TRANSFER PRICING COMPLIANCE [LOCAL FILE & MASTER FILE]

Transfer Pricing – Compliance (Local File & Master File)

Businesses in the United Arab Emirates must follow the arm’s length principle when dealing with related-party transactions. This means pricing should reflect what independent businesses would agree on. To comply with transfer pricing regulations in the UAE, companies must explain their business context and keep detailed records of controlled transactions. These records should support their pricing strategies and prove compliance with UAE corporate tax laws.

The Base Erosion and Profit Shifting (BEPS) Action Plan 13 sets the minimum standard for Transfer Pricing documentation. As a member of the BEPS Inclusive Framework, the UAE has adopted these standards and introduced regulations accordingly.

The OECD has defined a three-tiered standardized approach for Transfer Pricing documentation in the UAE, which includes the following:

• Local File: Provides detailed information about the local entity’s business activities, transfer pricing arrangements, and economic analysis. Applies only to large businesses as defined in Ministerial Decision No. 97 of 2023.
• Master File: Offers a global overview of the multinational enterprise’s (MNE’s) operations and transfer pricing methods. Also applies to large businesses under the same Ministerial Decision.
• Country-by-Country Report (CbCR): Highlights where MNEs generate value and whether profit and tax distribution aligns. Required for MNEs with total revenue above AED 3.15 billion, per Cabinet Resolution No. 44 of 2020.

UAE tax authorities are actively monitoring and reviewing transfer pricing compliance to ensure fair tax practices and proper documentation under international standards.