Transfer pricing refers to determining the price at which one division of a company buys goods or services from another division within the same company. This process is important in corporate tax because it affects the tax a company pays in each jurisdiction.
When divisions of a company are located in different countries, they may engage in transactions with each other. For tax purposes, these transactions need to be priced to reflect what the price would have been if the divisions were unrelated parties. Tax authorities want to ensure that profits are not artificially shifted between countries to minimize tax liability.
The transfer pricing process requires companies to provide detailed documentation to support the prices at which related-party transactions are conducted. This documentation must demonstrate that the fees charged reflect an arm's-length price, meaning a price that would have been charged if the divisions were unrelated parties.
With the introduction of the corporate income tax from 1 June 2023, transfer pricing (TP) rules will be in place in the United Arab Emirates (UAE), which will mandate related party transactions to be at arm's length.
That's why it requires careful consideration to ensure that prices charged in related-party transactions are fair and in compliance with tax laws and regulations. Hiring a tax professional with expertise in transfer pricing can help companies navigate this complex area and minimize the risk of penalties and other legal consequences.
What will be the impact of Transfer Pricing Rules on Corporate Tax in the UAE?
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines. Taxpayers should apply the arm's length principle to ensure that transactions between related parties reflect independent pricing. An arm's length price is a fairly market price for such a commodity or service.
We expect that TP regulation will be part of UAE corporate tax law and may contain various transfer pricing methods, vast annual transfer pricing documentation, and harsh penalties for non-compliance. As a general practice, the Federal Tax Authority (FTA) shall assess and scrutinize the transfer pricing policies, documentation, inter-company and inter-group transactions, etc., to determine whether transactions are consistent with TP regulations. Business entities are subject to huge penalties for non-compliance with transfer pricing regulations.
We can help by providing the following:
- Country-by-country reporting
- Transfer price Local file and Master file.
- TP Advisory
- Review of international transactions.
How Can SPK Auditors Help With Transfer Pricing?
SPK Auditors can help with transfer pricing in the United Arab Emirates (UAE) by providing expert guidance and support in several key areas:
- Understanding transfer pricing rules: We deeply understand the transfer pricing rules in the UAE and can advise on the best approach to ensure compliance. They can also help to identify potential transfer pricing issues and provide solutions to resolve them.
- Documentation preparation: Transfer pricing documentation is key to transfer pricing compliance. We can assist with preparing accurate and complete transfer pricing documentation that meets the requirements of the UAE tax authorities.
- Arm's length analysis: We can perform an arm's length analysis to determine the prices that would have been charged if the related parties were unrelated. This analysis is crucial in demonstrating to the tax authorities that the prices charged in related-party transactions are in line with market prices.
- Transfer pricing planning: We can assist with developing transfer pricing strategies that minimize tax liability while staying in compliance with tax laws and regulations. They can also advise on the most appropriate transfer pricing method for a specific set of transactions.
- Representation: In the event of a tax audit, we can represent your company and provide support during the transfer pricing review process. They can negotiate with tax authorities to resolve transfer pricing issues and minimize potential tax liabilities.