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Transfer Pricing - Compliance (Local File & Master File)

UAE, being a member of the BEPS Inclusive Framework, has initiated action and formulated Regulations to ensure it all documentation in relation to Transfer Pricing is being adhered to.

OECD has defined a three-tiered standardized approach for transfer pricing documentation containing master file, local file, and Country-by-Country Report.

Local File: Provide an entity and transaction-level transfer pricing analysis for each jurisdiction. It is to be filed locally with the tax authorities in each jurisdiction

Master File: Provide a high-level view of a company’s business operations and global transfer pricing policies. It is to be filed locally with the tax authorities in each jurisdiction

Country-by-Country Reporting: Provide a global financial snapshot of a multinational enterprise. It shall be filed by the ultimate parent company in tax jurisdiction.

Conditions for Maintaining Transfer Pricing Master File and Local File

A taxable person is required to maintain both a master file and a local file if the person meets either of the following in a relevant Tax Period:

The taxable person is a constituent company of a Multinational Enterprises Group for any time during the relevant tax period that has a total consolidated group Revenue of AED 3,150,000,000 (AED 3.15 billion) or more.

The taxable persons’ revenue in the relevant tax period is AED 200,000,000 (AED two hundred million) or more

TP requirements for Master File

The TP master file should contain the following overview of the MNE group business. It is essential to place the MNE group’s transfer pricing practices in their global economic, legal, financial and tax context & to assist tax administrations in evaluating the presence of significant transfer pricing risk. Any Information for the master file is considered important if its omission would affect the reliability of the transfer pricing outcomes.

The nature of its global business operations
Its overall transfer pricing policies
Its global allocation of income and economic activity

Transactions or arrangements specifically included in the Local File

The Ministerial Decision offers more clarity on the transactions and arrangements that must be included in the Local File. Tax Gian’s transfer pricing services in Dubai can help you with the transactions to be included in the Local File. Taxable persons are required to include their transactions or arrangements with all of the following Related Parties and Connected Persons in the Local File:

A Non-Resident Person
An Exempt Person
A Resident Person who made an election under Article (21) of the Corporate Tax Law and meets the conditions of such election
A Resident Person whose income is subject to a different Corporate Tax rate from that applicable to the income of the Taxable Person

Transactions or arrangements that shall not be included in the Local File

The Ministerial Decision No. 97 of 2023 also specifies what transactions or arrangements taxable persons should not include in the Local File as part of the UAE TP documentation requirements. In line with the Decision, taxable persons should not include the following Related Parties and Connected Persons in the Local File:

Transactions with a Resident Person except for the resident persons who are either exempt has elected for the small business relief or whose income is subject to a different Corporate Tax rate
A natural person, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
A juridical person that is considered to be a Related Party or a Connected Person solely by virtue of being a partner in an Unincorporated Partnership, provided that the parties to the transaction or arrangement are acting as if they were independent of each other.
A Permanent Establishment of a Non-Resident Person in the UAE whose income is subject to the same Corporate Tax rate as that applicable to the income of the Taxable Person.