Transfer pricing is now the most severe area for multinational businesses in the UAE. With the enactment of the UAE Corporate Tax Law, companies are now required to ensure that all related-party transactions are aligned with the arm's length principle. This is where a benchmarking study enters the picture.
A benchmarking study assists in establishing whether the margins or prices of related-party transactions are similar to those between independent parties. It's the cornerstone in establishing compliance with transfer pricing UAE laws.
A Transfer Pricing Benchmarking Study is a comparison analysis that equates the controlled (related-party) transaction prices with comparable uncontrolled (independent) transactions.
Simply put, it addresses one critical question:
"Would the same price be accepted by an independent party in similar circumstances?"
The range of arm is established through performing external analysis of similar businesses or transactions within the same industry and geographical location.
This is with the objective of making the company's intercompany transactions such as management fees, royalties, or intra-group services conform to international standards and UAE Corporate Tax regulations.
The Federal Decree-Law No. 47 of 2022 on the Taxation of Businesses and Corporations enacted clear transfer pricing (TP) rules. These rules check that profits are not shifted artificially among organizations to gain tax advantages.
A benchmarking study helps businesses in the following manner:
In cases of cross-border or related-party transactions, a Transfer Pricing Benchmarking Study in Dubai is not only not an option, it's the only way to go.
A successful benchmarking study generally consists of the following stages:
– Identifies each party's function, asset, and risk involved in the transaction.
– Analyzes the market trends, economic advancements, and the business climate of which the entities are a part.
– Determines whose finances will be matched against comparables.
– Transfer pricing methods employed are CUP (Comparable Uncontrolled Price), TNMM (Transactional Net Margin Method), RPM (Resale Price Method), and others.
– Determined based on such factors as industry, geography, size, and financial data.
– Determines a fair margin or price range that is in line with market standards.
Article 34 of the UAE Corporate Tax Law provides legislative support for transfer pricing.
Under it, arm's length transactions between related parties and connected persons at arm’s length shall be as between unrelated parties.
Legislation also empowers the Federal Tax Authority (FTA) to examine and recalculate taxable income where the transactions fall outside the arm's length corridor.
In order to enable compliance, the companies are mandated to maintain transfer pricing documentation, including a Local File, Master File, and in case of necessity a benchmarking study.
The preparation of a benchmarking study is a process involving several steps, normally accomplished by Transfer Pricing professionals in Dubai or specialized consulting firms.
Study the character of related-party transactions such as goods, services, loans, or intangibles.
Select a method that best reflects what independent parties would pay for similar transactions.
Use robust commercial databases and financial information.
Eliminate companies below industry, size, or profitability thresholds.
Refine the final list of comparables and set the arm's length range of reasonable margins.
Capture all assumptions, techniques, and findings with FTA review readiness.
Transfer pricing rules in the UAE are changing quickly. Letting experts prepare your benchmarking study guarantees adherence to the OECD Transfer Pricing Guidelines and host country tax regulations.
Professional Transfer Pricing Benchmarking Service in Dubai deliver fact-based reports, represent your price policies to tax authorities, and reduce compliance risks.
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CorporateTaxUAE.com helps companies prepare a proper benchmarking study and conclude transfer pricing documentation that is compliant with UAE Corporate Tax rules. Our experts make sure your intra-company prices are clear, compliant, and defendable so that you can safely invest in growth.
Salah is a qualified Tax Consultant with over 5 years of experience gained in distinct intricate tax matters, he has high expertise in conducting tax negotiations and investigations with the Federal Tax Authority and other external Tax Bodies. He is well-versed with reviewing and drafting tax documents, upon tax preparation and filing. Salah has also advised on a plethora of tax matters, he draws much attention to tax filing procedures and to offering professional investigations to underlying tax complexities.