Preparing Transfer Pricing Studies in the UAE: An 8-Step Technical Approach

In today’s rapidly evolving regulatory landscape, Transfer Pricing (TP) compliance is no longer optional — especially in the UAE, where the Corporate Tax Law now mandates strict adherence to the Arm’s Length Principle.

Drawing from the UAE Transfer Pricing Guide and aligned with OECD guidelines, here’s a concise 8-step approach to preparing compliant Transfer Pricing and Benchmark Studies in the UAE:

1. Understand UAE Transfer Pricing Regulations

• Key Regulation: Article 34 of the UAE Corporate Tax Law.
• Documentation:

              o Master File & Local File: Mandatory for MNEs with revenue ≥ AED 3.15 billion or entities

                 with ≥ AED 200 million.

              o Disclosure Form: For transactions ≥ AED 40 million or payments to

                 Connected Persons ≥ AED 500,000.

• FTA Focus: Prioritize UAE and regional comparables, apply Interquartile Range (IQR) in benchmarking.

2. Identify Related Party Transactions

• Define Related Parties (ownership/control ≥ 50%) and Connected Persons (individuals/entities with a personal connection).
• Scope includes goods, services, financial transactions, and intangibles, even within free zones.

3. Conduct Functional Analysis (FAR)

• Deep dive into Functions, Assets, and Risks.
• Use interviews, organizational charts, and process flows to map contributions across the value chain.
• Align TP outcomes with economic substance.

4. Select the Appropriate Transfer Pricing Method

• Common methods:

             o CUP: Best for commodities and loans.

             o RPM: Ideal for distribution models.

             o CPM: Best suited for manufacturing and service provision.

             o TNMM: Widely used for service transactions.

             o PSM: Applies to integrated operations with unique intangibles.

• Selection driven by functional analysis and available comparables.

5. Execute Benchmark Search

• Use trusted databases like Orbis, Bloomberg, or RoyaltyRange.
• Prioritize local and regional data before going global.
• Define search criteria based on industry codes and functions.

6. Evaluate Comparability

• Assess industry, functions, risks, and economic conditions.
• Perform qualitative and quantitative screenings.
• Apply adjustments where needed to improve comparability.

7. Calculate the Arm’s Length Range

• Derive using Profit Level Indicators (PLIs).
• Apply the Interquartile Range (IQR) method per FTA guidance.
• Address deviations through appropriate documentation and justifications.

8. Document the TP Study

• Prepare Master File, Local File, and Disclosure Forms.
• Ensure contemporaneous documentation—ready within 30 days if requested by FTA.
• Non-compliance invites significant penalties, highlighting the need for robust processes.

Best Practices for UAE TP Compliance

• Update Benchmarking: Every three years; refresh financials annually.
• Monitor Changes: Align policies with operational and market developments.
• Seek Expertise: Engage tax professionals for complex scenarios and risk mitigation.

Staying ahead with a well-structured transfer pricing study is crucial not just for compliance but also for building trust with regulators and safeguarding your business operations. If you are navigating TP compliance in the UAE, now is the time to strengthen your processes and ensure you meet the arm’s length standard with precision.