Services

• Pillar One:
  • Analysis of applicable MNE Group on exposure of Pillar One through payment of Amount A and advisory on (re)structuring the MNE from transfer pricing perspective.
  • Evaluating option of Amount B based on detailed review of functional analysis of the distribution entities of MNE Group including applicability, evaluating restructuring & exit charge implications, robust documentation for opting under Amount B and scenario analysis.
• Pillar Two:
  • Evaluating impact of Pillar Two on the MNE Group in various jurisdictions.
  • Advisory on updating MNE Group‘s internal accounting and reporting teams to ensure accurate capturing of data points required for computing Globe ETR and filing of Globe Return.
  • Preparing the Globe Return, as prescribed in the respective jurisdictions’ tax laws.

Related party compliances arising on account of SEBI Listing Obligations, Disclosure Requirements (LODR)& Companies Act requirement.
Identification and evaluation of Related Party Transactions (RPTs) to ensure arm’s length pricing and fair valuation of such RPTs in line with SEBI-LODR requirements. Support in presentation of the same before the Audit Committee.

• Identification of related parties
• Determing whether such RPT are in the ordinary course of business;
• Determining whether the RPT are undertaken on arm’s length basis by
  • Analysing and evaluating various approvals required (i.e. audit committee, board of directors, shareholders etc.) for each of the RPT as per the Companies Act 2013 and SEBI regulations
  • Analyse other supporting documents, emails and third party information available to substantiate the pricing of the RPT
  • Review RPT compliances under the Companies Act on a quarterly/ half-yearly/annual basis and present our analysis at board meetings to assure directors that required compliances are met

Need benefit analysis documentation for intra group payments – Royalty and Management charges
Review of the documentation maintained by the company with regard to the intra-group payments and:

• Analyze whether appropriate agreements are in place with regard to the intra-group payments;
• Review of the inter-company invoices;
• Review of back-up documents maintained by the company with regard to the intra-group payments;
• Collation of evidences available with respect to intra-group payments;
  Assist in preparation of need-benefit documentation to substantiate the payment made to group entities.

Benchmarking Study for arriving at the arm’s length royalty for intangible property, that involves:

• Understanding the nature of intangible transactions – trademark or technology
• Determine the search strategy, search process and approach for undertaking the comparability analysis
• Undertake a detailed comparability analysis using the global database
  Detailed review of CUT agreements and identify final comparable agreements based on detailed review of terms of agreements
• Arriving at an appropriate arm’s length price based on the final comparable agreements.

Benchmarking Study for arriving at the arm’s length prices for interest rates using Global databases, that involves:

• Devising the search strategy and approach, based on borrower’s credit rating, loan currency and other characteristics of the loan
• Identifying the credit rating /Arriving at the credit rating of the borrower using the tools available in the Global database in cases where credit rating is unavailable
• Undertake a detailed comparability analysis using the global database to identify similar comparable agreements
• Arriving at an appropriate arm’s length result of interest rates

Undertaking benchmarking study for arriving at the arm’s length prices for KMP payments, that involves:

• Understanding the roles and responsibilities of the KMP to the Company and determine the search strategy and search process
• Arriving at the broad comparables from database based on the nature of roles
• Detailed review of comparables and identify final comparables based on detailed review of the facts
• Arriving at an appropriate arm’s length compensation based on final comparables selected.

Compensation to Key Managerial Personnel (‘KMP’)

One of the unique aspects of UAE’s Transfer pricing regulations is determination of the arm’s length nature of payments to connected persons, viz., compensation to Key Management Personnel (KMP).

To be aligned with the UAE TP Guidance issued by the Federal Tax Authority (FTA), which clearly states transfer pricing method should be applied at a transactional level rather than aggregate basis, it is important that the approach for benchmarking the compensation to KMP ought to be based on economic principles and stand the test of transfer pricing.

Some of the key aspects with regard to compensation to KMP are as follows:

1. Remuneration to KMPs in Loss-Making Companies: We often notice that the most common approach for benchmarking KMP compensation which has been adopted in the region is aggregating and testing the profitability of the entity, at the net-level. However, this approach suffers a fundamental flaw viz., if one were to adopt this approach, would one conclude that no compensation is to be paid to KMP if the company incurs losses. And no independent third party will agree on to this proposition.

The transfer pricing approach to benchmark KMP compensation should be ‘all-weather’ approach – irrespective of profitability of the company, and hence adopting profitability-based approach for benchmarking KMP compensation is not appropriate from a transfer pricing perspective.

Similarly, another approach generally adopted is to understand the salary packages available in public domain for the said position for example CEO / MD. However, the salary paid would also depend on the business that is being managed – for example, the compensation to the CEO managing USD 1 million Company will differ from the compensation paid to CEO heading USD 100 million Company. Hence, use of data from generic salary database may not be used as a comparable information on an as- is basis.

Hence, taxpayers ought to undertake an arm’s length analysis at a transactional level and also ensure being correct from a transfer pricing / economic perspective.

2. Compensation to KMP being the only related party transaction: In many instances, taxpayers might only have compensation to KMP as their related party transaction. In such cases, testing the profitability of the company at the entity level would result in subjecting the entire company to transfer pricing – which is not the correct approach. This is in addition to the above-mentioned underlying shortcoming of using profitability-based approach for benchmarking compensation to KMP.

3. KMPs as both related party and connected persons: In many UAE entities especially closely held or family-owned businesses, KMPs may qualify as Related Parties and Connected Persons under transfer pricing regulations. This overlap will require justification of compensation w.r.t. being “wholly and exclusively for business purposes”. The FTA might view some of the activities undertaken as shareholder activities, for which no compensation is required and accordingly a portion of the compensation paid to KMP will be disallowed.

Further there might arise uncertainty in connection with disclosure of such payments in the Disclosure Form (DF) – whether under section for Related Party or Connected Person, especially since there is a difference in the threshold limits for disclosure of such payments for each of the said categories.

► TP comfort letters / Memo for auditors

• • • Identifying the related parties and related party transactions
    • Determining whether the RPT are at arm’s length
    • Issuance of Comfort letters/ Memo for auditors that the RPT are at arm’s length.

► FIN 48 assistance – quantification of TP exposure on uncertain tax positions

• • • Identify related party transactions
    • Understand the TP Policy
    • Determine and quantify Fin48 Transfer Pricing Exposure

► Cost benefit analysis documentation for intra group payments – Royalty and Management charges

► Proactive way to eliminate future litigation for covered transactions once the agreement is signed between the cbdt and the tax payer, for 5 forward looking and 4 rollback years.

► We offer:-

• • End to end support including :-
    • Indepth analysis of business and alligning the transfer pricing policy with the business model
    • Providing strategic guidance in preparation and submission of APA application
    • Negotiation with APA authorities
    • Post conclusion support,
    • Filing of annual compliance report and
    • Audit

• Formulate audit defense strategy before all forums (TPO, DRP, Commissioner of Income Tax ( Appeals) and Income Tax Appellate Tribunal
• Providing assistance in terms of preparation of written submissions / appeal documents
• Representation before authorities
• Briefing of senior counsel, in case of High Court & Supreme Court