Connected Person Payments and the Evidence Behind Market Value

A defensible assessment of a payment to an owner, director or senior executive begins by identifying the correct person and the correct transaction. Distinguish a Related Party (RP) from a Connected Person (CP) before applying the transfer pricing (TP) analysis.

Q1 What work does the individual actually perform?

Q2 How does the business benefit?

Q3 What would independent parties pay for comparable work?

Published salary data can help answer the last question only. It cannot establish what work was performed or how the business benefits — and a profitable company may afford a substantial payment without that amount reflecting market value.

Identify the taxpayer before its connected persons

Establish whether the business is a separate juridical person, a natural person's business or another legal arrangement. A trade name does not necessarily identify a separate taxable entity. Then prepare a relationship register covering direct and indirect ownership, relevant family relationships, governing-body membership and actual decision-making authority — reviewed when appointments, ownership or delegated powers change.

Why the legal form matters

For a company, genuinely remunerated work by an owner requires analysis on its facts. For a natural person's own business, withdrawals are not transformed into deductible salary by a benchmarking exercise. Article 33 separately addresses owner profit distributions and relevant withdrawals. [1]

Test related-party status before using the CP label ? STEP 1 · ARTICLE 35

Related Party test. A natural person and a juridical person are RPs where the ownership test reaches 50% or more — counting the natural person together with related persons — or where the control test is met. Control extends beyond shares to specified voting, board, profit-entitlement and significant-influence tests.

IF RP → STOP THERE

Under CTP010, a person satisfying both the RP and CP definitions is treated only as an RP for Corporate Tax purposes. [1][4] So do not assume every salary paid to a shareholder — or a shareholder's spouse — belongs in the CP category. Identify the relationship first, then apply the appropriate pricing, deductibility and reporting treatment.

STEP 2 · ARTICLE 36

Connected Person test. Includes a natural-person owner without a minimum shareholding percentage, directors and officers, and related parties of those owners, directors or officers — with provisions for unincorporated partnerships.

Then assess the payment itself and the Article 36(6) exceptions (including recognised-stock-exchange-listed and qualifying regulatory-oversight cases) separately. Ordinary trade licensing should not be assumed to resolve the regulatory-oversight exception, and an exception to Article 36(1) does not erase other applicable Corporate Tax requirements. [1]

Financial statement related-party disclosures are a useful starting point for enquiries — not a substitute for mapping the statutory tests. Reconcile the accounting key-management category to the tax analysis, with reasons for differences.

CTP010 is an FTA Public Clarification issued in April 2026 — an interpretation of existing legislation, not a new amendment to Article 36. It states that it applies from implementation of the relevant legislation unless otherwise stated, so earlier-period classifications deserve review where it exposes a mismatch. [4] ? DIRECTORS ? Board or equivalent governing-body membership is relevant to the director test. Having “director” in a job title is insufficient by itself. ? OFFICERS ? Examine actual authority over the business and final strategic decision-making or binding powers. Administrative execution of pre-approved decisions is different from holding that authority. ? INTERIM & OUTSOURCED ? The clarification also addresses individuals acting through interim or outsourced arrangements. Employment status alone does not settle the question. ? A practical classification table ? The examples assume a UAE company. Each conclusion requires verification of the full ownership chain, relationships and actual control. ?

Illustrative facts: Individual owns 50% of the company; Starting classification: RP through ownership; Evidence to verify: Share register and direct/indirect ownership

Illustrative facts: Individual owns 20%, no further related holdings and no control; Starting classification: CP through ownership; Evidence to verify: Related persons' holdings and all control rights

Illustrative facts: Spouse of a 50% shareholder holds no shares personally; Starting classification: RP through the combined ownership test; Evidence to verify: Marriage relationship and the shareholder's interest

Illustrative facts: Independent board member; no ownership or separate Article 35 control; Starting classification: CP as director; Evidence to verify: Formal appointment and constitutional documents

Illustrative facts: Employee titled “Sales Director”, outside the governing body, only implements approved decisions; Starting classification: Title alone does not establish CP status; Evidence to verify: Officer test and any other RP/CP relationship

Illustrative facts: Interim consultant directs the whole business with final authority; Starting classification: Assess officer status and separately assess Article 35 control; Evidence to verify: Engagement terms, delegated authority and conduct

Illustrative facts: Employee holds a power of attorney limited to predefined administrative tasks; Starting classification: Power of attorney alone does not settle the classification; Evidence to verify: Scope of discretion and any other relationship

? Establish the actual services and business purpose

For a CP payment within Article 36(1), the payment must correspond with market value and be incurred wholly and exclusively for the business; Article 36(5) applies the relevant Article 34 provisions as the context requires. [1] Prevent the same full-time contribution being attributed to several companies without a credible allocation.

