Transfer Pricing (Article 34)
The Arm Length Principle
Related-party transactions must be priced at arm length — the price that independent parties would agree to in comparable circumstances.
Who Are Related Parties?
Two persons are related if:
- One controls the other (50%+ ownership or voting rights)
- Both are controlled by the same person
- They are connected through family relationships
De Minimis Threshold
Transfer pricing rules apply if the aggregate value of related-party transactions exceeds AED 15 million per tax period (for medium-sized entities) or AED 40 million (for large entities).
Accepted Methods
- CUP (Comparable Uncontrolled Price) — compare prices of similar transactions
- Resale Price Method — based on gross margin
- Cost Plus Method — based on cost plus mark-up
- Transactional Net Margin Method (TNMM) — based on net profit margin
- Profit Split Method — based on profit division
Documentation
For transactions above the threshold:
- Maintain a transfer pricing study
- Prepare a master file and local file (for large entities)
- Keep supporting data for the selected method
FTA Audit
The FTA may adjust profits if transactions are not at arm length. Penalties apply for non-compliance.