Transfer Prices are the prices at which a business transfers physical goods and intangible property or provides services to the associated businesses. A three-tiered approach has been adopted by the corporate tax regime in the UAE to transfer pricing documentation in accordance with the Transfer Pricing Guidelines from OECD. A shift in income between different jurisdictions having varied tax rates impacts the effective tax rate of entities with a presence in multi jurisdictions. An effective transfer pricing policy could curb this shift in income.
The three-tiered Transfer Pricing documentation includes the following
A - Master file
B - Local file,
C - Country-by-country reporting.
Businesses will need to prepare and maintain a Master file and a Local file when certain materiality thresholds are met.
The Master file provides an overview of the multinational group business, including the nature of its global business operations, its transfer pricing policies, and its global allocation of income and economic activity.
The Local file supports the Master file and will provide more information relating to specific intra-group transactions.
The CbC Report contains aggregated information on a jurisdictional basis of a multinational group’s revenues, profits, capital, taxes, accumulated earnings, and assets if the entity is above the reporting threshold.