Start with reliable internal evidence if available, such as remuneration for an independent executive undertaking comparable work — explaining differences in responsibility, experience, working time and performance arrangements. An internal employee is not automatically comparable merely because the title matches. External sources — salary surveys, remuneration databases, recruitment evidence, public disclosures — can add support: assess each source's sample, date, geography, sector, company scale, job definition and compensation measure.

METHOD DISCIPLINE

Direct market comparisons may support the Comparable Uncontrolled Price (CUP) method where sufficiently reliable — but a broad survey should not be labelled a conclusive CUP without explaining comparability. Where another approach is required, explain why the recognised methods cannot reasonably be applied and how the alternative meets Article 34(4). No particular salary website is a statutory safe harbour. [1]

Make the compensation measures consistent

Separate base pay, allowances, bonuses, commissions and benefits, then determine which components the source includes. Compare the same period and currency, and investigate whether a displayed figure is monthly or annual — do not multiply an annual survey amount by twelve.

AED 720,000 ? BASE PAY ? Addressed by a base-salary benchmark ? AED 900,000 ? CASH COMPENSATION ? May be addressed by a cash-compensation benchmark if it includes the AED 180,000 bonus ? AED 960,000 ? TOTAL PACKAGE ? Comparable only if the benchmark covers the AED 60,000 benefits on a consistent basis

Illustration of reconciliation only — these figures are not a market range.

Use the qualitative profile to explain the selected benchmark and conclusion. An amount below a survey's maximum is not automatically market value — a maximum is different from a percentile, and a sparse or mixed sample may be unreliable. Greater pay requires evidence of a comparable role and compensation arrangement, not reliance on the highest number displayed.

Keep profitability corroboration in its proper place

An industry comparison of Operating Profit / Operating Revenue after remuneration may give context; Employee Cost / Operating Cost (EC/OC) can add a cost-structure comparison. Both can identify questions requiring explanation, but neither directly prices the individual's work.

DEFINE THE MEASURE CONSISTENTLY

Operating cost = operating revenue − operating profit (same operating perimeter) EC/OC = employee cost ÷ operating cost Three-year weighted: sum of employee costs ÷ sum of operating costs — not the simple average of annual percentages.

Why these ratios are not a ceiling ? Low EC/OC can coexist with excess pay to one person ? High margins may reflect assets or market conditions ? Losses can arise from start-up or disruption ? Outsourcing, owner involvement and accounting classifications distort comparisons

A well-supported conclusion states the correct RP/CP classification, the work actually performed, the payment tested, the selected method and comparable evidence — explains material differences and the basis for any position within a reliable range, and records the limitations of any supporting company-level analysis. Resolve conflicts, don't shop between tests. If direct remuneration evidence indicates a concern while company profits appear strong, investigate the concern. Weak company performance does not establish that the salary alone caused the problem. Review reporting separately from pricing — disclosure thresholds are not market-value exemptions. ? The annual evidence pack ? 1 ? Relationship assessment and role profile ? 2 ? Service evidence and approved remuneration arrangement ? 3 ? Full compensation reconciliation ? 4 ? Source extracts and qualitative comparison ? 5 ? The documented conclusion ? Update for changes in responsibilities and the market. ? The payment must be supported by the work performed and the market evidence for that work. That is the foundation of a more defensible remuneration position. ? The role-to-evidence map ? A generic list of everything a managing director might do is not enough — connect responsibilities to evidence of work actually performed, and assess contributions reasonably: growth may reflect the wider team, capital, brands and market conditions. ?

Qualitative factor: Decision authority; Useful evidence: Delegation matrix and examples of approvals; Relevance to the benchmark: Distinguishes executive leadership from operational support

Qualitative factor: Operational scope; Useful evidence: Sites, functions, countries and teams supervised; Relevance to the benchmark: Tests whether the reference role has similar breadth

Qualitative factor: Time commitment; Useful evidence: Contracts, activity records and other appointments; Relevance to the benchmark: Identifies part-year, part-time and shared roles

Qualitative factor: Relevant experience; Useful evidence: Employment history and sector responsibilities; Relevance to the benchmark: Supports seniority without relying on title alone

Qualitative factor: Business contribution; Useful evidence: Projects, commercial outcomes and performance reviews; Relevance to the benchmark: Supports the services and incentive rationale

Qualitative factor: Company complexity; Useful evidence: Revenue, workforce, business model and operational risks; Relevance to the benchmark: Tests whether survey companies are genuinely comparable

? SOURCES & PUBLICATION NOTE ? 1

UAE Ministry of Finance, Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and its amendments, consolidated English version dated 13 January 2026 (identified as an unofficial translation). Relevant provisions: Articles 33, 34, 35 and 36. Link