What Is Transfer Pricing?
Transfer pricing refers to the prices charged in transactions between related parties — such as a parent company and its subsidiary, or two entities under common ownership. The UAE Corporate Tax Law requires that all related-party transactions be conducted at arm's length, meaning the price must reflect what unrelated parties would agree to in comparable circumstances.
Why It Matters in the UAE
With the introduction of Corporate Tax, the FTA has adopted OECD Transfer Pricing Guidelines as the standard. Businesses that fail to comply face:
- Adjustments to taxable income
- Penalties for non-disclosure
- Increased audit risk
Documentation Requirements
Disclosure Form
All taxable persons with related-party transactions must complete the Related Party Transactions Disclosure Form as part of their CT return. This applies to transactions exceeding AED 40 million in aggregate.
Master File
Required for entities that are part of a multinational group with consolidated group revenue exceeding AED 3.15 billion. Must be filed within 12 months of the end of the group's financial year.
Local File
Required for entities with related-party transactions exceeding AED 40 million in aggregate. Must be prepared and available upon FTA request.
The Arm's Length Methods
The OECD recognises five primary methods:
- Comparable Uncontrolled Price (CUP) — most preferred
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM) — most commonly used
- Profit Split Method
Common High-Risk Transactions
- Management fees charged by a parent company
- Intercompany loans and interest rates
- Royalties and IP licensing
- Shared services arrangements
- Procurement and distribution markups
How MAK Advisory Group Can Help
Our transfer pricing team provides benchmarking studies, documentation preparation, and FTA audit defence. We help UAE businesses establish defensible transfer pricing policies before the FTA comes knocking.