What CTP011 Clarifies on Downward Transfer Pricing Adjustments in UAE
The UAE Federal Tax Authority has issued Public Clarification CTP011, providing important guidance on downward transfer pricing adjustments under Article 34(1) of the UAE Corporate Tax Law.
The clarification confirms an important principle: transfer pricing compliance is not limited to maintaining documentation. Related party transactions reported in the Corporate Tax Return must ultimately reflect the arm’s length standard.
Upward and Downward Adjustments Are Permitted
CTP011 confirms that taxpayers may make both upward and downward transfer pricing adjustments where related party pricing does not reflect an arm’s length outcome.
An upward adjustment increases taxable income, while a downward adjustment reduces it. In both cases, the objective is the same: to bring the transaction back to an arm’s length position.
Importantly, taxpayers can self assess these adjustments without obtaining prior approval from the FTA. The adjustment is reported through the Corporate Tax Return and remains subject to review by the FTA.
Downward Adjustments Require Greater Transparency
One of the key clarifications relates to disclosure.
Any related party transaction involving a downward adjustment must be disclosed in the Corporate Tax Return, regardless of its value or whether it would otherwise fall below the normal reporting threshold.
Businesses making downward adjustments should also maintain supporting documentation explaining the commercial and transfer pricing basis for the position.
The FTA highlights four important areas: the rationale for the adjustment, a comprehensive arm’s length analysis including benchmarking, reconciliation between the financial statements and adjusted tax values, and evidence of the corresponding adjustment by the related party.
Transfer Pricing Should Be Managed Throughout the Year
CTP011 also reinforces a broader point for businesses: transfer pricing should not become a year end exercise.
Intercompany agreements, actual pricing practices and transfer pricing policies should remain aligned throughout the year. Benchmarking should also be kept current rather than reconstructed only when the Corporate Tax Return is being prepared.
A well managed transfer pricing framework can therefore reduce the need for significant adjustments at filing stage and provide a clearer basis for any adjustment that is required.
How MCA Gulf Can Help
MCA Gulf supports businesses with transfer pricing policy reviews, benchmarking, related party transaction assessments, Corporate Tax disclosures and documentation requirements.
Our team can also assist organisations in evaluating proposed downward adjustments and ensuring that the supporting analysis and documentation are aligned with the latest UAE Corporate Tax requirements.
For a working session, contact us.
Download the Guide
Download our guide for a practical overview of Public Clarification CTP011, downward transfer pricing adjustments and the key considerations for UAE businesses.
