Arm’s Length Principle

1. In determining Taxable Income, transactions and arrangements between Related Parties must meet the arm’s length standard as specified in Clauses 2, 3, 4 and 5 of this Article and any conditions that may be prescribed in a decision issued by the Authority.

2. A transaction or arrangement between Related Parties meets the arm’s length standard if the results of the transaction or arrangement are consistent with the results that would have been realised if Persons who were not Related Parties had engaged in a similar transaction or arrangement under similar circumstances.

3. The arm’s length result of a transaction or arrangement between Related Parties must be determined by applying one or a combination of the following transfer pricing methods vat services uae

a) The comparable uncontrolled price method.

b) The resale price method.

c) The cost-plus method.

d) The transactional net margin method.

e) The transactional profit split method.

4. The Taxable Person may apply any transfer pricing method other than the methods listed

in Clause 3 of this Article where the Taxable Person can demonstrate that none of the above methods can be reasonably applied to determine an arm’s length result and that any such other transfer pricing method used satisfies the condition of Clause 2 of this Article.

5. The choice and application of a transfer pricing method or combination of transfer pricing methods under Clause 3 or 4 of this Article must be made having regard to the most reliable transfer pricing method and taking into account following factors:

a) The contractual terms of the transaction or arrangement VAT Registration

b) The characteristics of the transaction or arrangement.

c) The economic circumstances in which the transaction or arrangement is conducted.

d) The functions performed, assets employed, and risks assumed by the Related Parties entering into the transaction or arrangement.

e) The business strategies employed by the Related Parties entering into the transaction or arrangement.

6. The Authority’s examination as to whether income and expenditures resulting from the Taxable Person’s relevant transactions or arrangements meet the arm’s length standard shall be based on the transfer pricing method used by the Taxable Person in accordance with Clause 3 or 4 of this Article, provided such transfer pricing method is appropriate having regard to the factors mentioned in Clause 5 of this Article.

7. Application of the selected transfer pricing method or combination of transfer pricing methods in accordance with Clause 3 or 4 of this Article may result in an arm’s length range of financial results or indicators acceptable for establishing the arm’s length result of a transaction or arrangement between Related Parties, subject to any conditions specified in a decision issued by the Authority.

8. Where the result of the transaction or arrangement between Related Parties does not fall within the arm’s length range, the Authority shall adjust the Taxable Income to achieve the arm’s length result that best reflects the facts and circumstances of the transaction or arrangement.

9. Where the Authority makes an adjustment to the Taxable Income pursuant to Clause 8 of this Article, the Authority shall rely on information that can or will be made available to the Taxable Person

10. Where the Authority or a Taxable Person adjusts the Taxable Income for a transaction or

arrangement to meet the arm’s length standard, the Authority shall make a corresponding adjustment to the Taxable Income of the Related Party that is party to the relevant transaction or arrangement.

11. Where a foreign competent authority makes an adjustment to a transaction or arrangement involving a Taxable Person to meet the arm’s length standard, such Taxable Person can make an application to the Authority to make a corresponding adjustment to its Taxable Income.

Related Parties and Control

1. For the purposes of this Decree-Law, “Related Parties” means any of the following FTA online

a) Two or more natural persons who are related within the fourth degree of kinship or affiliation, including by way of adoption or guardianship.

b) A natural person and a juridical person where:

1. the natural person or one or more Related Parties of the natural person are shareholders in the juridical person, and the natural person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the juridical person; or

2. the natural person, alone or together with its Related Parties, directly or indirectly Controls the juridical person.

c) Two or more juridical persons where:

1. one juridical person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in the other juridical person;

2. one juridical person, alone or together with its Related Parties, directly or indirectly Controls the other juridical person; or

3. any Person, alone or together with its Related Parties, directly or indirectly owns a 50% (fifty percent) or greater ownership interest in or Controls such two or more juridical persons;

d) A Person and its Permanent Establishment or Foreign Permanent Establishment.

e) Two or more Persons that are partners in the same Unincorporated Partnership.

f) A Person who is the trustee, founder, settlor or beneficiary of a trust or foundation,

and its Related Parties.

2. For the purposes of this Decree-Law, “Control” means the ability of a Person, whether in their own right or by agreement or otherwise to influence another Person, including:

a) The ability to exercise 50% (fifty percent) or more of the voting rights of another Person.

b) The ability to determine the composition of 50% (fifty percent) or more of the Board of directors of another Person.

c) The ability to receive 50% (fifty percent) or more of the profits of another Person.

d) The ability to determine, or exercise significant influence over, the conduct of the Business and affairs of another Person.

Payments to Connected Persons

1. Without prejudice to the provisions of Article 28 of this Decree-Law, a payment or benefit provided by a Taxable Person to its Connected Person shall be deductible only if and to the extent the payment or benefit corresponds with the Market Value of the service, benefit or otherwise provided by the Connected Person and is incurred wholly and exclusively for the purposes of the Taxable Person’s Business.

2. For the purposes of this Decree-Law, a Person shall be considered a Connected Person of a Taxable Person if that Person is:

a) An owner of the Taxable Person.

b) A director or officer of the Taxable Person.

c) A Related Party of any of the Persons referred to in paragraphs (a) and (b) of Clause 2 of this Article.

3. For the purposes of paragraph (a) of Clause 2 of this Article, an owner of the Taxable Person is any natural person who directly or indirectly owns an ownership interest in the Taxable Person or Controls such Taxable Person.

4. Where the Taxable Person is a partner in an Unincorporated Partnership, a Connected Person is any other partner in that same Unincorporated Partnership, and any Person that is a Related Party of that partner.

5. To determine that a payment or benefit provided by the Taxable Person corresponds with the Market Value of the service or otherwise provided by the Connected Person in

exchange, the relevant provisions of Article 34 of this Decree-Law shall apply as the context requires.

6. Clause 1 of this Article shall not apply to any of the following:

a) A Taxable Person whose shares are traded on a Recognised Stock Exchange.

b) A Taxable Person that is subject to the regulatory oversight of a competent authority in the State.

c) Any other Person as may be determined in a decision issued by the Cabinet at the suggestion of the Minister.

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