Transfer pricing involves setting prices for transactions between related parties (Article 35) or connected persons (Article 36) based on the arm’s length principle. The OECD’s three-tier documentation framework—Master File, Local File, and Country-by-Country Reporting (CbCR)—enhances transparency and prevents profit shifting.
The UAE has adopted this framework along with the Transfer Pricing Disclosure Form (TPDF) for entities meeting specific thresholds. This article focuses on the Master File to support compliance with transfer pricing regulations.
What is a Master File?
A Master File is a Transfer Pricing document that gives a high-level overview of the Multinational Enterprise (“MNE” and is defined as an entity and/or one or more of its member entities located in the State or in a foreign territory) Group’s global operations, key value drivers, Transfer Pricing policies, and income allocation. It helps tax authorities assess Transfer Pricing risks and understand the group’s practices within its economic, legal, financial, and tax context, serving as a “blueprint” of the MNE Group.
Applicability of Master File
Keeping a Master File is a requirement for Taxable Persons that fulfill either of the following criteria:
- The taxable person is a constituent entity of an MNE group with a consolidated turnover of 3.15 billion AED or more in the relevant tax period. (Or)
- The taxable person has a revenue of 200 million AED or more in the relevant taxable period.
Exception: If a group of companies has its head office in the UAE and only does business in the UAE, Master File is not required.
Please Note: While the thresholds determine Master File applicability, Article 34 mandates that all related-party transactions meet the arm’s length standard. This means transactions must yield results consistent with those between unrelated parties under similar conditions, regardless of documentation requirements. The Taxable Person is still required to maintain reasonable records (i.e., benchmarking analysis for the transaction) to support the arm’s-length nature of the Taxable Person’s transactions or arrangements with its Related Parties and Connected Persons.
For a deeper understanding of UAE transfer pricing rules, including the disclosure form requirements, visit our detailed guide on UAE Transfer Pricing Regulations.
Key Components of a Master File
A Master File should include the following essential elements:
- Organizational Structure
The document must provide a visual representation of the MNE group’s legal and ownership structure, along with the geographic distribution of its operating entities.
- Business Operations
A detailed description of the group’s business activities, including:
- Primary factors influencing profitability
- Supply chain information for the top five products or services by revenue, plus any others exceeding 5% of total group turnover
- Key service agreements within the group, excluding R&D, along with transfer pricing policies for these services
- Primary geographic markets for the key products and services.
- Functional analysis highlighting value creation through key functions, risks, and asset utilization
- Major business restructuring, acquisitions, or divestments during the fiscal year
As part of the OECD framework, UAE tax authorities, including the Federal Tax Authority (FTA), require compliance with OECD transfer pricing guidelines. For professional guidance, you can always reach out to BCL Globiz.
Understand how management remuneration is treated under corporate tax laws in the UAE by reading our article on Corporate Tax and Management Remuneration.
- Management of Intangibles
The Master File should outline the MNE’s approach to developing, owning, and using intangible assets, including:
- Strategy for managing intellectual property and R&D activities
- List of significant intangible assets and their legal ownership
- Overview of agreements related to intangibles, such as licensing or cost-sharing arrangements
- Description of transfer pricing policies related to R&D and intellectual property
- Details of any significant transfers of intangible assets between group entities
- Intercompany Financial Arrangements
This section should summarize the MNE’s financial structure, including:
- Description of the Group’s financing and key external borrowing arrangements with unrelated lenders
- Identification of entities providing central financing functions and their jurisdictions
- Overview of the group’s transfer pricing policies for intercompany financing transactions
- Financial and Tax Information
The Master File should also contain:
- The group’s annual consolidated financial statements
- A summary of any advance pricing agreements (APAs) and other tax rulings affecting income allocation across jurisdictions.
As part of the OECD framework, UAE tax authorities, including the Federal Tax Authority (FTA), require compliance with OECD transfer pricing guidelines. For professional guidance, you can always reach out to BCL Globiz.
Non-compliance with Master File Transfer Pricing can result in penalties. Learn more about the penalties under UAE corporate tax law.
Expert Assistance for Transfer Pricing Compliance in Dubai
BCL Globiz is a trusted consultancy firm specializing in transfer pricing, international tax, and corporate compliance services. With in-depth expertise in UAE tax regulations and OECD guidelines, BCL Globiz assists businesses in preparing comprehensive transfer pricing documentation, including Country-by-Country Reporting, Master Files, and Local Files. Their team ensures that multinational enterprises remain compliant with evolving tax laws while optimizing their global tax structures.
Businesses seeking guidance on transfer pricing documentation and compliance in Dubai can benefit from the expertise of consultants like BCL Globiz, who provide tailored advisory services.
For further assistance, reach out to our expert rakesh@bclglobiz.com and check out our website www.bcl.ae
Explore the fundamentals of corporate tax in the UAE and its impact on businesses in our UAE Corporate Tax Guide.
