Understanding UAE’s New Transfer Pricing Documentation Requirements
The corporate landscape in the United Arab Emirates (UAE) is undergoing a significant shift with the introduction of new tax reporting and compliance regulations. Among the key areas of focus for businesses is the requirement for transfer pricing documentation, which has become a topic of concern due to the potential penalties for errors in submissions over the next seven years.
Transfer pricing documentation is critical in demonstrating that transactions between related parties are conducted at arm’s length, ensuring fair taxation. The Federal Tax Authority (FTA) has specified five categories of documentation that companies must prepare annually, with the Transfer Pricing Disclosure Form (TPDF) being the primary document. This form, which outlines transaction details with related parties, does not require detailed benchmarking data but does necessitate the disclosure of the transfer pricing method employed. Submission of the TPDF is synchronized with the corporate tax return, due within nine months after the financial year-end.
Master File: A Global Overview
The master file provides a comprehensive view of a multinational group’s global business activities and transfer pricing policies. It serves as a uniform document across tax jurisdictions, offering insights into the group’s economic activities and how they align with global transfer pricing practices. This file is particularly important in the context of international cooperation under the OECD framework, ensuring consistency in the information presented to different tax authorities.
Local File: Detailed National Insights
Complementing the master file, the local file contains in-depth information about a local entity’s operations and management within a multinational group. It includes a thorough analysis of related party transactions to affirm adherence to arm’s length principles. While certain transactions may be exempt from inclusion in the local file, they must still meet arm’s length standards. Companies meeting specific revenue thresholds are required to maintain these files contemporaneously and must be prepared to submit them to the FTA upon request.
Country-by-Country Reporting: A Macroscopic View
Introduced in 2020, Country-by-Country Reporting (CbCR) applies to multinational groups headquartered in the UAE with substantial consolidated annual revenues. The CbCR provides a standardized account of each member company’s business activities, tax registrations, income distribution, and economic activity indicators across all tax jurisdictions where the group operates.
Additional Supporting Information
Beyond these structured reports, the UAE corporate tax framework authorizes the FTA to request additional information to verify compliance with arm’s length principles. Even for companies with annual revenues below Dh200 million, for which a master or local file is not mandatory, maintaining records to substantiate the arm’s length nature of transactions is essential. The FTA retains the right to demand such information within a stipulated timeframe.
As businesses navigate this new tax regime, it is crucial for them to strengthen their reporting and documentation processes. This proactive approach will help mitigate concerns and ensure smooth compliance with UAE’s evolving tax landscape.
