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Transfer Pricing

Transfer pricing describes all aspects of inter-company pricing arrangements between members of a multinational group, including transfers of tangible goods; services; intellectual property; and loans as well as other financial transactions.

Globalization has led to cross border intra-group dealings becoming the norm. Taxpayers must comply with the regulatory environment in jurisdictions where they operate, which is time consuming and can be complicated. Tax Authorities frequently exchange information, which increases scrutiny on cross border intra-group dealings and associated business structures, especially where taxable benefits may arise.

Following UAE’s commitment as an inclusive framework member to endorse the minimum BEPS standards, the UAE Cabinet has issued Country by country reporting regulations dated 30 April 2019 effective for financial years beginning on or after 1 January 2019. Prior to these regulations, large MNE groups with their headquarters in the UAE were filing Country by country reports with the jurisdiction of the Surrogate Parent Entity (SPE) appointed for this purpose. In future, these groups will need to file their Country by country reports with the UAE’s Ministry of Finance. UAE-based constituent entities of MNEs with headquarters overseas will have an additional Country by country notification requirement in the UAE by 31 December 2019.

The UAE Country by country reporting requirements are in line with the Country by country legislations introduced by most countries and the BEPS report on Action 13. The regulations apply to UAE entities that are resident for tax purposes and are members of a multinational group having annual consolidated revenues/turnover of AED 3.15 billion or more (OECD prescribed threshold is of EUR 750 million) in the prior year. The regulations require the following compliances by qualifying entities resident for tax purposes in the UAE:

Notification to the Ministry of Finance regarding the details of the ultimate parent entity/reporting entity and constituent entities in the UAE by the end of the year.

Filing a Country by country report by the Ultimate Parent Entity/SPE with the Ministry of Finance within 12 months from the end of the year (31 December 2020 for the year ended 31 December 2019).

The regulations also provide for administrative penalties in the event of non-compliance as follows:

AED 1,000,000 + AED 10,000* (up to a maximum of AED 250,000) per day for failure to file a Country by country report/notification on or before the prescribed due date;

AED 100,000 for failure to retain the documentation and information required for a minimum period of five years after the reporting date;

AED 100,000 for failure to provide information in the event of any inquiries; and

AED 50,000 to AED 500,000 for failure to report information in a complete and accurate manner.

When could this be relevant to you?

You need assistance with supporting your existing transfer pricing policies and meeting documentation requirements for different transaction types?
You wish to implement new transfer pricing policies which could be driven by changes in your business and/or supply chain?
You are required to defend your transfer prices or need assistance on dispute resolution matters?
You are examining the impacts of reforms stemming from the Base Erosion and Profit Shifting project.
Below you can find the main ways our transfer pricing team can help your business:

Below you can find the main ways our transfer pricing team can help your business:

Advising on prices for intragroup transactions

Most international trading groups must make key decisions when setting prices for transactions between group companies. The wrong decisions when setting intra-group prices can significantly increase tax liabilities or result in costly transfer pricing enquiries from tax authorities

Consulting on restructuring business functions

For commercial purposes, business operations or functions are often transferred to another jurisdiction. Such businesses must confirm and value the tangible and intangible assets which have been transferred. Otherwise a significant transfer pricing risk arises

Assisting with documenting intra-group prices

Once decisions have been made on the prices to be charged for intra-group transactions, it is essential that the reasoning behind the decisions is fully documented.

Defending a group’s transfer pricing policies

How and when a national tax authority opens an enquiry into an international group’s transfer pricing policy and the effect upon a company within its jurisdiction differs from country to country.

Negotiating advance pricing agreements

Sometimes the right approach to the challenges of transfer pricing is to meet them head on, by seeking the prior agreement of national tax authorities to a proposed pricing policy for intra-group transactions.