UAE Trends and Developments Contributed by: Marios Palesis, Theodora Charalambous and Giorgos Kinanis, Kinanis Tax Consultancy Middle East Limited
Documentation Requirements The transfer pricing framework established under Chapter Ten was subsequently supplemented by Min - isterial Decision No 97 of 2023 on the Requirements for Maintaining Transfer Pricing Documentation for the Purposes of Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses, issued on 11 May 2023. The Decision is effective for tax periods commencing on or after 1 June 2023. Ministerial Decision No 97 of 2023 operationalises the documentation component of the transfer pricing regime by imposing formal record-keeping obligations on taxable persons engaged in related party transac - tions. In particular, the Decision requires certain UAE businesses to prepare and maintain both a master file and a local file in respect of their controlled transac - tions. The obligation to maintain transfer pricing documen - tation is subject to specific thresholds. A taxable per - son is required to maintain a master file and local file where: • the taxable person is a constituent entity of an MNE group with consolidated group revenue of AED3.15 billion or more in the relevant tax period; or • the taxable person has revenue of AED200 million or more in the relevant tax period. These thresholds reflect an approach broadly aligned with international documentation standards and are designed to target documentation requirements towards larger businesses and multinational groups. Accordingly, with the issuance of Ministerial Decision No 97 of 2023, the UAE transfer pricing regime moved beyond substantive arm’s length principles to include formalised compliance and documentation obliga - tions. Transfer pricing in the UAE is therefore not lim - ited to the correct pricing of related party transactions but extends to structured reporting and evidentiary requirements capable of supporting the arm’s length nature of such transactions. Ministerial Decision No 97 of 2023, read together with the Corporate Tax Guide on Transfer Pricing (CTGTP1)
ing standard for determining taxable income arising from transactions between related parties. Article 34 provides that, in determining taxable income, transactions and arrangements between related parties must meet the arm’s length principle. Article 34 further defines this standard by reference to the results that would have been realised had inde- pendent persons entered into a similar transaction under comparable circumstances. In addition, Article 34 prescribes the recognised trans - fer pricing methods for determining an arm’s length outcome, namely: • the comparable uncontrolled price method; • the resale price method; • the cost-plus method; • the transactional net margin method; and • the transactional profit split method. Where none of the above methods can be reasonably applied, the Corporate Tax Law permits the use of an alternative method, provided it yields results consist - ent with the arm’s length principle. Definition of Related Parties and Connected Persons Article 35 defines “Related Parties” and “Control” for the purposes of the Decree-Law, establishing own - ership and control thresholds, at 50%, alongside broader concepts of influence and economic control. The definition encompasses natural persons, juridi - cal persons, permanent establishments, partnerships, and certain trust and foundation relationships. Article 36 separately regulates payments to “Con - nected Persons”, limiting deductibility to amounts that correspond to market value and are incurred wholly and exclusively for business purposes. Taken together, Chapter Ten establishes a compre - hensive statutory framework governing intra-group transactions and profit allocation. Through these pro - visions, transfer pricing becomes an integral com - ponent of the UAE corporate tax system, with direct consequences for the computation of taxable income and the deductibility of related-party payments.
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