Transfer Pricing Disclosure Requirements on the Related Party Transactions and Connected Person Transactions in Corporate Tax Returns.
The FTA has determined the Transfer Pricing (TP) requirement disclosure threshold with the recent Federal Tax Authority Corporate Tax Guide on Tax Returns. As part of the UAE’s Corporate Tax Law, Transfer Pricing (TP) requirements are now a key component of corporate tax returns. These requirements support transparency in transactions between related entities. Two main TP schedules—the Related Party Transaction Schedule and the Connected Person Schedule—require detailed transaction reporting to confirm arm’s length pricing.
Related Party Transaction Schedule
This schedule should be completed by all Taxable Persons where the aggregate value of all transactions with all Related Parties recorded in the Financial Statements or at Market Value exceeds AED 40 million.
Once this threshold is exceeded, each transaction type exceeding AED 4 million should be disclosed. Categories include goods, services, intellectual property, assets, and liabilities. Intercompany dividends should not be taken into account nor disclosed in this schedule. The schedule should report gross income (Revenue) and expenditure separately. Figures are required for each Related Party in aggregate by type of income and expenditure.
Companies must specify the arm’s length value for each reportable transaction, ensuring pricing is comparable to independent market conditions. To confirm alignment, entities must apply and specify transfer pricing methods, such as the Comparable Uncontrolled Price (CUP), Resale Price, Cost-Plus, Transactional Net Margin, or Profit Split method.
Essential Information for Each Transaction to be Disclosed:
- Related Party Name and Tax Residence.
- Transaction Type (goods, services, IP, etc.).
- Gross Income/Expenses and Arm’s Length Value for comparability.
- Tax Adjustment: Automatically calculated based on differences between gross income and arm’s length pricing, with adjustments approved by the Federal Tax Authority (FTA) required for downward adjustments in taxable income.
Connected Person Schedule
The Connected Persons Schedule is specific where the aggregate payment or benefit exceeds AED 500,000 per Connected Person (together with its Related Parties), covering key connected transactions under Article 36 of the Corporate Tax Law. Each transaction with Connected Persons must include the service description, value of the payment or benefit, and its market value equivalent. The FTA requires companies to report any discrepancies and adjustments if the connected party price is not aligned with market standards.
Reporting Gains or Losses on Non-Arm’s Length Asset Transfers
For assets or liabilities received from Related Parties at non-arm’s length prices, the FTA requires disclosures upon realization (e.g., sale, transfer). The guidance includes questions to identify any gains or losses realized from these assets and requires adjustments to taxable income.
- Gains/Losses: Report gains or losses if the asset’s realization value differs from its original non-arm’s length acquisition value.
Importance of Transfer Pricing Compliance:
These schedules ensure intercompany transactions follow arm’s length principles, fostering compliance with UAE’s TP framework. Accurate reporting supports the FTA’s objective of reducing profit shifting and tax base erosion, making Transfer Pricing a cornerstone of UAE’s corporate tax regime.
Compliance with the Transfer Pricing in the UAE
These schedules help mitigate tax risk for UAE businesses and ensure compliance with the country’s tax transparency goals. Companies must ensure their adoption of these TP disclosures when they file their Corporate Tax Returns and maintain accurate records for related-party and connected-person disclosures. This alignment with global TP standards fortifies the UAE’s international trade and economic compliance position.
How We Can Help
At XB4, we recognize the intricacies of Transfer Pricing and its disclosure requirements within corporate tax returns. Our team of experienced tax advisors is here to support you in assessing, documenting, and ensuring compliance with TP disclosures to align with FTA standards. We provide tailored guidance to help you manage these regulatory requirements effectively, mitigating tax risks and enhancing the accuracy of your corporate tax filings. Contact us now.
