UAE Law and Practice Contributed by: Marios Palesis, Theodora Charalambous and Giorgos Kinanis, Kinanis Tax Consultancy Middle East Limited
persons up to the fourth degree of kinship (ie, first cousins). Under Article 36 of the Corporate Tax Law, a person is considered a connected person of a taxpayer if that person is: • an owner of the taxpayer (holding an ownership interest or control in the taxpayer, whether directly or indirectly); • a director or officer of the taxpayer; • a related party of an owner, director or officer of the taxpayer; or • a partner in an unincorporated partnership (the partner is a connected person with respect to the other partner in the partnership, and to related par - ties of that person). Payments or benefits to persons meeting the forego - ing definition are deductible only to the extent they are made at market value (arm’s length) and incurred wholly and exclusively for the purpose of generating taxable income. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods Article 34 (3) of the Corporate Tax Law lists the follow - ing transfer pricing methods that taxpayers can use to determine arm’s length prices, in line with the OECD Transfer Pricing Guidelines: • the comparable uncontrolled price method (CUP); • the resale price method (RPM); • the cost-plus method (CPM); • the transactional net margin method (TNMM); and • the transactional profit split method (PSM). 3.2 Unspecified Methods The Corporate Tax Law, as per Article 34 (4), allows taxpayers to apply another unspecified transfer pric - ing method where they can demonstrate that none of the methods listed in the Corporate Tax Law can be reasonably applied to determine an arm’s length result, and that the arm’s length result of such a method is consistent with the result that would have
been realised between independent parties in a similar transaction under similar circumstances. 3.3 Hierarchy of Methods The Corporate Tax Law does not provide for a hier - archy of methods. Instead, the most reliable transfer pricing method must be applied taking into account the following factors: • the contractual terms of the transaction or arrange - ment; • the characteristics of the transaction or arrange - ment; • the economic circumstances in which the transac - tion or arrangement is conducted; • the functions performed, assets employed and risks assumed by the related parties entering into the transaction or arrangement; and • the business strategies employed by the related parties entering into the transaction or arrange - ment. The FTA Transfer Pricing Guide states that in selecting the most appropriate method, the following should be taken into account: • the strengths and weaknesses of the transfer pric - ing methods; • the appropriateness of the method considered in view of the nature of the controlled transaction, as determined in a functional analysis; • the availability of reliable information (in particular on uncontrolled comparables) needed to apply each method (eg, from publicly available data from commercial databases or other publicly available sources); and • the degree of comparability between the controlled transaction and independent transactions, includ - ing the accuracy of any resulting adjustments that may be required to eliminate differences between the transactions. The UAE approach is in line with OECD Transfer Pric - ing Guidelines, recommending the choice of the most appropriate method on a case-by-case basis.
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