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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 BCL Globiz, 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).
FAR Analysis: Evaluate the
Arm’s Length Comparable:
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.
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.
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.
BCL Globiz, 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
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:
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). BCL Globiz 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.
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.
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 will be served to those who fail to comply with the CbCR requirements. Such penalties are as follows:
Our specialised Transfer Pricing team of BCL Globiz, can assist in developing tax-efficient arrangements that maximize compliance with laws and regulations while meeting all of your transfer pricing requirements, along with filing requirements of Master file and CbCR reporting.
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