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What is Transfer Pricing?
Transfer pricing lays down the guidelines for arm’s length prices of goods, services, intangible assets, or financial transactions between two similar entities within a multinational group. These are controlled transactions that are executed adequately to guarantee fair prices of goods as per the market standards. Transfer pricing is implemented to make sure that companies do not adjust pricing for their intragroup transactions and minimize their comprehensive tax obligations. It also helps to provide profit shifting and safeguards the integrity of the tax base.
Why is Transfer Pricing Important?
Transfer Pricing has a huge role to play in cross-border dealings between multinational enterprises. It is a process of setting fair prices for all kinds of goods, services, IPs, and more between linked entities in a multinational group. Failing to comply with transfer pricing principles can lead to unwanted financial burdens and reputation harm for businesses.
Therefore, multinational corporations must adhere to transfer pricing laws in each jurisdiction where they are running their business. This demands a comprehensive knowledge of both local transfer pricing laws as well as international pricing policies. Businesses that do not adhere to these laws can face hefty fines, double taxation, and damage to their goodwill. In addition to that, businesses can optimize their taxation approaches, avoid conflicts with tax regulatory bodies, and uphold a clear and transparent financial standing.
Transfer Pricing Rules
Transfer pricing rules are applied to a range of dealings. Here is a complete breakdown:
- Transfer Pricing is applied to both foreign and domestic transactions, including related or controlled parties.
- It guarantees the use of arm’s length pricing (fair market value) for all transactions.
Transfer pricing covers a variety of transactions, including:
- Sale of goods
- Provision of services
- Licensing or transfer of intellectual property
It governs transactions between:
- Multinational entities ( for example, parent companies and foreign subsidiaries)
- Entities that are based in the same country under common control
- Main entities and their permanent locations
- Entities and exempt organizations within the same corporate setup
- It also aims to guarantee tax compliance and prevent tax evasion or profit shifting.
- It promotes fairness, transparency, and integrity in global economic operations.
- It also helps to maintain a level playing field for businesses across jurisdictions.
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Transfer Pricing Methods
Comparable Uncontrolled Price (CUP) Method
This method involves a comparison of the prices in a similar deal between two independent entities. It can be done in two ways: Internal CUP or External CUP. This method is considered very accurate when you have good comparison data.
Resale Price Method
In this method, a business starts with the price at which the product was previously sold to an unrelated company. Then, it deducts a profit margin and other costs like selling and administrative expenses. The remaining amount is used to bring the transfer price, which is the price that the company paid its related party for that product.
Cost Plus Method (CPM)
With this method, a business can calculate all the costs that the supplier incurred to produce or provide the goods or services. Then, it adds a fair profit margin. This final amount is the transfer price. This method is useful when the supplier is doing manufacturing or providing services.
Transactional Profit Split Method
This method is about gaining profits from a controlled transaction. It is usually used when both companies that are engaged in a deal contribute important value to the transaction. It is done to make sure that each business gets a fair profit share for their work.
Transactional Net Margin Method (TNMM)
This method is a process of comparing the net profit margin with the profit margins of similar businesses in similar independent transactions. This further supports businesses in determining whether the company is earning a normal profit.
Our Comprehensive Transfer Pricing Services
Arabian Wingz is one of the leading transfer pricing consultants in Dubai. We provide a range of services to support businesses in following the transfer pricing rules.
Transfer Pricing Documentation
Our professionals help businesses to prepare their documents for transactions between related entities as per OECD standards and local tax policies. This involves detailed analysis of intercompany transactions, economic analysis, benchmarking studies, and documents of arm’s length nature. We put adequate attention on accuracy and compliance to meet these requirements in a simplified and stress-free manner.
Transfer Pricing Services
Our team is responsible for developing and applying transfer pricing policies by considering the company’s value chain for both local and global groups. We make policies that adhere to the arm’s length principle. Moreover, we use correct methods under OECD guidelines and help in the application of new rules by adjusting internal procedures.
Advanced Pricing Agreements (APAs)
Our experts help to manage APAs, which are agreements made with tax authorities. These can be unilateral, bilateral, or multilateral and help to make sure that a business’s transfer pricing is correct and adhere to regulations. APAs help to reduce tax uncertainty and avoid disputes.
Support in Tax Audits and Disputes
We work with your tax advisors during audits, appeals, or international dispute processes. We also help in preparing expert reports on related-party pricing. This is done to support your case and achieve the best outcomes during tax reviews.
