Transfer Pricing in the UAE — Documentation, CbCR, OECD Alignment

The arm's-length principle

Federal Decree-Law No. 47 of 2022 requires transactions between Related Parties and between a Taxable Person and Connected Persons to be conducted at arm's-length — at the price two unrelated parties would have agreed in comparable circumstances. The principle is OECD-aligned and applies regardless of revenue scale or sector. Where an intercompany position is not at arm's-length, the FTA may adjust taxable income upward and assess additional CT, with penalties.

Connected Persons and Related Parties

Related Parties are entities or individuals connected by ownership, control, or family relationships above thresholds defined in Article 35 of the CT law — typically 50% or more direct or indirect ownership, or effective control. Connected Persons include officers and directors of the Taxable Person, their related parties, and partners in unincorporated partnerships (Article 36). Both categories trigger the arm's-length requirement.

Documentation thresholds

Under Ministerial Decision No. 97 of 2023, a Master File and Local File are required where:

• The Taxable Person's revenue reaches AED 200 million in the relevant period, OR
• The Taxable Person is part of a Multinational Enterprise Group with consolidated group revenue of AED 3.15 billion or more

Both thresholds apply independently — meeting either triggers the obligation. The Master File describes the global business of the MNE Group; the Local File covers the UAE Taxable Person's specific intercompany transactions, function-asset-risk analysis, and benchmarking.

Below those thresholds, a lighter Disclosure Form is required for related-party and connected-person transactions above specified per-transaction limits (currently AED 4 million aggregate per counterparty, with thresholds for individual transaction types). The documentation obligation is lighter but not zero.

Country-by-Country Reporting

Country-by-Country Reporting under Cabinet Resolution No. 44 of 2020 applies to Ultimate Parent Entities resident in the UAE within the EUR 750 million scope (consolidated group revenue ≥ EUR 750M in the preceding fiscal year). The UPE files an annual report disclosing revenue, profit, tax paid, employees, and tangible assets per jurisdiction where the group operates.

UAE-resident constituent entities of foreign UPEs do not file the report themselves — the UPE files in its home jurisdiction and the report is automatically exchanged. UAE constituent entities submit a notification identifying the UPE and the filing jurisdiction. The notification window typically aligns with the financial year-end.

OECD alignment

UAE transfer-pricing guidance follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The five OECD methods (CUP, Resale Price, Cost Plus, TNMM, Profit Split) are accepted; method selection follows the OECD's "most appropriate method" principle. Comparability analysis, comparability adjustments, and benchmarking studies follow OECD methodology.

For groups already maintaining OECD-aligned documentation in another jurisdiction, the UAE Local File typically extends the existing framework rather than starting fresh — we coordinate with the group's central TP team where one exists.

Intercompany agreements

Intercompany agreements are the legal foundation of any TP position — a benchmarking study without supporting agreements does not pass an audit. We prepare or review:

• Service agreements — management services, IT services, marketing services
• Licence agreements — IP, trademarks, software, know-how
• Distribution and reseller agreements
• Intra-group financing agreements — loans, cash pooling, guarantees
• Cost-sharing arrangements
• Secondment agreements

Each agreement is drafted with arm's-length pricing supported by external benchmarking or internal cost-plus methodology, reviewed annually as part of the TP cycle, and integrated with the recipient jurisdiction's withholding-tax regime where cross-border.

When to engage Consorata

Engage before the first material related-party transaction is invoiced — retroactive TP analysis is significantly more expensive than building the position from the start. For groups already mid-flight, engage at the start of the first tax period in which Master File / Local File applies; for groups below the threshold, engage at year-end so the Disclosure Form is supported by contemporaneous workpapers.