The UAE has adopted Transfer Pricing (TP) regulations in line with the OECD Guidelines, making compliance a key aspect of tax planning for businesses involved in related-party transactions. While the core principles remain similar, the Federal Tax Authority (FTA) has introduced specific UAE requirements that businesses must adhere to.
This article explores the top five differences and similarities between UAE Transfer Pricing rules and OECD guidelines, helping businesses ensure compliance efficiently.
1. The Arm’s Length Principle (ALP) – A Common Standard
One of the fundamental pillars of Transfer Pricing regulations worldwide is the Arm’s Length Principle (ALP). This principle ensures that related-party transactions do not create unfair tax advantages by shifting profits to low-tax jurisdictions or manipulating intercompany pricing.
Key Similarities:
- The UAE fully aligns with OECD Guidelines in requiring businesses to justify intercompany pricing.
- All related-party transactions (domestic and cross-border) must be tested under the ALP.
- The same OECD-approved methods (CUP, RPM, TNMM, Cost Plus, and Profit Split) apply in the UAE.
Key Differences:
- Unlike some OECD jurisdictions, the UAE does not provide safe harbors for low-risk transactions.
- Even UAE domestic transactions are subject to TP compliance, regardless of jurisdictional differences.
Takeaway: UAE businesses must apply ALP to all related-party transactions, ensuring compliance with both local and OECD rules.
2. Documentation Requirements – UAE vs. OECD
Transfer Pricing documentation is essential for proving compliance with tax authorities. The OECD introduced a three-tiered documentation framework (Master File, Local File, and Country-by-Country Reporting – CbCR) under BEPS Action 13, and the UAE has largely adopted this structure.
Key Similarities:
- The UAE adopts OECD’s three-tiered documentation approach.
- Both OECD and UAE require benchmarking studies to support Transfer Pricing policies.
Key Differences:
- The UAE has a lower Master File threshold (AED 200M) than some OECD countries.
- The UAE mandates TP Disclosure Forms for businesses exceeding FTA-specified thresholds, even if no Local File is required.
Takeaway: UAE businesses must ensure all three levels of documentation are in place to avoid non-compliance risks.
3. Transfer Pricing Methods – Alignment with OECD
The OECD recognizes five standard Transfer Pricing methods, and the UAE follows the same approach. However, businesses must be prepared to justify their choice of method to the Federal Tax Authority (FTA).
Key Similarities:
- The UAE strictly follows the OECD-recommended methods.
- Both frameworks prefer traditional methods (CUP, RPM, Cost Plus) over profit-based methods (TNMM, PSM) where possible.
Key Differences:
- Unlike some OECD jurisdictions, the UAE does not allow alternative pricing methods unless the FTA approves them.
- The UAE requires businesses to justify their choice of method explicitly in documentation.
Takeaway: UAE businesses must choose the most appropriate OECD-recognized method and justify its use.
4. Transfer Pricing Disclosure & Benchmarking Requirements
Besides documentation, businesses in the UAE must submit additional Transfer Pricing disclosures as part of their Corporate Tax return once the thresholds are breached. These requirements go beyond OECD guidelines and mandate proactive compliance.
Key Similarities:
- Both OECD and UAE regulations require benchmarking analysis to compare intercompany prices with independent transactions.
- Both require businesses to submit TP documentation upon request by tax authorities.
Key Differences:
- Unlike some OECD countries where benchmarking is needed only for high-risk transactions, the UAE mandates benchmarking and ALP test for all material related-party transactions.
- The TP Disclosure Form is a unique UAE requirement, not found in many OECD jurisdictions.
Takeaway: UAE businesses must submit TP disclosures annually and maintain benchmarking studies to justify intercompany pricing.
5. Audit & Compliance Risks Under UAE Transfer Pricing Rules vs. OECD
With tax authorities increasing scrutiny over intercompany transactions, businesses that fail to comply with TP regulations face significant risks, including tax audits, financial penalties, and profit adjustments.
Key Similarities:
- Both the OECD and UAE Transfer Pricing rules impose penalties for non-compliance, incorrect TP reporting, or lack of documentation.
- In both frameworks, tax authorities have the right to adjust intercompany pricing if TP policies are not justified.
Key Differences:
- The UAE does not provide an Advance Pricing Agreement (APA) mechanism, unlike some OECD jurisdictions.
- UAE Free Zone companies must prove that their TP practices align with ALP to retain their 0% tax benefits.
Takeaway: UAE businesses should maintain accurate TP documentation to prevent tax disputes and penalties.
How We Can Help
At HayyaTax, we specialize in compliance with UAE Transfer Pricing rules, ensuring businesses meet both local and OECD-aligned TP requirements.
Our Services:
- TP Documentation Preparation – Local File, Master File & Benchmarking Studies
- TP Disclosure & Compliance – Ensuring accurate TP reporting in tax returns
- TP Risk Assessments – Identifying compliance gaps to prevent tax audits
- FTA Audit Support – Expert guidance in responding to tax authorities
Stay compliant, reduce audit risks, and optimize tax efficiency with our expert TP services.
Why Choose HayyaTax as Your Transfer Pricing Consultant?
- Expertise in UAE & OECD TP Regulations – Deep knowledge of FTA compliance requirements.
- Industry-Specific TP Strategies – Tailored solutions for SMEs, Free Zones, and MNEs.
- End-to-End TP Support – From documentation to audit defense, we manage all TP compliance aspects.
- Proactive & Cost-Effective Solutions – Ensuring full compliance while minimizing financial risks.
📌 Ensure Your UAE Business is TP-Compliant – Partner with HayyaTax Today!
Conclusion
The UAE’s Transfer Pricing rules align closely with OECD guidelines, but businesses must also comply with FTA-specific requirements, including documentation, disclosure, and tax filing obligations.
By proactively managing TP compliance, businesses can avoid penalties, prevent tax disputes, and ensure smooth tax audits.
💡 Need expert guidance? Contact HayyaTax for a consultation today!