Transfer Pricing


Transfer Pricing Guide


On 23 October 2023, The Federal Tax Authority (FTA) issued the Transfer Pricing Guide (TP Guide), which provides insights and practical guidance to taxpayers on the Transfer Pricing (TP) rules and regulations per the Corporate Tax Law of the United Arab Emirates (UAE CT Law).


Transfer pricing refers to determining the value of goods and services exchanged between related parties (such as subsidiaries of a multinational corporation) to ensure that the prices are fair and in line with market conditions.



The TP Guide is broadly aligned with the Transfer Pricing Guidelines issued by the Organization for Economic Co-operation and Development (OECD Guidelines)1 and provides general guidance on the TP regime in the UAE, and practical examples on, for instance: how to identify Related Parties and Connected Persons; how to undertake a functional analysis; and how to price intra-group financing transactions


In the UAE, transfer pricing regulations are governed by the Federal Tax Authority (FTA) and apply to entities that engage in transactions with related parties. These regulations aim to prevent tax avoidance and ensure that multinational corporations pay the correct amount of tax in the UAE.


Under the UAE Corporate Tax Law, transfer pricing rules apply to related-party transactions involving the sale or purchase of goods, the provision of services, the use of intangible assets, and other transactions that may affect the tax base. The law requires that transfer prices must be set on an arm’s length basis, meaning that they must be consistent with the prices that would have been charged by independent parties under similar circumstances.

The following are the relevant keywords important to understand Transfer Pricing as per the Corporate Tax Law

Related Parties

Related parties, as per Corporate Tax laws, refer to entities or individuals that have a certain level of relationship with each other. The concept of related parties is crucial in tax laws to prevent tax evasion, ensure fair transactions, and maintain the integrity of the tax system. The specific definition and criteria for related parties can vary by jurisdiction, but generally, it includes entities and individuals with a close connection. Common examples of related parties include:

  • Controlled Entities: Parent companies and their subsidiaries are typically considered related parties. Control is often determined by ownership of a significant percentage of voting shares.
  • Key Management: Individuals who have the authority and responsibility for planning, directing, and controlling the activities of an entity, such as executive officers and directors, are often considered related parties.
  • Close Family Members: Transactions with close family members of key individuals in a company may be subject to scrutiny to ensure they are conducted at arm’s length, meaning the terms are comparable to those between unrelated parties.
  • Entities under Common Control: Entities that are controlled by the same party or parties are often considered related. This can include situations where different entities are under the control of the same individual or group of individuals.
  • Entities with Significant Influence: Entities that have a significant influence over each other, even if there is no formal control, may be treated as related parties.
  • In the context of related party transactions, tax authorities are often concerned with ensuring that these transactions are conducted at arm’s length—that is, under terms and conditions that would apply between unrelated parties. This is to prevent the manipulation of prices and terms for tax avoidance purposes.Tax laws often require companies to disclose related party transactions in their financial statements and tax returns.

    Substance over Form

    “Substance over form” is a fundamental principle in the field of Transfer Pricing (TP) and Corporate Tax (CT). It refers to the idea that the economic substance of a transaction or arrangement should take precedence over its legal or formal structure when determining its tax treatment. This principle is particularly important in the context of related party transactions, where entities within the same corporate group engage in transactions with each other.

    Arm’s Length Principle

    The arm’s length principle is a key aspect of transfer pricing, emphasizing that related party transactions should be priced as if the parties were unrelated. This principle ensures that transactions reflect market conditions and economic substance.

    OECD Guidelines

    The Organization for Economic Co-operation and Development (OECD) provides guidelines on transfer pricing, including the principle of substance over form. These guidelines are widely recognized and adopted by many countries in shaping their transfer pricing regulations.

    Master File and Local File

    The Master File and Local File are key components of the Transfer Pricing (TP) documentation framework developed by the Organisation for Economic Co-operation and Development (OECD). These files are part of the three-tiered approach to transfer pricing documentation, which includes the Master File, Local File, and Country-by-Country Reporting (CbCR).

    The Master File is a comprehensive document that provides an overview of the multinational group’s global business operations, policies, and intra-group transactions. It is intended to give tax authorities insight into the overall business structure and the key factors influencing the group’s transfer pricing policies. The Local File is a more detailed document specific to a particular jurisdiction where a member of the multinational group operates. It provides detailed information on the specific transactions undertaken by the local entity and the application of transfer pricing methods to those transactions.

    Intra-group transactions

    Intra-group transactions can encompass a wide range of activities, including the sale of goods or services, the provision of management or administrative services, the licensing of intellectual property (such as trademarks or patents), the sharing of research and development activities, and financial transactions like loans or guarantees

    Frequently Asked Questions

    Transactions between members of a Tax Group are eliminated in the consolidation of the Group’s financial results statements and hence do not need to comply with the transfer pricing rules, unless a member of the Tax Group needs to compute its stand-alone Taxable Income for the purposes of utilising Tax Losses incurred before joining the Tax Group or when leaving a Tax Group.

    Yes. Transfer pricing rules apply to UAE businesses that have transactions with Related Parties and Connected Persons, irrespective of whether the Related Parties or Connected Persons are located in the UAE mainland, a Free Zone or in a foreign jurisdiction.

    Yes. Transfer pricing rules will apply to all transactions with Related Parties and Connected Persons. Therefore, any loan obtained from (or granted to) a Related Party or Connected Person needs to be at arm’s length (e.g. interest rate, duration, etc.).

    Qualifying Free Zone entities that are part of a large multinational group are anticipated to be subject to a different CT rate once the Pillar Two rules are embedded into the UAE CT regime

    Tax losses from one UAE group company may be used to offset taxable income of another UAE group company where there is 75% or more common ownership and certain other conditions are met. No tax loss transfers will be allowed from companies that are exempt or that benefit from the 0% Free Zone CT regime

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