Transfer Pricing Documentation

Article 55 of the Corporate Tax Law outlines the Transfer Pricing documentation obligations for a Taxable Person engaged in transactions with Related Parties or Connected Persons. Transfer Pricing documentation refers to a set of records prepared by Taxable Persons to demonstrate compliance with the Arm’s Length Principle in their transactions with Related Parties. The primary purpose of this documentation is to provide the Federal Tax Authority (FTA) with a clear and comprehensive understanding of the Taxable Person's Transfer Pricing policies and their application, allowing the FTA to assess the Transfer Pricing outcomes for each relevant period under review.

Overview of Transfer Pricing Documentation Requirements

This provides an overview of the important areas related to Transfer Pricing documentation, including:

• Objectives and Requirements: Understanding the objectives and requirements of Transfer Pricing documentation in the UAE.
• General Transfer Pricing Disclosure Form: An overview of the general disclosure form requirements.
• Master File and Local File: Detailed requirements for maintaining a Master File and Local File, applicable to businesses that are part of an MNE Group with consolidated revenue over 3.15 billion AED or where the Taxable Person’s Revenue exceeds 200 million AED.
• Country-by-Country Reporting (CbCR): Requirements for CbCR, applicable to businesses that are part of an MNE Group with consolidated revenue over 3.15 billion AED.

These Transfer Pricing documentation requirements vary depending on the size of the business. Specifically, a Master File and Local File are required for larger businesses, while CbCR is only mandatory for businesses that are part of an MNE Group with substantial consolidated revenue.

Purpose of Transfer Pricing Documentation

The core purpose of Transfer Pricing documentation is to provide insight into the Taxable Person’s Transfer Pricing practices and to test the outcomes against the Arm’s Length Principle in relation to Controlled Transactions. In addition to the statutory requirements, Taxable Persons are encouraged to maintain and provide any additional documentation that supports the arm’s length basis of their transactions to the FTA upon request.

Additional Documentation Requirements

Under Article 55(4) of the UAE Corporate Tax Law, the FTA may request specific information from Taxable Persons who are not required to maintain a Local File and Master File. This may include:

• Information regarding transactions with Related Parties and Connected Persons.
• Documentation supporting the arm’s length nature of the transaction.
• Any other information the FTA deems necessary to assess the transaction’s arm’s length nature.
• Information used for the application of the chosen method, which may include functional analysis, benchmarking studies, intercompany agreements, meeting minutes, and other relevant records.

The FTA expects Taxable Persons to prepare and maintain detailed documentation explaining all relevant information used in applying the chosen method. This documentation should support the factors selected, the weights assigned to these factors, and the details of any numerical adjustments made. Where possible, reliable publicly available market references should be included.

Additional Documentation Requirements

Under Article 55(4) of the UAE Corporate Tax Law, the FTA may request specific information from Taxable Persons who are not required to maintain a Local File and Master File. This may include:

• Information regarding transactions with Related Parties and Connected Persons.
• Documentation supporting the arm’s length nature of the transaction.
• Any other information the FTA deems necessary to assess the transaction’s arm’s length nature.
• Information used for the application of the chosen method, which may include functional analysis, benchmarking studies, intercompany agreements, meeting minutes, and other relevant records.

The FTA expects Taxable Persons to prepare and maintain detailed documentation explaining all relevant information used in applying the chosen method. This documentation should support the factors selected, the weights assigned to these factors, and the details of any numerical adjustments made. Where possible, reliable publicly available market references should be included.

Objectives of Transfer Pricing Documentation

Transfer Pricing documentation is prepared with three primary objectives in mind:

• Ensuring that Taxable Persons appropriately consider Transfer Pricing requirements when setting prices and other terms for transactions between Related Parties or Connected Persons, and accurately report the outcomes of these transactions on their Tax Returns.
• Providing the FTA with the necessary data to conduct a Transfer Pricing risk assessment and to make an informed decision regarding the need for an audit.
• Supplying the FTA with the necessary information to conduct a comprehensive audit of the Transfer Pricing practices of Persons subject to Corporate Tax in the UAE, while acknowledging the potential need for additional information as the audit progresses.

Contemporaneous Transfer Pricing Documentation Requirements

Taxable Persons are required to maintain contemporaneous Transfer Pricing documentation for their controlled transactions to ensure compliance with Transfer Pricing regulations and to uphold the integrity of their Corporate Tax positions. The Federal Tax Authority (FTA) mandates that this documentation be maintained either at the time the Controlled Transaction occurs or by the time the Taxable Person submits its Tax Return for the Tax Period in which the transaction took place. This documentation should provide an exhaustive and detailed description of the Controlled Transactions, including the economic conditions surrounding them, as well as the analysis and conclusions that led to the determination of the transfer prices.

Maintaining contemporaneous Transfer Pricing documentation allows Taxable Persons to demonstrate that their Transfer Pricing policies adhere to the Arm’s Length Principle. These policies, along with the supporting documentation, should be prepared, regularly reviewed, and reassessed at least annually to account for changes in the Taxable Person’s business structure and the broader regulatory and business environment.

Transfer Pricing Disclosure Form

In accordance with Article 55(1) of the Corporate Tax Law, all Taxable Persons who engage in transactions with Related Parties or Connected Persons—whether domestic or foreign—during the reporting Tax Period and who exceed a specified materiality threshold are required to prepare and submit a general Transfer Pricing disclosure form alongside their Tax Return. This form provides the Federal Tax Authority (FTA) with essential information regarding the broad categories of transactions and arrangements undertaken by the Taxable Person with its Related Parties or Connected Persons. The disclosure form includes details such as the nature and value of the Controlled Transactions, information about the Related Parties involved, and the Transfer Pricing methods used to determine the arm’s length value of these transactions.

