UAE Transfer Pricing: Key Regulations and APA Framework Updates

Transfer Pricing Overview

Transfer Pricing (TP) refers to the pricing of transactions between related entities within the same multinational enterprise (MNE) group. Since tax rates vary across countries, MNEs have an incentive to structure their transfer prices to minimize the group's overall tax liability. This is often achieved by shifting profits from high-tax jurisdictions to low-tax or tax-haven countries. The pricing strategy in such cases typically deviates from the “Arm’s Length Principle" (ALP), which establishes that the transactions/arrangements between related entities shall be priced as if they were conducted between independent parties.

Such practices often lead to the erosion of tax revenues in high-tax countries, as profits are systematically shifted to jurisdictions with favorable tax regimes. While transfer pricing is a legitimate business planning practice, its misuse for tax-shifting purposes remains a key concern for tax authorities worldwide.

The UAE Transfer Pricing Regime

In 2022, the United Arab Emirates (UAE) Ministry of Finance (MoF) issued Federal Decree-Law No. 47 of 20221 on the Taxation of Corporations and Businesses (UAE CT Law). This legislation introduced TP provisions effective for tax periods starting on or after June 1, 2023, to ensure compliance and transparency in business transactions among related parties.