UAE CT Update | Ministerial Decision prescribing the conditions for maintaining Transfer Pricing Documentation

The Ministry of Finance has released Ministerial Decision No. 97 of 2023 prescribing the requirements for maintaining Transfer Pricing Documentation under the Federal Decree-Law No. 47 of 2022 (‘the CT Law’). Clause 2 of Article 55 of the CT Law requires a Taxable Person to maintain both master file and local file in case the Taxable Person’s transactions with its Related Parties and Connected Persons for a Tax Period meet any of the conditions (prescribed now under this Decision) listed below:

• The Taxable Person is a Constituent Company of a Multinational Enterprises Group[i]
• The Taxable Person’s Revenue for the relevant Tax Period is greater than or equal to AED 200 million.

The Decision specifies the categories of Persons with whom transactions or arrangements are to be reported/ not reported in the local file as listed below:

1. Persons included:

Sr. no.	Persons included
1	A Non-Resident Person
2	An Exempt Person under the CT Law
3	A person who has opted for the Small Business Relief under the CT Law is subject to meeting the conditions for such an election
4	A Resident Person who is subjected to a different Corporate Tax Rate from that applicable to the Taxable Person

 

2. Persons excluded:

Sr. no.	Persons excluded
1	Any Resident other than A2, A3 and A4 above
2	Any natural person*
3	A juridical person* which is considered as a Related Party or Connected Person on account of being a Partner in an Unincorporated Partnership
4	A Permanent Establishment (PE) of a Non-Resident Person in the UAE provided the income of the PE is subject to the same corporate tax rate as that of the Taxable Person

*subject to parties involved in the transaction or arrangement acting independently of each other

• The parties to a transaction or arrangement will be considered as acting independent of each other if both of the following conditions are satisfied:
  • the transaction or arrangement is undertaken in the ordinary course of business and
  • the parties do not exclusively or almost exclusively transact with each other.

• The transacting persons will not be regarded as acting independently of each other in case the activity of one Person is subject to the detailed instruction or comprehensive control of the other person in any particular transaction or arrangement.

The Federal Tax Authority (FTA) shall consider relevant facts and circumstances to determine whether the persons in any transaction or arrangement are acting independently or not.

FTA shall also issue further guidelines for the application of the provisions of this decision and for maintaining Transfer Pricing documentation.

The Decision shall be effective from the day following the date of its publication.

Key Takeaway

While the Decision mandates maintaining the master file and the local file to only certain select entities aiming for ease of compliance for other businesses who don’t meet the monetary threshold limits prescribed in this decision, it does not imply exemptions in complying with arms-length principle for transactions of a taxable person with its Related Parties and Connected Persons and/or preparing a disclosure form with respect to such transactions in any tax period.

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Also Check:- Corporate Tax in UAE

[i] Entities having a presence in more than one country and that have a consolidated group Revenue greater than or equal to AED 3.15 billion for the relevant Tax Period