The UAE’s tax landscape is undergoing a significant transformation, placing a strong emphasis on transparency and compliance within corporate governance. A key element of this reform is the introduction of the Transfer Pricing (TP) Disclosure Form, as stipulated by Federal Decree-Law No. 47 of 2022.
This requirement is applicable to businesses engaged in transactions with related parties and connected persons. Notably, transactions with connected persons do not have a revenue threshold, meaning even a single dirham transacted with a connected person must be reported. In contrast, transactions with related parties require a threshold of Dh50 million for disclosure.
Recently, the Federal Tax Authority (FTA) revised the corporate tax (CT) return form to streamline the TP disclosure process. The new form notably differentiates between transactions with related parties and those with connected persons. This integration enables taxable persons to disclose all required information within the CT return, thereby eliminating the need for separate submissions and simplifying compliance.
The TP disclosure form is essential for ensuring transparency in related-party transactions. It mandates detailed information, including the names of the parties involved, the types of transactions, gross income figures, transfer pricing methods utilized, and any adjustments made. Additionally, businesses must provide the name of the connected person, their corporate tax TRN or TIN if available, and details about any payments or benefits rendered. This includes the value of these payments, the market value of services provided, and adjustments related to transactions with connected persons.
Central to these requirements is the arm’s length principle (ALP), which states that transactions between related parties should reflect terms that independent entities would agree upon under comparable market conditions. This principle acts as a safeguard against potential price manipulation that could lead to reduced tax liabilities.
Failure to comply with the TP disclosure form can result in substantial penalties. The FTA has instituted a fine of Dh500 per month for the first twelve months of non-compliance, which increases to Dh1,000 per month thereafter. Consequently, businesses must prioritize the accurate and timely submission of this information to avoid financial repercussions.
In conclusion, the implementation of the TP Disclosure Form highlights the UAE’s commitment to promoting a transparent and compliant tax environment. As businesses adjust to these new requirements, grasping the distinctions between related-party and connected-person transactions will be crucial for mitigating risks and ensuring compliance within the evolving tax landscape.
