UAE Law and Practice Contributed by: Marios Palesis, Theodora Charalambous and Giorgos Kinanis, Kinanis Tax Consultancy Middle East Limited
9.6 Entities Bearing the Risk of Another Entity’s Operations In the UAE, one entity can bear the risk of another entity’s operations by guaranteeing a return, primar - ily through legal agreements, corporate structures and financial guarantees, provided the arrangements comply with the arm’s length principle and the UAE’s domestic laws and regulations. 9.7 Allocation of Profits to Permanent Establishments (PEs) The UAE largely follows the Authorised OECD Approach with respect to allocation of profits to PEs. The UAE has adopted the “separate entity approach” and provides for a two-step approach to attribute profits to an entity and its PE, in line with the OECD, as follows: • step 1 – functional analysis to identify the activities performed by each party; and • step 2 – determination of the compensation for any transactions between the entity and its PE. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing The UN Practical Manual on Transfer Pricing has limit - ed impact on transfer pricing practice or enforcement in the UAE. The UAE has modelled its regime based on the OECD Transfer Pricing Guidelines. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours The FTA Transfer Pricing Guide adopts the simplified approach provided under Chapter VII of the OECD Transfer Pricing Guidelines with respect to low value- adding intra-group services. Low value-adding ser - vices may be charged on a cost plus 5% markup basis without the need for a detailed benchmarking analy - sis, provided taxpayers maintain sufficient documen -
tation to support their conclusion that the services are in fact low value-adding in nature. 11.2 Rules on Savings Arising From Operating in the Jurisdiction The UAE does not have any specific rules on savings that arise from operating in the country. 11.3 Unique Transfer Pricing Rules or Practices The UAE does not have any unique rules or practices applicable in the transfer pricing context. 11.4 Financial Transactions The UAE does not have any specific rules governing financial transactions. Its rules are largely aligned with Chapter X of the OECD Transfer Pricing Guidelines. 12. Co-Ordination With Customs Valuation 12.1 Co-Ordination Requirements Between Transfer Pricing and Customs Valuation The UAE does not require co-ordination between transfer pricing and customs valuation. 13. Controversy Process 13.1 Options and Requirements in Transfer Pricing Controversies A taxpayer may challenge a transfer pricing audit through an application to the FTA for review of the tax assessment issued against the taxpayer. Addition - ally, a taxpayer may submit an application to the FTA for reconsideration of any decision issued by the FTA against the taxpayer. Any objections to the FTA’s decisions on reconsidera - tion applications can be filed to the Tax Dispute Set - tlement Committee. The decision of the Committee is final if the total amount of the tax due and administra - tive fines does not exceed AED100,000. For amounts that exceed AED100,000, taxpayers may challenge the Committee’s decision before the com - petent court. Again, the taxpayer must provide proof
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