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Transfer pricing regulations under the UAE Corporate Tax Law intends to ensure that the pricing of a transaction price remains unaffected by the relationships of the parties involved. The Corporate Tax in the UAE aims to apply the arm's length principle for transactions with connected persons and related parties.
To comply with the UAE Corporate tax regime's transfer pricing regulations, businesses must identify the who its connected persons and related parties are. To further grasp an understanding of the transfer pricing regulations in UAE, you should speak with the top corporate tax advisors and the FTA Approved Auditors in Dubai.
The meaning of related parties, as it is described in the UAE Corporate Tax Law will be explained in this blog.
Also, Read About Jaxa is Now an FTA Approved Tax Consultant in Dubai.
Who Is a Related Party under the Corporate Tax in the UAE?
Parties to a transaction are deemed related under the Law if certain requirements are met. Below is a list of these conditions in general terms:
- Two or more natural persons who are related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship.
- A natural person and a legal entity where the
- natural person directly or indirectly own the legal entity (i.e., holds a 50% or more shareholding interest) (either individually or through one of its related parties).
- A natural person has direct or indirect control over a juridical person (whether acting alone or in concert with its related parties).
- Two or more legal entities,
- where one of the legal entities directly or indirectly owns the other legal entity (i.e., has a 50% or greater ownership interest) either alone or in cooperation with its related parties.
- A juridical person has direct or indirect control over another juridical person (whether acting alone or in concert with its related parties).
- Any individual who directly or indirectly owns (i.e., controls) two or more legal entities, whether alone or in conjunction with related parties.
- A person and its permanent establishment (including foreign PE)
- Partners in an unregistered partnership.
- A Person who is the trustee, founder, settlor or beneficiary of a trust or foundation, and its Related Parties..
The term "control" means the ability of a Person, whether in their own right or by agreement or otherwise to influence another Person, including:
- Having a 50% or more stake in another legal person's voting rights.
- Being able to determine the compositionof 50% or more of a legal person's board of directors.
- Being qualified for 50% or more of a legal person's profits.
- Having the power to significantly impact a legal person's affairs and business activities.
Who Are the Connected Persons?
The following persons are considered to be "connected" to a business:
- The owner of the business
- A manager, director or officer of the company
- Any person who is a related party of the above persons.
Also Read About: What is Transfer Pricing under the UAE Corporate Tax?
Arm's-Length Principle under Corporate Tax in the UAE
Transactions and arrangements between related parties and connected persons must adhere to the arm's-length standard in order to be considered tax-deductible. For the purposes of the UAE Corporate Tax Law, the arm's-length principle must for any transaction or arrangements between a business and its related parties or connected persons.
If the result of a transaction or arrangement with a related party or connected person is consistent with the result that would have been achieved had the parties to the same transaction were not related or otherwise connected, then the Law considers the transaction or arrangement to have met the arm's-length principle.
The following internationally acknowledged Transfer Pricing techniques must be used alone or in combination by taxable persons to arrive at arm's-length prices under the Corporate Tax in Dubai:
- Comparable uncontrolled price method.
- Resale Price method
- Cost-plus method
- Transactional net margin method
- Transactional profit split method
If a taxpayer can credibly show that the aforementioned procedures cannot be used in a reasonable manner, the taxpayer may use a different TP approach than those mentioned above. It is also vital to understand that the UAE Transfer Pricing rules do not outline a particular ranking system for choosing which TP method to use.
The Federal Tax Authority (FTA) may adjust a person's taxable income in order to achieve the arm's-length result that accurately reflects the facts and circumstances of the transaction or arrangement when the outcome of a transaction or arrangement between related parties does not meet the arm's-length standard.
Prerequisites for the Transfer Pricing (TP) Documentation
Companies must save TP paperwork if they satisfy certain criteria, which will be outlined in a future Ministerial Decision (i.e., master file and local file etc.). The Transfer pricing documentation requirements are anticipated to be broadly in line with OECD standards.
The Law does not provide additional information on the content to be included in the master file and the local file. For further information, get in touch with one of the best Auditing Firms in Dubai.
Connect with the Best Tax Advisor and the FTA Approved Tax Agents Auditors in Dubai
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