Transfer Pricing Documentation – Local file, Master file, CBCR

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Background

Following the enactment of UAE Corporate Tax Law effective from June 1, 2023, the FTArecently issued the Transfer Pricing Guide elaborating the various aspects of transferpricing (TP). In this write-up, we have explained the TP documentation required to bemaintained by individual entities as well as the multinational enterprise (MNE) groupexecuting controlled transactions.

TP Documentation

A taxable person having transactions with related parties or connected persons is required to prepare and maintain the TP documentation. The TP documentation serves the purpose of ensuring accurate benchmarking and reporting of controlled transactions and substantiate the tax positions in TP audits and assessments.TP documentation is to be maintained either at the time of the controlled transaction orby the time of submission of tax return for the period in which controlled transaction is undertaken.

Three-tier TP documentation

In line with the global practices, UAE regulations adopt a three-tiered approach to TP documentation. Under this approach, the qualifying taxpayers (based on materiality thresholds) are required to prepare and maintain Master File (MF), Local File (LF) and Country-by-Country Report (CbCR) for the purpose of TP documentation.

TP disclosure form

Taxable persons having controlled transactions in the reporting tax period and crossing the materiality threshold are required to submit a general TP disclosure form annually. This is to be submitted along with the tax return and will cover information on controlled transactions and arrangements, value thereof, TP method used to determine ALP.

Conclusion

Maintaining TP documentation is a detailed exercise and differs from one industry to another, from one year to another. It is often a subjective exercise and involves judgmental analysis of the tax advisor or the auditor in times of fluid business models.

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