Transfer Pricing Services – Fiscal & Fintech

Transfer Pricing Services in Dubai

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Transfer Pricing refers to a pricing mechanism with respect to the price charged for goods and services, transacted between related parties. From a taxation perspective, be it local or cross-border, entities are expected to transact on an Arm’s Length basis i.e.,as if the same is being transacted between two unrelated entities. For example, the provision of management services by a Parent company to its subsidiaries or the supply of services by a company to its sister company.

The essence of transfer pricing rules for tax purposes is that the transfer price should be at an ‘open market’ or ‘arm’s length’ value. This prevents a group of companies manipulating intragroup prices to reduce the group’s overall tax bill.

For businesses with a multi-country presence, coordinating and complying with international regulations is increasingly becoming a challenge. Keeping abreast of the evolving local as well as International tax environment, entails higher investment for businesses, both on time and costs. Transfer Pricing (TP) is one such critical aspect for businesses having international presence.

We, at Fiscal & Fintech, relish the challenge of guiding clients through the complex process of transfer pricing and have a long-standing experience in the field of international transfer pricing, transactions structuring and transfer pricing compliances.

The proposed UAE CT regime will cover the introduction of formal transfer pricing (TP) rules and TP documentation requirements in line with the TP Guidelines issued by the Organisation for Economic Cooperation and Development (OECD TP Guidelines). The documentation as per the OECD TP Guidelines includes Master file, Local file and Country by Country Report (CbCR).

Key Aspects of Transfer Pricing Services

Applicability:

Related Party
Connected Party
Threshold Limit

Reporting:

Industry Analysis
Economic Analysis
Accepted Margins

FAR Analysis: Evaluate the

Functions Perfomed
Assets employed
Risks assumed

Assessment:

Comparability Assessment
Request by Authorities to provide additional documents
Appeals

Arm’s Length Comparable:

Pricing Policy
Agreements
Most Appropriate Method

TP documentation as per OECD Guidelines

The consultation document proposes the introduction of a TP regime in line with the internationally recognised “arm’s length” principle. It suggests maintenance of documentation as per Action plan 13 of the Base Erosion and Profit Shifting (BEPS) project of the Organisation for Economic Cooperation and Development (OECD). The documentation requirements accordingly would include three-tier documentation to be maintained.

Tier 1 – TP Study Report or Local File, justifying the transactions entered by the enterprise.
Tier 2 – Master File, highlighting the group level happenings, group financial details, intellectual properties, necessary financial arrangements etc.
Tier 3 – Country by Country Reporting (CbCR) for large multinational group (same is already in place effective 1 January 2019).

Businesses will have to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines. Proper Transfer pricing documentation will assist the taxpayers to show that their transactions satisfy the arm’s length principle and hence eliminate transfer pricing disputes. If a business entity has increased volume and complexity of international as well as domestic transactions, it will lead to transfer pricing issues, so it will result in a significant increase in compliance costs for taxpayers.

TP Study Report or Local File

A Transfer pricing study examines the pricing of transactions between related two or more associates. By applying and documenting various test methods, it is determined whether the transactions are conducted under market conditions and survive the scrutiny of federal tax authorities. A study of transfer pricing shall justify how a transactions are being reviewed to be in line with the Arm’s Length Price as well as other OECD guidelines.

The OECD provides detailed guidance on how a valuation is to be determined but in essence, five methods are used, namely the:

1) Comparable uncontrolled price method
2) Resale price method
3) Cost plus method
4) Profit split method
5) Transactional Net Margin Method

We assist our clients with the below mentioned range of transfer pricing services, which include a full spectrum of multidisciplinary advice and compliance services in order to keep compliant to the applicable transfer pricing rules, documentation and reporting requirements in the UAE along with other countries as well.

Help in developing and implementing efficient Transfer Pricing policy to optimize tax planning.
Assistance in determining the value of the transaction to arrive at arm’s length price Benchmarking Studies
Conducting FAR analysis (including Functions. Assets, and Risks Analysis)
Performing economic analysis (Benchmarking analysis)
Tax efficient restructuring of Supply Chain
Carrying due diligence review to identify potential risks in adherence to Transfer Pricing regulation and documentation
Issuing Transfer Pricing Study Report for Statutory Compliance, wherever required

Fiscal & Fintech, as experts in this field, provide extensive range of transfer pricing services include provision of transfer pricing planning services, advisory services, and compliances etc. making it fully compliant with all the regulations of Transfer Pricing in the UAE

Master File Compliance

The Master File is a key international tax document and one of three tiers for Transfer Pricing documentation required for Multinational Enterprises (MNEs) as laid down by the OECD’s Base Erosion and Profit Shifting (BEPS) Action Point 13 framework to counter tax evasion. The Master File contains standardized information for all MNE group members. It provides a general overview of the MNE group’s business including all intra group pricing arrangements in global financial, legal and tax terms.

The OECD sets out minimum content for the Master File and this includes:

Details of the organizational structure
Description of the group’s business activities
Information regarding the group’s intangible assets
Information regarding the group’s financial activities
Information regarding the group’s financial and tax position. This would include financial statements, lists and details of Advance Transfer Pricing Agreements and tax rulings from around the world.

While the final law and regulations are yet to be published, we expect a specific threshold above which the multinationals are required to comply with the Master file (like the existing CbCR compliance). Fiscal & Fintech can help to make an assessment of MNC’s current position and current transfer pricing policy, and suggest business in fulfilling and complying with the process, procedures, and submissions, as applicable.

CbCR (Country by Country Reporting) Services in Dubai

The Cabinet Resolution No. (32) of 2019 (the “Resolution”) on Country-by-Country Reporting (“CbCR”) was issued in the United Arab Emirates on 30 April 2019. The CbCR requirements apply to the UAE-headquartered Multinational Enterprises (MNE) Groups with financial reporting years starting on or after the 1st of January 2019.

The parent company of an international group must submit the report to the prescribed authority in its country of residence
The CbCR legislation only applies to the parent companies of multinationals whose consolidated turnover exceeded USD 858 million (equal to or more than AED 3.15 billion) in the previous financial year
The report is based on a consolidated group financial statement
CbC Report should provide a breakdown of the Multinational Group’s global revenue, profit before tax, income tax accrued, and some other indicators of economic activities for each jurisdiction in which the MNE operates

Ultimate Parent Entity of the MNE Group, being an UAE tax resident, must submit the notification confirming that it is the Ultimate Parent Entity of the MNE Group and that the CbCR requirements are applicable.

The submission of the CbC report should be within 12 months from the end of the reporting year of the MNE Group. For example, for the MNE Group, whose financial year ending is 31st of December 2022, the CbC Report should be filed no later than December 31, 2023.

Penalties

Penalties will be served to those who fail to comply with the CbCR requirements. Such penalties are as follows:

An administrative fine of up to AED 1,000,000 will be given to those who failed to file the CbCR on time (plus AED 10,000 for each day of failure to submit. The fine could be up to AED 250,000.)
Failure to provide complete and accurate information in the CbCR. An administrative fine of no less than AED 50,000 and not exceeding AED 500,000 is applicable will be given to those who failed to provide complete and accurate information in the CbCR.
Failure to maintain information and documentation for five years is subject to a fine of AED 100,000.
Failure to provide any other information requested is subject to a fine of AED 100,000