Advice on UAE Transfer Pricing Rules
The UAE’s Corporate Tax Law includes rules on transfer pricing that align with international OECD guidelines. These rules apply to transactions between related parties, even if the business is based in the UAE or abroad, including Free Zone companies.
Who Needs Transfer Pricing Services?
Here are some key individuals or entities that require comprehensive transfer pricing services in UAE:
- Holding Companies: Holding companies require transfer pricing services for managing intercompany loans or royalties.
- Exporters and Importers: People who are engaged in intercompany trade across borders require comprehensive transfer pricing solutions.
- Multinational Corporations: Cross-border dealings between multinational corporations generate demand for transfer pricing.
- Service Providers: Service providers are those who offer shared services or management fees across entities, require transfer pricing solutions.
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Preparing Transfer Pricing Documentation in the UAE
In the UAE, businesses that are part of a group that has total combined revenues of over AED 3.15 billion must keep detailed records to show that they follow all the transfer pricing rules. Individuals whose revenues are more than AED 200 million should also do the same. Here is what needs to be prepared:
1. Local File: This document considers specific transactions between related companies and includes:
- Details about the transactions
- Information about the related parties
- The pricing methods
- Analysis to prove that the prices are fair and at market value
The Local File guarantees complete transparency, and it should be ready to submit if the UAE tax authority asks for it.
2. Master File: This file gives an extensive view of the entire multinational group. It includes:
- The group’s structure
- What drives the group’s value
- How income is shared and where business activities happen
3. Country-by-Country Report: This report is extremely necessary as it shows how the group’s income, taxes, and business operations are distributed across different countries.
4. Additional Requirements: If needed, companies might also need to give more documents to the Federal Tax Authority, as stated in Article 55(4) of the Corporate Tax Law.
How Can Transfer Pricing Help Your Business?
Using the right transfer pricing methods can bring a range of benefits to multinational companies. Here is how:
Tax Savings: By establishing prices for sales or services between their own firms, global companies can move profits to countries with lower taxes and reduce the amount owed in higher-tax countries.
Effect on the Global Economy: As businesses expand for global dealings, how they use transfer pricing influences a range of things apart from just their own finances. Therefore, the OECD has issued several guidelines to make sure that gaps in tax landscapes are filled adequately.
Impact on Company Profits and Reports: There is a huge impact of transfer pricing on how profits and costs are divided among all the international branches. This affects financial reports which are vital for managers, investors, and shareholders.
Following Global Tax Rules: Most countries make sure that a business is following the arm’s length principle for fair pricing. Compliance with these rules helps companies to avoid audits, fines, or legal problems with tax authorities.
Avoiding Legal Trouble: When businesses have clear and fair transfer pricing rules in operation, it reduces the chance of getting into legal fights with tax administrations. Therefore, there is less possibility of facing expensive audits or court cases.
Why Choose Arabian Wingz For Transfer Pricing Services in the UAE?
Here is why choosing Arabian Wingz as your trusted transfer pricing services partner is beneficial for your business growth:
1. Comprehensive End-to-End Services : Arabian Wingz provides adequate support for all your transfer pricing requirements. We handle everything from necessary documents and help with ongoing compliance. We support your business through our comprehensive solutions and help you stay compliant at all times.
2. Structured and Planned Methodology : Our way of working is very much organized and strategic. We follow a precise and detailed process to make sure that nothing is missed. Therefore, this helps you to stay confident and make sure that everything is taken care of from start to finish.
3. Top-Tier Benchmarking Software : We use some of the best and most trusted benchmarking software for your business. This helps us to give you accurate and up-to-date information when it comes to evaluating your transfer pricing. With this data, we make sure that your assessments are reliable and extremely appropriate.
4. Expert Team of Specialists : Arabian Wingz has a team of skilled and experienced professionals who have an adequate understanding of the transfer pricing landscape. They make sure that all the transfer pricing rules are made easy for your business to understand and follow. Therefore, we guide you at every step with expertise and utmost professionalism.
5. Focus-Based Approach : We understand that every business is different. This is the reason why we take the time to understand your business situation and challenges. On this basis, we create solutions that are made just for you. We also make sure our solutions follow both UAE and international transfer pricing rules.
Hence, when you have Arabian Wingz by your side, you can be sure that your transfer pricing solutions are in right hands.
