UAE-Ministry of Finance issues decision on transfer pricing documentation requirements for corporate tax purposes

The Ministry of Finance has released Ministerial Decision No (97) of 2023, aimed at enhancing transparency and fairness in the UAE’s tax system. This decision outlines requirements related to transfer pricing documentation, complementing Federal Decree Law No (47) of 2023 on the Taxation of Corporations and Businesses. These regulations ensure that pricing between related parties and connected persons, especially within multinational enterprise (MNE) groups, is unaffected by their relationships.

Conditions for Maintaining Master File and Local File

The decision specifies that taxpayers must maintain a master file and a local file under the following conditions:

1. The taxpayer has revenues of at least AED 200 million or more during the relevant tax period.
2. The taxpayer is part of an MNE group with total consolidated revenue of at least AED 3.15 billion in the relevant tax period.

1. Disclosure Required in Local File – Related Parties and Connected Persons

The decision mandates that taxable persons must include transactions or arrangements with the following related parties and connected persons in the local file:

• a) A Non-Resident Person.
• b) An Exempt Person.
• c) A Resident Person who has elected Small Business Relief under Article (21) of the Corporate Tax Law and meets the relevant conditions.
• d) A Resident Person subject to a different Corporate Tax rate than the Taxable Person.

2. No Disclosure Required in Local File – Related Parties and Connected Persons

The following related parties and connected persons are exempt from inclusion in the local file:

• a) Resident Persons, except those specified in paragraphs (b), (c), and (d) of Clause (2).
• b) A natural person, provided the parties act as if independent from each other.
• c) A juridical person who is related solely due to being a partner in an Unincorporated Partnership, given that both parties act independently.
• d) A Permanent Establishment of a Non-Resident Person in the State, whose income is taxed at the same Corporate Tax rate as the Taxable Person.

Determining Independent Transactions or Arrangements

The Authority will consider all relevant facts to determine whether related persons are acting independently.

1. Transactions Considered Independent
Related parties will be deemed independent if:

• (i) The transaction occurs in the ordinary course of business.
• (ii) The parties do not transact exclusively or almost exclusively with each other.

2. Transactions Considered Not Independent
If one party’s activities are subject to detailed instruction or comprehensive control by the other, they will not be considered independent.

The Authority will provide guidelines for applying this decision and maintaining transfer pricing documentation. The decision will take effect the day following its publication.