What Is Transfer Pricing Audit & How To Prepare It?
What Is Transfer Pricing Audit & How To Prepare It?
The Ministry of Finance (MoF) declared that adherence to transfer pricing laws was essential when the country’s corporate tax was introduced. Your business may occasionally be the subject of a transfer pricing audit by the Federal Tax Authority (FTA). Although such situations are unavoidable, there are steps you may take to get ready for them.
Transfer Pricing: What Is It?
The price determined for the exchange of products, services, or intellectual property between companies owned by the same business—typically a multinational corporation—is known as transfer pricing. This is known as the “arm’s length principle,” which states that the entities are valued at fair market rates as they are regarded as though they have independent owners.
Local entities are subject to the transfer pricing regulations of the United Arab Emirates. Because of this, maintaining compliance with the requirements requires having accurate financial accounts and records. In transfer pricing, two categories of parties are involved:
Related party
Those who are connected to the business via ownership or familial ties. Parent firms, subsidiaries, and relatives are a few examples.
Person with connections
upper management and their family members, up to four levels. Directors, owners, officers, and their families are a few examples.
“Benchmarking,” or basing your pricing criteria on comparable businesses in your sector, is a key component of transfer pricing. Companies frequently turn to consultancy data from the larger MENA area because it can be challenging to locate this kind of information in the United Arab Emirates.
Transfer Pricing UAE Rules
Here are some crucial guidelines to keep in mind when handling transfer pricing in the United Arab Emirates, even if audits of transfer pricing are contingent upon the FTA:
1. When filing your corporate tax return, you must include a disclosure if:
- Transactions involving related parties surpass AED 40 million.
- Any category (interest, services, or goods) worth more than AED 4 million
- Payments to any related person exceeds AED 500,000
2. Qualifying Free Zone Persons (QFZP) are likewise subject to transfer pricing regulations.
3. Transfer pricing regulations do not apply to organizations who are eligible for Small Business Relief.
4. Organizations that earn more than AED 3.15 billion from outside sources are required to create a master file (group transfer pricing policies) and a local file (UAE-based transactions). This also holds true for any organization that generates more above AED 200 million in sales.
How to Get Ready for an Audit of Transfer Pricing
1. Submit on-time
By the due date, you must submit the transfer price disclosure form with your corporate tax return. If your sales exceeds the threshold, you might additionally need to file a local and/or a master file. Penalties for missing deadlines for filing inaccurate documentation may cause the FTA to investigate your company further.
2. Review Your Method & Documents
Verify the validity of the research and data you used to determine your pricing, since transfer pricing is dependent on the benchmarking data you gather. Make sure you have all of your documentation (contracts, invoices, and analytical reports) ready and double-checked because the FTA will need verification.
3. Employ a Professional
A transfer price auditing checklist may be obtained from a local specialist, which will make it simple for your company to maintain compliance and have the documentation needed to support your transfer pricing strategy.
Achieve Professional Auditing Services with IBR Group UAE
IBR Group UAE offers professional audit services in Dubai to both domestic and international businesses of all sizes. We offer both internal and external auditing services to make sure your business complies with national rules and regulations.