Article 34(1) of the Federal Decree of taxation of corporates and businesses provides that transactions between related parties must be undertaken at arm’s length.

Article 34(8) gives the authority to the Tax Administrators to adjust taxable income where transactions do not fall within the arm’s length range.

For taxable persons with a financial year starting July, the Decree applies from 01 July 2023, meaning that related party transactions which are undertaken from this day onwards need to comply with Article 34(1) i.e., the arm’s length provision.
For taxable persons with a financial year starting in January, the Decree applies from 01 January 2024.

The Federal Tax Authority may decide to issue a decision, in due course, requesting the filing of disclosures of related party transactions at the time of the filing of the tax return i.e., 9 months after the end of the financial year-end. This provision is contained in Article 55 (1) of the Decree.
The OECD Transfer Pricing Guidelines (TPG) (Chapter V section D) on documentation states that before prices between related parties are established, taxpayers should give consideration as to whether their transfer pricing conforms with arm’s length based on information available at the time the transaction is taking place.

In terms of application of the guidance, some jurisdictions request for documentation to be in place by the time the tax return is filed, while others require documentation to be in place by the time an audit starts. Whatever the timeframe for documentation to be in place, the important point for taxpayers to consider is that decisions on pricing should be based on information available at the time the transaction is taking place.

This would imply that taxpayers need to have procedures in place from 01 July 2023 or 01 January 2024 for the pricing of their related party transactions.

An important question to impacted businesses in the UAE: Are you going to be ready for either 01 July 2023 or 01 January 2024?

At Global Tax Services, we work with clients on devising and implementing effective transfer pricing policies.

Please get in touch to find out more.
rubeena@global-taxservices.com