Transfer Pricing Documentation Requirements in UAE

In today’s interconnected global economy, transfer pricing has become a critical compliance area for multinational enterprises (MNEs) operating in the UAE. With the implementation of the Corporate Tax Law and associated regulations, businesses must navigate comprehensive transfer pricing documentation requirements to demonstrate that their related-party transactions meet the arm’s length principle. This article provides an in-depth look at UAE transfer pricing documentation requirements, with a special focus on the Master File and Local File components.

What is Transfer Pricing Documentation?

Transfer pricing documentation refers to a set of records prepared by taxable persons to demonstrate compliance with the arm’s length principle in transactions with related parties. These documents provide the Federal Tax Authority (FTA) with a clear understanding of transfer pricing policies and their application, allowing for proper assessment of transfer pricing outcomes for each relevant tax period.

The primary purpose of maintaining comprehensive transfer pricing documentation is threefold:

1. To ensure taxable persons appropriately consider transfer pricing requirements when setting prices for related-party transactions
2. To provide the FTA with necessary data for transfer pricing risk assessment
3. To supply sufficient information for the FTA to conduct thorough audits when needed

UAE’s Three-Tiered Approach to Transfer Pricing Documentation

Following OECD Transfer Pricing Guidelines and BEPS Action 13, the UAE has implemented a three-tiered approach to transfer pricing documentation:

1. Transfer Pricing Disclosure Form

All taxable persons engaging in transactions with related parties or connected persons during a tax period must submit a transfer pricing disclosure form alongside their tax return. This form must be filed within nine months from the end of the relevant tax period and includes:

• Nature and value of controlled transactions
• Details of related parties involved
• Transfer pricing methods used to determine arm’s length values

The FTA has indicated that a sample form will be available on their website, and a materiality threshold for this requirement is forthcoming.

2. Master File and Local File

The Master File and Local File represent the core of UAE transfer pricing documentation requirements. Cabinet Decision No. 97 of 2023 specifies the conditions for maintaining these files.

Who Must Maintain Master and Local Files?

A taxable person must maintain both a Master File and a Local File if they meet either of these conditions:

• They are a constituent company of an MNE group with total consolidated revenue of AED 3.15 billion or more in the relevant tax period
• Their revenue in the relevant tax period is AED 200 million or more

An important exception exists for UAE-headquartered groups that are not MNE groups (i.e., groups with no commercial presence outside the UAE). These entities are exempt from maintaining a Master File but must still prepare a Local File if they meet the revenue threshold.

Master File Requirements

The Master File provides a high-level overview of the MNE group’s global business operations and must contain information in five key categories:

1. Organizational structure – Legal and ownership structure charts showing all entities in the group
2. Description of the MNE group’s business – Including key profit drivers, supply chain descriptions, important service arrangements, and main geographic markets
3. MNE group’s intangibles – Development, ownership, and exploitation strategies for intangible assets
4. Intercompany financial activities – How the group is financed and related transfer pricing policies
5. Financial and tax positions – Consolidated financial statements and information on tax rulings

Local File Requirements

The Local File contains more detailed information specific to the local entity and its controlled transactions, including:

1. Information on the local entity – Management structure, business strategy, and key competitors
2. Detailed information on material controlled transactions – For each category:
   • Description and value of transactions
   • Identity of related parties involved
   • Functional analysis supporting the transfer pricing method
   • Most appropriate transfer pricing method and tested party
   • Application of the selected method
   • Financial information relevant to the analysis

3. Country-by-Country Reporting (CbCR)

The third tier is the Country-by-Country Report (CbCR), introduced through Cabinet Resolution No. 44 of 2020. CbCR applies to UAE-headquartered MNE groups with consolidated revenue equal to or above AED 3.15 billion during the fiscal year immediately preceding the reporting fiscal year.

The CbCR follows the standard template in the OECD Transfer Pricing Guidelines and includes three tables:

• Table 1: Quantitative information per tax jurisdiction (revenues, profits, taxes, etc.)
• Table 2: Qualitative information on each constituent entity’s business activities
• Table 3: Additional explanatory information

The Ultimate Parent Entity must submit a CbCR notification by the last day of the fiscal year and file the complete report within 12 months after the end of the reporting year.

Contemporaneous Documentation Requirements

A critical aspect of UAE transfer pricing compliance is the contemporaneous nature of the documentation. The FTA requires that documentation be maintained either:

• At the time the controlled transaction occurs, or
• By the time the taxable person submits its tax return for the relevant tax period

This documentation should provide exhaustive details of controlled transactions, including economic conditions and the analysis used to determine transfer prices. Transfer pricing policies and supporting documentation should be reviewed and reassessed at least annually to account for changes in business structure and the regulatory environment.

Additional Documentation Requirements

For taxable persons not required to maintain a Master File and Local File, the FTA may still request specific information under Article 55(4) of the Corporate Tax Law, including:

• Information on transactions with related parties and connected persons
• Documentation supporting the arm’s length nature of transactions
• Any other information deemed necessary
• Supporting details such as functional analysis, benchmarking studies, and intercompany agreements

Benefits of Proper Transfer Pricing Documentation

Maintaining comprehensive transfer pricing documentation offers several advantages:

1. Compliance assurance – Meets regulatory requirements and reduces the risk of penalties
2. Reduced audit risk – Well-prepared documentation can decrease the likelihood of detailed audits
3. Enhanced transparency – Demonstrates commitment to fair and transparent business practices
4. Global alignment – Ensures consistency with international transfer pricing standards
5. Business insights – Provides valuable information for strategic decision-making

Conclusion

As the UAE continues to develop its tax framework, transfer pricing documentation has become an essential compliance requirement for businesses engaged in related-party transactions. The three-tiered approach—featuring the Transfer Pricing Disclosure Form, Master File and Local File, and Country-by-Country Reporting—ensures alignment with international best practices while promoting transparency and fairness.

At HayyaTax, we understand the complexities of transfer pricing documentation requirements. Our expert team can help your business navigate these requirements, ensure compliance with UAE regulations, and optimize your transfer pricing strategies. By taking a proactive approach to transfer pricing documentation, you can minimize risks, avoid disputes, and support sound business decisions while demonstrating adherence to the arm’s length principle.