A Transfer Pricing Policy That Works on Both Sides of the Border

A transfer pricing (TP) change in the UAE can change the income, expense or cash position of a company elsewhere. A higher service fee may increase the UAE provider's income while raising a deductibility question for the recipient. A reduction in a distributor's purchase price can improve its margin while reducing the supplier's return. The policy therefore needs a consistent explanation for both parties — a UAE report is one part of that work.

UAE ENTITY ? Income · VAT ? customs · disclosure ? COUNTERPARTY ? Deduction · WHT ? local documentation ? ⇄ ? ONE TRANSACTION · ONE SET OF FACTS ? Establish one consistent account of the transaction

Record what is supplied, who performs the activities, who owns or uses relevant assets and who controls the economically significant risks — and why an independent business would agree to the terms. Local files may use different formats or datasets, but the UAE company cannot be described as controlling an important risk in one country's file while the same decision-making is assigned elsewhere in another file without a factual explanation.

SERVICES

Both sides should understand the activities, the recipient benefit, the charging base and the allocation.

GOODS

Both sides should understand product characteristics, market responsibilities, inventory and credit exposure.

FINANCE

The terms, duration, borrower circumstances and use of funds matter to both parties' analysis.

Global policies need a UAE review. A group-wide study can be a useful foundation where transactions and conditions are comparable, but the FTA guide requires its suitability to be evaluated in the UAE context, including the treatment of local or regional comparables. If relevant local information exists and was omitted, explain and address that omission; where information is unavailable, retain the audit trail. [2]

Select the tested party on the facts

A one-sided method tests a selected financial indicator for one party, but still requires information about the other party to characterise the transaction. The tested party is generally the one for which the method and comparable information are most reliable — commonly the less complex party. [6] Consider whether either side makes unique and valuable contributions that affect the method choice. A foreign tested party requires reliable foreign financial data and a reasoned explanation of its suitability.

Not by default. Do not choose the UAE entity solely to suit the local filing exercise — and do not pick whichever national analysis produces a preferred tax result.

When national analyses differ, examine the assumptions, tested activity, method, period and data. Consistent policy ≠ identical reports: a consistent commercial account, compatible implementation and reasoned local differences.

The two-country review matrix — the principle

The matrix on the next page is a review checklist, not a statement that every tax applies to every transaction. Apply each country's rules to the facts before implementation — an arm's length amount does not, by itself, establish deductibility or remove another tax obligation.

Review area: Transaction character; UAE side: Identify the actual supply and functions; Counterparty side: Confirm the matching transaction and benefit

Review area: Pricing evidence; UAE side: Apply an appropriate method with relevant evidence; Counterparty side: Test compatibility with local requirements

Review area: Deductibility; UAE side: Review business purpose and other deduction rules where applicable; Counterparty side: Confirm whether the matching expense qualifies

Review area: Other taxes; UAE side: Assess relevant VAT and customs consequences; Counterparty side: Assess local withholding, indirect tax and customs treatment

Review area: Accounting; UAE side: Reconcile invoices, accruals and tax-only adjustments; Counterparty side: Record and explain the corresponding treatment

Review area: Settlement; UAE side: Identify payer, payment terms and currency; Counterparty side: Confirm cash, funding and settlement implications

Review area: Disputes; UAE side: Consider the applicable UAE procedure; Counterparty side: Identify foreign remedies and any treaty route

? A margin adjustment changes another company's result

An illustrative UAE distributor has external sales of AED 10.0m, intercompany purchases of AED 8.5m and other operating costs of AED 1.2m — operating profit AED 300,000, a 3% Operating Profit / Operating Revenue margin. Assume a properly supported analysis establishes a 4% target for this specific transaction and period.

AS REPORTED ? External sales ? AED 10.0m ? Intercompany purchases ? AED 8.5m ? Other operating costs ? AED 1.2m ? Operating profit ? AED 300,000 · 3% ? AFTER THE ADJUSTMENT ? External sales ? AED 10.0m ? Intercompany purchases ? AED 8.4m ? Other operating costs ? AED 1.2m ? Operating profit ? AED 400,000 · 4%

The mirror image. The supplier's matching sales revenue decreases by AED 100,000 if implemented through a commercial purchase-price adjustment.

The 4% target is an assumption for this illustration, not a recommended or official UAE margin. Before posting, assess whether the supplier's reduced return remains appropriate, how the adjustment is documented, which period each entity records and whether VAT, customs or other taxes are affected. Distinguish an actual price change supported by a credit note from a tax-only adjustment — they can require different accounting and compliance actions.

Apply the current adjustment guidance precisely ? WHAT CTP011 CONFIRMS

Taxpayers self-assess appropriate upward or downward TP adjustments in the Tax Return without prior FTA approval. Downward-adjusted RP transactions must be disclosed irrespective of value or nature. Maintain the supporting rationale, benchmarking, financial reconciliation and symmetrical counterparty adjustments. [5]

Where taxation in both countries creates a dispute, assess any available treaty Mutual Agreement Procedure and the applicable domestic remedies, eligibility and deadlines — a separate case-specific review. A consistency check before implementation can reduce the need to address incompatible positions later.

1 ? START OF YEAR

Confirm the relationship map, transaction scope, responsibilities and pricing mechanism. Agree the data needed by both entities and who is authorised to approve changes.

2 ? DURING THE YEAR

Review margins, cost allocations, service evidence and overdue balances at a frequency appropriate to the business. Investigate changes in volumes, functions, market conditions and risk allocation. A quarterly review can be useful — the frequency is a management decision, not a universal statutory requirement.

3 ? BEFORE CLOSING

Calculate any true-up, validate the evidence and coordinate both parties' accounting and tax treatment.

4 ? AFTER CLOSING

Reconcile the final accounts, Tax Return and local documentation. Keep the annual comparable update and full-search cycle aligned with the applicable requirements.

Governance: the policy should name an owner in each entity, a group coordinator and a reviewer responsible for resolving differences. A group policy needs a consistent commercial explanation in every country it touches.

SOURCES & PUBLICATION NOTE ? 1

UAE Ministry of Finance, Federal Decree-Law No. 47 of 2022 and its amendments, consolidated English version dated 13 January 2026 (unofficial translation). Article 34, including Articles 34(1), 34(10) and 34(11). Link

2

Federal Tax Authority, Transfer Pricing Guide, CTGTP1, October 2023 — group policy suitability and local comparables. Link

3

Federal Tax Authority, Corporate Tax Public Clarification CTP011 — Downward adjustments made by a Taxable Person in the Tax Return, July 2026. Link

4

OECD, Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 — tested party selection and information on both parties (paras 3.18–3.20). 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. In this document, [1]–[2] refer to sources 1–2, [5] to source 3 and [6] to source 4, matching the article's original numbering.