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Transfer Pricing
In today’s interconnected global marketplace, many business owners and inventors operate businesses across many countries and jurisdictions. This is highly profitable; however, transfer pricing, which means setting the right prices for goods and services to legalize transactions occurring in the companies of the same group, is also essential.
Transfer pricing in Dubai, UAE is applied to transactions among related entities or companies of the same group. As the companies are under the same ownership, transfer pricing practice assists in setting the price of goods, services, or intangible assets that are exchanged among them. In simple terms, transfer pricing is a practice that helps in deciding a fair price to charge when one part of a business sells something to another.
At Hisab Taskmaster CAdvisors, we offer expert transfer pricing solutions to our valued clients that are essential for maintaining legal compliance, improving efficient operations, and minimizing legal risks in the Emirates and worldwide.
What is Transfer Pricing?
As we discussed earlier, transfer price is a practice of setting fair prices for transactions between related companies of the same group to ensure the profits are allocated fairly between businesses operating in different jurisdictions and ensure global tax laws compliance. It is an essential practice for multinational companies as it directly impacts how companies allocate their profits and taxes across different countries and jurisdictions.
Multinational companies sometimes use transfer pricing improperly and transfer earnings and profits to offshore financial centers or tax-friendly countries from the nations where they conduct business operations. In UAE and other countries, MNCs have to stay compliant with some standard regulations and guidelines, which confirm they do not shift their profits to avoid taxes or change financial results.
Why is Transfer Pricing Important?
From reducing a business’s overall tax burdens to improving revenue collection, transfer pricing offers significant benefits. Here are the reasons that make transfer pricing important:
- Profit Allocation
The primary objective of transfer pricing is to allocate profits fairly among companies of an MNE operating in different jurisdictions. It assists in maintaining financial transparency or fairness and prevents risks, like inaccurate financial reporting or profit shifting that might favor one jurisdiction over another.
- Regulatory Compliance
Government tax authorities closely monitor MNEs, and transfer pricing assists intercompany transactions to stay compliant with domestic and international tax regulations, which protect businesses from legal penalties and disputes.
- Avoiding Double Taxation
Double taxation is a major issue faced by MNEs, and transfer pricing protects them from it. MNEs are required to maintain proper documentation to ensure they are not subject to excessive taxes on the same income.
- Tax Optimization
Another main reason that makes transfer pricing essential is that it can minimize tax burdens on MNEs by shifting profits to low-tax jurisdictions; however, improper practice can cause legal issues. Also, a well-structured transfer pricing strategy protects businesses from foreign exchange risks, economic instabilities, and other financial risks.
Key Components of Transfer Pricing
A fair profit allocation and tax compliance can be secured with professional transfer pricing solutions. Here are the key components of transfer pricing:
Arm’s Length Principle
It is the most important component of transfer pricing, as it confirms that the intercompany transactions are valued in the same way as transactions between unrelated entities in comparable situations.
Transfer Pricing Methods
Various methods are used to determine the fair prices for intercompany transactions; however, the most commonly used are Comparable Uncontrolled Price (CUP), Resale Price Method, and Cost Plus method.
Documentation
Accurate documentation is essential for compliant transfer pricing, and some essential documents companies have to maintain for this purpose are a Master File, a transfer pricing audit, a Local file, country-by-country reporting, financial information, etc.
Benchmarking Studies
It is an essential process in transfer pricing, which involves comparing intercompany transactions to similar transactions between independent entities to determine whether the transactions are valued at arm’s length.
UAE Transfer Pricing Regulations
Multinational companies operating in the Emirates must adhere to the following transfer pricing regulations to guarantee their compliance:
- Arm’s Length Requirement: MNEs operating in the Emirates must ensure that transfer pricing value is compliant with the arm’s length principle, as improper profit shifting can cause legal issues.
- Documentation Requirements: To maintain transfer pricing compliance, MNEs operating in UAE are required to maintain proper and accurate documentation.
- Non-Compliance Penalties: If it is reported that companies shifted profits to low-tax jurisdictions or fail to maintain other requirements, they are subject to hefty fines.
- Cross-Border Transactions: Businesses dealing with intercompany international trade transactions must ensure compliance with local and international transfer pricing standards to avoid issues, like double taxation.
Our Transfer Pricing Services
At Hisab Taskmaster CAdvisors, a team of experienced and highly knowledgeable finance professionals provides the following services to our valued clients:
- Transfer Filing Documentation: We assist our clients in maintaining compliance with UAE and OECD transfer pricing guidelines by preparing accurate documentation, including Master File, financial reporting, CbCR, local file, etc.
- Benchmarking Studies: We offer expert benchmarking studies solutions to confirm that our clients’ transfer pricing practices for businesses across different jurisdictions are consistent and protected from risks, like double taxation.
- Compliance Support: Our experts have in-depth knowledge about local and international transfer pricing standards, and we confirm our clients’ compliance with them, along with reducing their tax liabilities.
- Risk Assessment & Planning: Our experts review the existing transfer pricing procedure of our clients, point out areas of improvement, and develop a strategic plan for optimized operations.
Get Expert Transfer Pricing Solutions at Hisab Taskmaster CAdvisors
Are you looking for a reliable partner to set up new transfer pricing arrangements for your businesses or review the existing ones? End your search with Hisab Taskmaster CAdvisors, where you will get expert transfer pricing solutions UAE at the most reasonable price. After consistently delivering professional and customized solutions to our clients, we have secured a reputation as a trusted finance and tax advisor in the UAE. Partner with our experts and get the right transfer pricing solutions to maintain compliance with UAE and OECD guidelines.
Talk To Us!
You’ve got questions, we’ve got answers.
- Office Suite 1202, 12th Floor, Fahidi Heights - AWR, Al Musallah Tower, Bur Dubai, UAE Near Sharaf DG/Al Fahidi metro exit 4
- +971 58 598 0480
- 04 255 6667
- businesswithhisab@taskmastergulf.com
