Transfer Pricing for the First Time: A Practical Guide for UAE Groups

For a lot of businesses in the Emirates, transfer pricing has arrived as an unfamiliar obligation attached to a familiar practice. Related entities have always charged each other. What is new is the requirement that those charges follow the arm’s length principle and that you can show your work.

The compliance file gets most of the attention. In our experience the file is the last problem, not the first.

Find the flows before you price them

Groups are frequently unable to produce a complete list of transactions between their own entities. Charges accumulate through practice rather than policy: a shared finance team here, a licence fee there, a loan that was never formally documented.

Before you can price anything you need an inventory. Every flow, both directions, with a rough annual value. This alone will surface arrangements that nobody has looked at in years.

Materiality should drive effort

Not every intercompany charge deserves a benchmarking study. A small recharge of office costs and a substantial royalty on group intellectual property warrant very different levels of rigour.

Rank the flows by value and by how difficult they would be to defend. Spend your budget where those two lines meet. A defensible approach to your three largest arrangements is worth more than thin coverage of thirty.

Substance has to match the paperwork

The most common weakness is not an aggressive price. It is a charge for something the receiving entity cannot demonstrate it received, or a function allocated to an entity that has no people performing it.

If an entity earns a return for managing risk, someone in that entity must actually manage the risk. Documentation that describes a business other than the one you run is worse than no documentation.

Loans and guarantees are transactions too

Intercompany funding is frequently overlooked. Interest-free loans between related parties, parent guarantees provided at no charge, and cash pooling arrangements all fall within scope.

These are often the easiest items to correct and among the first a reviewer will look for, because they are visible on the face of the accounts.

Build it into the calendar

Transfer pricing degrades quickly. A policy set once and revisited at year end will drift as the business changes, entities are added and functions move.

Treat it as an operating routine rather than a filing exercise. Review the flow inventory when the group structure changes, not when the deadline approaches. The groups that find this painless are the ones who stopped treating it as a tax project and made it part of how they run the business.