Master File and Local File

The Master File and Local File are integral components of the three-tiered standardized approach to Transfer Pricing documentation as prescribed under the OECD Transfer Pricing Guidelines and BEPS Action 13, alongside Country-by-Country Reporting. The Master File provides a high-level overview of the Transfer Pricing policies of a Multinational Enterprise (MNE) Group, while the Local File contains more detailed information specific to the local entity.

Maintaining both a Master File and a Local File is a requirement for Taxable Persons that are Constituent Companies of an MNE Group with a total consolidated group revenue of AED 3.15 billion or more in the relevant Tax Period, or for those whose revenue in the relevant Tax Period is AED 200 million or more.

Master File and Local File in Transfer Pricing Documentation

Master File

The Master File is a crucial component of Transfer Pricing documentation that provides a high-level overview of the global business operations of a Multinational Enterprise (MNE) Group, its Transfer Pricing policies, and the allocation of income and economic activities across jurisdictions. The primary purpose of the Master File is to help tax authorities, like the Federal Tax Authority (FTA), evaluate significant Transfer Pricing risks and assess the MNE Group's Transfer Pricing practices within their broader economic, legal, financial, and tax context.

The information in the Master File serves as a "blueprint" of the MNE Group and is organized into five key categories:

• Organizational Structure: This includes a chart illustrating the MNE Group's legal and ownership structure, along with the geographical location of its operating entities.
• Description of MNE Group’s Business: This section provides a general description of the MNE's business, including key profit drivers, supply chain descriptions for the group's largest products or services, a summary of important service arrangements between group members, and an overview of the main geographic markets.
• MNE Group’s Intangibles: Here, the document details the group’s strategy for the development, ownership, and exploitation of intangibles, lists significant intangibles owned by the group, and provides a summary of the Transfer Pricing policies related to these assets.
• MNE Group’s Intercompany Financial Activities: This section describes how the group is financed, identifies entities providing central financing functions, and outlines the group's Transfer Pricing policies related to financing arrangements.
• MNE Group’s Financial and Tax Positions: This includes the group’s consolidated financial statements and a list of any unilateral advance pricing agreements (APAs) or other tax rulings.

The Master File must be prepared annually based on the specific facts and circumstances of the MNE Group's global business for that fiscal year.

Local File

The Local File is a more detailed document that focuses on specific Controlled Transactions within a particular tax jurisdiction. It supplements the Master File by providing detailed information on transactions between a local affiliate and its associated enterprises, ensuring compliance with the Arm's Length Principle in the specific jurisdiction.

The Local File includes the following categories of information:

• Information on the Local Entity: This encompasses a description of the local entity's management structure, business strategy, and identification of key competitors.
• Controlled Transactions: For each material category of controlled transactions, the Local File provides a detailed description, including the amount of intra-group payments, the associated enterprises involved, comparability and functional analysis, the selected Transfer Pricing method, and justification for its selection.

Taxable Persons subject to Transfer Pricing documentation requirements must maintain both the Master File and the Local File contemporaneously. These documents may be requested by the FTA and must be provided within 30 days, or a longer period if agreed upon.

This documentation is critical in ensuring that the Taxable Person’s Transfer Pricing practices align with international guidelines, specifically those set forth by the OECD, and comply with the regulations established under the UAE’s Corporate Tax Law.

Country-by-Country Reporting (CbCR)

Country-by-Country Reporting (CbCR) represents the third tier of Transfer Pricing documentation as outlined in BEPS Action 13. CbCR is a standardized report that provides aggregate tax jurisdiction information concerning the global allocation of income, taxes paid, and certain indicators of the location of economic activity among the tax jurisdictions in which a Multinational Enterprise (MNE) Group operates. The report also requires a listing of all Constituent Companies for which financial information is reported, including the tax jurisdiction of incorporation (where it differs from the tax jurisdiction of residence) and the nature of the main business activities carried out by each Constituent Company.

The United Arab Emirates (UAE) introduced CbCR requirements through Cabinet Resolution No. 44 of 2020. According to this resolution, the CbCR follows the Standard Template attached in Annex (3) to Chapter (V) of the OECD Transfer Pricing Guidelines. Specifically, a CbCR consists of the following three tables:

• Table 1: Contains quantitative information per tax jurisdiction, such as unrelated party and related party revenues, stated capital, taxes accrued and paid, employee count, etc.
• Table 2: Contains qualitative information per Constituent Company on the main business activities undertaken during the year.
• Table 3: Contains additional information necessary to facilitate the understanding of Tables 1 and 2, such as assumptions on exchange rates and sources of data.

The UAE CbCR requirements apply to MNE Groups headquartered in the UAE with consolidated Group revenue equal to or above AED 3.15 billion (approximately EUR 750 million) during the Fiscal Year immediately preceding the reporting Fiscal Year.

CbCR Filing and Notification

The Ultimate Parent Entity (UPE) of the MNE Group is required to submit a CbCR notification for each reporting Fiscal Year. This notification must be submitted no later than the last day of the Fiscal Year and must inform the Federal Tax Authority (FTA) that the UPE is the reporting entity responsible for filing the CbCR. Furthermore, the UPE must file the CbCR no later than 12 months after the last day of each reporting year of the MNE Group in the UAE.

Cabinet Resolution No. 44 of 2020 outlines the requirements for CbCR and provides guidance on the preparation and submission of both the CbCR and the CbCR notification. Taxable Persons should refer to this resolution for practical guidance on the preparation and filing processes.

Conclusion

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