UAE-Ministry of Finance issues decision on transfer pricing documentation requirements for corporate tax purposes
The Ministry of Finance has issued the Ministerial Decision No (97) of 2023 on the Requirements for Maintaining Transfer Pricing Documentation which aims to promote transparency and fairness in the UAE’s tax system.
Federal Decree Law No (47) of 2023 on the Taxation of Corporations and Businesses enforces transfer pricing rules and documentation requirements to ensure that the pricing of transactions between related parties and connected persons, such as companies that are part of the same multinational enterprise (MNE) group, are not influenced by their relationships.
Conditions for Maintaining Master File and Local File
The Decision specifies instances where taxpayers must maintain transfer pricing documentation, specifically a master file and a local file in following conditions;
- They have revenues in a relevant tax period of at least AED 200 million or more.
- They are part of a MNE group with a total consolidated group revenue of at least AED 3.15 billion in the relevant tax period.
1- Disclosure Required in local File – Related Parties and Connected Persons
Decision outlines Taxable Person shall include transactions or arrangements with all of the following Related Parties and Connected Persons in the local file:
a) A Non-Resident Person.
b) An Exempt Person.
c) A Resident Person that has made an election under Small Business Relief Article (21) of the Corporate Tax Law and meets the conditions of such election.
d) A Resident Person whose income is subject to a different Corporate Tax rate from that applicable to the income of the Taxable Person.
2- NO Disclosure Required in local File- Related Parties and Connected Persons
The Taxable Person shall not include transactions or arrangements with the following Related Parties and Connected Persons in the local file:
a) Resident Persons other than those specified in paragraphs (b), (c) and (d) of Clause (2) of this Article.
b)* A natural person, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
c) *A juridical person that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
d) A Permanent Establishment of a Non-Resident Person in the State whose income is subject to the same Corporate Tax rate as that applicable to the income of the Taxable Person.
Determination of Transaction or Arrangement As Independent
The Authority shall take into account all relevant facts and circumstances to determine whether the Persons shall be regarded as acting as if they were independent of each other.
1-Transactions or Arrangement considered Independent
*(b) (c) The parties engaged in the transaction or arrangement shall be considered acting as if they were independent of each other ,where both of the following conditions are met:
(i)The relevant transaction or arrangement is undertaken in the ordinary course of Business.
(ii)These parties are not exclusively or almost exclusively transacting with each other.
2-Transactions or Arrangement considered Not Independent
*(b) (c) Where the activities of one Person in the transaction or arrangement are subject to detailed instruction or to comprehensive control of the other Person in the same transaction or arrangement, such Persons shall not be regarded as acting as if they were independent of each other.
The Authority shall issue guidelines for the application of the provisions of this Decision and maintaining transfer pricing documentation.
This Decision shall be published and shall come into effect the day following the date of its publication.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)
Ahmad Alagbari Chartered Accountants