[Opinion] Don’t Let Margins Miss the Arm’s Length Mark | True-Up Your Transfer Pricing in UAE

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:

1. 1. Variations between planned and actual costs.
   2. 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:

1. 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.
2. Cross-Border Transactions Any adjustments must be supported in both the UAE and the other jurisdiction involved to avoid double taxation or legal disputes.
3. 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.
4. 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.

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