Master File: where the Taxable
Person is part of a Group (of companies) that does not have business
establishments outside the UAE (i.e. UAE HQ Group having no business outside of
UAE). However, the Local File should be prepared where either of the above revenue
thresholds is breached. Where a taxable person is a part of the MNE Group, the
requirement to prepare and maintain a Master File and a Local File arises where
either of the revenue thresholds are breached, despite where a Group Master
File is already being prepared by the Ultimate Parent Entity at a Group level
in the foreign home jurisdiction.
2.
What is a Master File: A Master File is a TP
documentation that provides a high-level overview of the MNE Group's global
business operations, TP policies, information on key value drivers, and a
global allocation of income and economic activity. Its purpose is to assist the
FTA in evaluating significant TP risks and determining the MNE Group’s TP
practices in their global economic, legal, financial, and tax context.
The
information required in a Master File provides a “blueprint” of the MNE Group
and contains relevant information that can be broken down into the following
five (5) categories: the MNE Group’s (1) organisational structure; (2)
business(es) – detailed description; (3) intangibles; (4) inter-company
financial activities; and (5) financial and tax positions.
3.
What is a Local File: A Local File is a type of TP
documentation that provides more detailed information relating to inter-company
transactions in the relevant tax period. It supplements a Master File and helps
to ensure that the Company has complied with the arm’s length principle in its
TP positions affecting a specific jurisdiction.
It
covers the details of related party transactions of the UAE entity, group
overview, industry overview, FAR analysis, entity characterization and benchmarking
& economic analysis.
Note: Both
the Local File and Master File must be prepared and maintained
contemporaneously, i.e. on or before the tax return due date, even if they are
not required to be submitted unless requested by the FTA.
4. Key Action Points for Businesses
· Identify your related party and connected person transactions
· Conduct a Transfer Pricing Benchmarking Study to justify arm’s length nature of the above transactions
· Prepare and file the TP Disclosure Form (if applicable as per the threshold) along with the CT Return
· Determine the applicability to prepare and maintain a robust Master File and Local File (based on the materiality thresholds)
5. How can we support you at Mac & Ross?
Our
expert Transfer Pricing team can assist with:
