What are transfer pricing rules in the UAE?

Article 34 – Arm’s Length Principle 1. In determining Taxable Income, transactions and arrangements between Related Parties must meet the arm’s length standard as specified in Clauses 2, 3, 4 and 5 of this Article and any conditions that may be prescribed in a decision issued by the Authority. 2. A transaction or arrangement between Related Parties meets the arm’s length standard if the results of the transaction or arrangement are consistent with the results that would have been realised if Persons who were not Related Parties had engaged in a similar transaction or arrangement under similar circumstances. 3. The arm’s length result of a transaction or arrangement between Related Parties must be determined by applying one or a combination of the following transfer pricing methods: a. The comparable uncontrolled price method. b. The resale price method. c. The cost-plus method. d. The transactional net margin method. e. The transactional profit split method. 4. The Taxable Person may apply any transfer pricing method other than the methods listed in Clause 3 of this Article where the Taxable Person can demonstrate that none of the above methods can be reasonably applied to determine an arm’s length result and that any such other transfer pricing method used satisfies the condition of Clause 2 of this Article. 5. The choice and application of a transfer pricing method or combination of transfer pricing methods under Clause 3 or 4 of this Article must be made having regard to the most reliable transfer pricing method and taking into account following factors: a. The contractual terms of the transaction or arrangement. b. The characteristics of the transaction or arrangement. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 40 c. The economic circumstances in which the transaction or arrangement is conducted. d. The functions performed, assets employed, and risks assumed by the Related Parties entering into the transaction or arrangement. e. The business strategies employed by the Related Parties entering into the transaction or arrangement. 6. The Authority’s examination as to whether income and expenditures resulting from the Taxable Person’s relevant transactions or arrangements meet the arm’s length standard shall be based on the transfer pricing method used by the Taxable Person in accordance with Clause 3 or 4 of this Article, provided such transfer pricing method is appropriate having regard to the factors mentioned in Clause 5 of this Article. 7. Application of the selected transfer pricing method or combination of transfer pricing methods in accordance with Clause 3 or 4 of this Article may result in an arm’s length range of financial results or indicators acceptable for establishing the arm’s length result of a transaction or arrangement between Related Parties, subject to any conditions specified in a decision issued by the Authority. 8. Where the result of the transaction or arrangement between Related Parties does not fall within the arm’s length range, the Authority shall adjust the Taxable Income to achieve the arm’s length result that best reflects the facts and circumstances of the transaction or arrangement. 9. Where the Authority makes an adjustment to the Taxable Income pursuant to Clause 8 of this Article, the Authority shall rely on information that can or will be made available to the Taxable Person. 10. Where the Authority or a Taxable Person adjusts the Taxable Income for a transaction or arrangement to meet the arm’s length standard, the Authority shall make a corresponding adjustment to the Taxable Income of the Related Party that is party to the relevant transaction or arrangement. 11. Where a foreign competent authority makes an adjustment to a transaction or arrangement involving a Taxable Person to meet the arm’s length standard, such Taxable Person can make an application to the Authority to make a corresponding adjustment to its Taxable Income. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 41

Article 55 – Transfer Pricing Documentation 1. The Authority may, by notice or through a decision issued by the Authority, require a Taxable Person to file together with their Tax Return a disclosure containing information regarding the Taxable Person’s transactions and arrangements with its Related Parties and Connected Persons in the form prescribed by the Authority. 2. If a Taxable Person’s transactions with its Related Parties and Connected Persons for a Tax Period meet the conditions prescribed by the Minister, the Taxable Person must maintain both a master file and a local file in the form prescribed by the Authority. 3. The documentation under Clause 2 of this Article must be submitted to the Authority within (30) thirty days following a request by the Authority, or by any such other later date as directed by the Authority. 4. Upon request by the Authority, a Taxable Person shall provide the Authority with any information to support the arm’s length nature of the Taxable Person’s transactions or arrangements with its Related Parties and Connected Persons, within (30) thirty days following the request by the Authority, or by any such other Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 57 later date as directed by the Authority.

In the event of differences between the UAE Transfer Pricing regulations and an international agreement in force in the UAE, the provisions of the international agreement will prevail. 4.4.2. Controlled Transactions A “Controlled Transaction” is a transaction or arrangement between Related Parties or Connected Persons. Controlled Transactions generally include the supply or transfer of tangible goods, provision and receipt of services, funding and other financial transactions, and commercial exploitation of intangible assets such as patents, brands and know-how. For the purposes of the UAE Transfer Pricing rules, all cross border Controlled Transactions (i.e. transactions between the Person and its Related Parties or Connected Persons that are located in different tax jurisdictions) as well as domestic Controlled Transactions (i.e. transactions between Related Parties or Connected Persons located in the UAE, including transactions undertaken between Free Zone Persons) must follow the Arm’s Length Principle. Corporate Tax Guide | Transfer Pricing | CTGTP1 25