Transfer Pricing in the UAE

Transfer pricing is a situation whereby different companies in the same business group set the price to be charged in the sales of goods and provision of services from one to the other. Such as when a subsidiary carries out sales of goods or services to the parent or other subsidiary, the price at which these are sold is called transfer price. Standards of transfer pricing are applied in the United Arab Emirates so that the transactions are made at arms’ length price. This concept is actually crucial when it comes to doing business in Dubai mainly because of the advanced laws where sometimes businesses need help from the best tax consultants to be in line with the set laws.

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Transfer Pricing in Dubai Corporate Tax:

In Dubai, transfer pricing is one of the specific approaches linked with the UAE’s corporate taxation policy and it complies with the rules set by OECD.Pillar two of these regulations is arm’s length, which demands that the deal between related persons be made as if the transacting parties were unrelated parties, at the marketplace price. This principle props up organisational relationships, from related parties, from attaining extraneous tax benefits. It is recommended for any organization, which is involved in cross-border transactions, to seek the services of transfer pricing consultants in Dubai to assist in the application of these principles.The two main challenges that are associated with transfer pricing are the difficulties in, the efficiency of; and the risks in transfer pricing that are also known as the cost of, the efficiency of; Inspection Risk and Compliance Risk.

Transfer Pricing Practice Among MNCs:-

Transfer pricing is a common practice among MNCs referring to the process in which profits and expenses are shifted between different countries and this has a tax implication. However, this practice also carries a risk especially if the organizations involved are incapable of justifying their use of special transfer pricing documents. Failure to document these expenses exposes the firms to tax issues and penalties in case of an audit. The issues and impacts of transfer pricing are multilayered and intricate and thus require one to seek assistance from professional Dubai transfer pricing consultants for assistance.

Transfer Pricing Rules and Its Application in UAE:-

As per UAE Corporate Tax Law, the transfer pricing regulation applies to dealings of any related parties’ and connected persons.The application of the arm’s-length principle is required, making the assessments as close as possible to fair values for the calculation of taxable income. The rationale for this rule is to try and avoid any conflict of interest that may be occasioned by the close affiliation of individuals engaged in international business.

Methods of Arm’s Length Pricing:-

The Arm’s Length Pricing are commonly used in the determination of the value.Implementing arm’s length pricing in Dubai and across the UAE involves several methodologies, each aimed at ensuring fair transaction valuation:

Comparable Uncontrolled Price (CUP) Method:-This is a method of cross checking the price of a transaction between related parties with a similar price of a transaction between unrelated one just to ensure that the price was not fixed.
Transactional Net Margin Method: This method assesses the level of net profit in the proportion to the relevant base with a view of ascertaining the profitability of a given transaction.
Transactional Profit Split Method: In this case, the overall revenue derived from several related activities is shared based on contributions made, in a bid to fairly distribute the profits hence the pro rata profit sharing approach.
Resale Value:- This method evaluates the cost of resale of goods or services provided by related parties such that the price will equal the price that is charged by unrelated third parties.

Many transfer pricing Tax Consultants in Dubai are familiar with the said methodologies and are ready to give advice on how to properly structure business transactions in line with the requirement of the arm’s-length standard.

Documents Required for UAE Corporate Tax Return Filing

Advantages of Tax Consultants For Transfer Pricing in Dubai

Huge management costs of transfer pricing regulation along with high likelihood of disputes in this area have forced various businesses in Dubai to seek specialized help from the top tax consultants.
Choosing transfer pricing consultants in Dubai provides several benefits:

Analysis of Covered Transactions: It is the Tax Consultants capacity to interpret the transactions in the light of the UAE Transfer Pricing and any probability of discrepancies can be better avoided.
Inter-Company Agreement Expertise: Staff and advisers are involved in drafting and checking the inter-company transactions’ contracts for the planned transactions and its compliance with the standards of the arm’s length.

The determination of price at which one Subsidiary sells goods or services to another Subsidiary is a core issue in the management of the international business operations of any organization in Dubai; failure to meet these regulations puts one in a precipitous position to be faced with taxes and other penalties.It is beneficial to get top transfer pricing Tax Consultants in Dubai because they will help to avoid issues regarding transfer pricing regulation and manage the risks associated with it. These Tax Consultants offer substantial value to their clients by offering services in transactions’ assessment, in design of pricing tactics, as well as in creating documentation, and business entities secure commercial globalization with due regard to the legal constraints.