[Opinion] Don’t Let Margins Miss the Arm’s Length Mark | True-Up Your Transfer Pricing in UAE
- Blog|News|Transfer Pricing|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 17 January, 2025
Mohit Gupta – [2025] 170 taxmann.com 291 (Article)
As the fiscal year ends for multinational enterprises (MNEs) operating on a calendar-year basis, it is essential to revisit Transfer Pricing (TP) policies. For UAE businesses, this year holds special importance as they comply with the Corporate Tax (CT) Law for the first time. This makes it crucial to ensure that all related-party transactions follow the arm’s length standard and necessary year-end adjustments are made.
1. Understanding Year-End TP Adjustments
Year-end TP adjustments, also known as “true-ups” or “true-downs,” help align actual financial results with pre-determined intercompany pricing arrangements or the arm’s length standard. These adjustments are important in situations like:
- When Actual Results Differ from Target Margins Limited-risk entities, such as contract manufacturers, distributors, or service providers, may face differences due to:
-
- Variations between planned and actual costs.
- Changes in operating costs that impact billing and transfer pricing.
- When Margins Fall Outside the Acceptable Range If actual financial results fall outside the arm’s length range established through comparability analysis, adjustments are needed to bring them into compliance.
2. Key Considerations for UAE Businesses
When making year-end adjustments, UAE businesses need to address these critical points:
- Compliance with Arm’s Length Range The financial results must align with the acceptable range (e.g., 25th percentile, 75th percentile, or median) identified during analysis.
- Cross-Border Transactions Any adjustments must be supported in both the UAE and the other jurisdiction involved to avoid double taxation or legal disputes.
- Impact on Customs and Indirect Taxes Adjustments that reduce prices can affect customs duties already paid or figures reported in tax filings. Businesses should evaluate if refunds can be claimed or if these costs are unrecoverable.
- Global Minimum Tax Rules For MNEs subject to the OECD’s Pillar 2 global minimum tax, transfer pricing adjustments may influence their effective tax rate.
Click Here To Read The Full Article
Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.
Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.
The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:
- The statutory material is obtained only from the authorized and reliable sources
- All the latest developments in the judicial and legislative fields are covered
- Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
- Every content published by Taxmann is complete, accurate and lucid
- All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
- The golden rules of grammar, style and consistency are thoroughly followed
- Font and size that’s easy to read and remain consistent across all imprint and digital publications are applied