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Transfer Pricing implications for ESR reporting entities

Related party transactions reported under current UAE ESR regulation

  • We understand as per ESR regulation your company is reporting under ‘ Distribution and Service Centre/Headquarter business’ relevant activity. Currently, for ESR assessment related party transactions are evaluated solely from the following perspective
    • Import of goods from foreign related party (Distribution business)
    • Export of services to foreign related party (Service center)
    • Headquarter business (services provided to foreign group)
  • In ESR report, the following amounts relating to the above relevant activities are being reported for related party transactions:
    • Revenue from relevant activity
    • COGS, Operating expenses attributed to relevant activity
    • Profit/loss from relevant activity

Related party transactions reporting under Transfer Pricing regime

  • As you may be aware, Federal Corporate Tax (CT) is being introduced in the UAE that will be effective for entities with financial years starting on or after 1 June 2023.
  • Transfer price is the price at which two related parties transact. Ie. prices at which an enterprise transfers :
    • Physical goods
    • Intangibles or
    • Provides services to related party/associated enterprises
  • Under Transfer pricing, ALL the related party transactions needs to be identified, analyzed and ensure the transactions purchase/sale of goods/services and intangibles are carried out at Arms-Length Price (ALP)
  • Therefore, entity needs to list down all the related party transactions undertaken during year (not confined to import of goods/export of services currently as focused under ESR), including export of goods, and import of services.
  • TP regulation will be part of UAE Corporate Tax Law and it will contain various methods of transfer pricing to determine ALP, vast annual transfer pricing documentation, and harsh penalties for non-compliance.

Our services for your Transfer Pricing Regulation Compliance

  • Preliminary assessment on applicability:
    • Identifying and mapping all the related party transactions undertaken and the price at which transactions are carried out by the Company during the financial year
    • Reviewing contractual terms of the agreement to understand the transactions
    • Determining whether the price is at Arm’s Length Price (ALP) as per TP regulation by selection of appropriate method to derive appropriate ALP
  • Tax efficient structuring: Advisory on the transaction structuring in order to ensure that the related party transactions are compliant with Transfer Pricing regulations
  • Documentation & Reporting:
    • Create TP Policy for the Company
    • Master file (high level global information regarding global business and TP policies adopted by group)
    • Local file (material inter-group transactions of the local entity and its business activities)
    • Country by country report (CbCr)

Please feel free to seek any further clarification/information on the Transfer Pricing related implications under the upcoming Corporate tax regime.

We are happy to assist you in your Corporate Tax impact assessment journey.

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