Introduction of Transfer Pricing
In today’s global economic environment, cross-border taxation and Transfer Pricing issues have become more prominent. Today, almost every major economy has enacted Transfer Pricing legislation and has dedicated significant resources to identify, assess and secure their share of taxes in relation to cross-border taxation. It is important to align the results of each company in the group with the actual value it creates and with the relevant level of substance as if you are dealing with a third party.
On 31 January 2022, the United Arab Emirates, Ministry of Finance announced the implementation of a federal corporate tax regime including transfer pricing regulations. The UAE CT regime will become effective for the financial year starting on or after 1 June 2023, so transfer pricing regulation is also applicable from this date. UAE businesses will need to comply with the transfer pricing rules and documentation requirements as per the OECD transfer pricing guidelines.
The concept of transfer pricing primarily revolves around the following three pillars :
Arm’s length principle
The Proposed CT regime requires ‘Arm’s Length’ principle to be followed while undertaking transactions between “Related Parties” and with “Connected Persons”. The Arm’s Length Principle is agreed upon by all the OECD member countries and adopted as an objective guideline for use by multinational companies and tax administrators in cross border taxation. The principle is embodied under Article 9 of the OECD MC. It's objective is to avoid erosion of the tax base or the transfer of profits to low tax jurisdictions.
Transfer Pricing Methods
As per the OECD guidelines on transfer pricing, authorities adopt a three-tier approach for transfer pricing documentation consisting of:
Offerings by MNR
