Preparing Your Transfer Pricing Position for an FTA Audit

An FTA reviewer should be able to follow the transaction from the commercial facts through the method and comparable selection to the financial result and Tax Return. The relationship inventory should distinguish Related Parties (RPs) and Connected Persons (CPs). An in-range operating margin is one part of that account. Its reliability depends on the transaction tested, the accuracy of the functional analysis and the quality of the data.

Commercial facts ? ↓ ? Functional analysis & characterisation ? ↓ ? Method & comparable selection ? ↓ ? Tested financial result ? ↓ ? Tax Return & disclosures

The connecting principle: a strong defence connects each important statement to a record that existed when the business made the relevant decision.

Substance gives the numbers their meaning

Start with the functions, assets and risks of each relevant party. Identify who negotiates and approves key commercial terms, who can accept or reject risks, who performs the associated work and who has the capacity to bear the financial consequences.

Contract and conduct can diverge in both directions. A contract may allocate market risk to a foreign principal, while the UAE team independently sets strategy and controls the material decisions. Conversely, a local team may perform substantial operational activity within a framework directed and controlled elsewhere. Neither conclusion follows from headcount or job titles alone.

Records that support the story ? 1 ? Interview notes ? 2 ? Authority matrices ? 3 ? Budget approvals ? 4 ? Operational reports ? 5 ? Decision records ? These help explain any gap between contractual wording and conduct. [2] ? Be ready to explain every methodological choice

The audit file should answer: why the transaction was analysed separately or aggregated · why the method fits · why the tested party was selected · why the chosen profit indicator measures the relevant activity · why credible alternatives were less reliable.

FOR TNMM, DEFINE THE SEGMENT

Identify which revenues and costs belong to the tested segment; address mixed activities, transactions with independent customers, pass-through costs and expenses affected by other controlled transactions. A blended margin can conceal a loss on one activity behind profits on another.

Allocations need their own explanation. Revenue, headcount, floor area and time records can all be suitable allocation keys in different circumstances. Their suitability depends on what causes the cost and who benefits from it — not the convenience of the available spreadsheet.

Retain the original search strategy, database export, screening decisions and financial extraction. For each accepted company, preserve evidence of relevant activities and independence. For each rejected company, record the factual reason and its source. ? A website review should cover ? Product ranges and manufacturing facilities ? Service descriptions and customer channels ? Group ownership and independence ? Material business changes ? Historical pages for the tested years ? If public evidence is insufficient, record the limitation and apply a consistent treatment. ? Geography needs reasoning too. The guide prefers local, then regional, then other comparables where suitable data is unavailable — the audit trail should show the reasoning behind any expansion. [2] ? Build a financial reconciliation that reconnects ? Start with the financial statements and trial balance; reconcile controlled transaction totals to ledgers, invoices and related-party schedules; connect the segmented profit calculation to those records. Use consistent definitions — operating profit ÷ operating revenue differs from operating profit ÷ operating cost, and profit before tax may include non-operating items. ?

Evidence area: Relationship mapping; Records to assemble: Ownership chain, relevant family relationships, appointments and delegated authority; Question it helps answer: Who belongs in the RP/CP population?

Evidence area: Actual transaction; Records to assemble: Contracts, invoices, correspondence and delivery or service records; Question it helps answer: What was supplied, by whom, on what terms?

Evidence area: Functions and risks; Records to assemble: Interviews, approvals, budgets and operational records; Question it helps answer: Does the characterisation reflect conduct?

Evidence area: Economic analysis; Records to assemble: Method rationale, search export, qualitative matrix and data sources; Question it helps answer: Can the comparable result be reproduced?

Evidence area: Financial result; Records to assemble: Trial balance bridge, segment schedules and allocation workings; Question it helps answer: Does the tested result reconcile?

Evidence area: Implementation; Records to assemble: Pricing policy, true-up calculations and counterparty confirmation; Question it helps answer: Was the position implemented consistently?

Explain foreign exchange treatment, exceptional items and accounting differences where material.

Agreements and delivery evidence work together

Maintain agreements that describe the actual scope, charging basis, payment terms, responsibilities and review mechanism — and that remain consistent with the parties' conduct.

SERVICES

Preserve evidence of activity and recipient benefit: work products, meeting records, project support, cost allocations. A signed agreement and invoice alone do not establish delivery. Separate shareholder activity and duplication.

AN ILLUSTRATIVE TENSION

A distributor is described as limited-risk, with a margin inside its benchmark range. But the same files show local managers deciding major discounts, funding market development and absorbing inventory losses.

The preparation question is whether those facts remain consistent with the proposed characterisation and comparables. The answer may require better evidence about approvals and reimbursements, a revised functional analysis, segmentation or a different comparable set — addressing the substantive issue, not just the percentile calculation.

Run an internal challenge review: ask a reviewer to identify the strongest alternative explanation, the weakest comparable and the least supported financial adjustment. This is a recommended preparation practice, not a prescribed FTA audit procedure.

Organise the response before a request arrives

Nominate a response coordinator, allocate each evidence area to an owner and maintain a version-controlled record of information supplied. Read the scope and deadline of each request carefully; answer with the relevant evidence, and explain limitations accurately rather than filling gaps with assumptions.

Article 55 provides a 30-day period for requested Master File / Local File documentation and other requested arm's length support, unless the FTA directs a later date — not a universal deadline for every notice. Article 56 requires relevant Corporate Tax records to be kept for seven years after the end of the Tax Period; check any additional preservation requirement for an ongoing matter. [1]

No reconstruction. Do not backdate agreements or reconstruct records as though they existed earlier. A later explanatory memorandum can be useful if it states when it was prepared and identifies the contemporaneous evidence supporting it. Review an identified error through the applicable correction procedure with advice appropriate to the facts and stage of the matter.

MANAGEMENT SHOULD BE ABLE TO ANSWER ? 1

What is our position?

2

What is the strongest challenge to it?

3

Where is the evidence supporting our answer?

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 34, 55 and 56. Link

2

Federal Tax Authority, Transfer Pricing Guide, CTGTP1, October 2023 — functional analysis, comparability, documentation and selection criteria. Link

Publication note. General information based on UAE sources reviewed as at 12 September 2026. Application depends on the facts, the applicable Tax Period and subsequent developments. OECD guidance provides interpretative context and does not replace applicable UAE law.