UAE TP Limits
- Conditions prescribed for maintenance of TP documentation under the new Corporate tax regime
- Explanatory guide on CT law issued
Last week, the UAE MoF had released the much-awaited notification regarding the conditions for maintenance of TP documentation (Local file & Master file) in the form of Ministerial decision no. 97 of 2023. Additionally, an Explanatory guide on the CT law was also published which provides a summary of the meaning and intended effect of each Article of the CT Law.
In our alert we have summarized the key aspects in relation to the decision as well as our analysis on the same. Though the Ministry has been considerate in fixing high thresholds and specifically excluding certain tax neutral transactions from the Local file, the following aspects would need to be taken into consideration:
- Arm’s length principle– The thresholds & inclusions/exclusions are specifically in connection with Master file/Local file. The requirement to comply with arm’s length principle would still apply irrespective of these and it becomes the Taxable Person’s responsibility to maintain sufficient supporting documents to substantiate the arm’s length nature of its transactions
- Disclosure form– No specific thresholds have been prescribed yet for filing of the Disclosure form. Once the format is notified one may obtain clarity if it requires a Taxable Person to provide details of its transactions/arrangements with all of its Related Parties & Connected Persons
- Qualifying Free Zones– The Definition of Taxable Person (Article 11) includes QFZ and hence the thresholds and conditions for maintenance of Local & Master file provided would equally applicable to QFZ. However, the QFZ may need to comply with the arm’s length principle (Article 34) irrespective of the thresholds in order to claim the benefits.
- Natural persons– As per the exclusions to Local file, Taxable Persons having transactions with Natural persons need not form part of Local file subject to conditions. In our view, where the Taxable Person is itself a Natural person, Local file will have to be prepared, subject to thresholds & conditions prescribed
- Arm’s length principle in other aspects of CT law– In various other sections of the CT law where the arm’s length principle would be applicable (eg: GAAR, Investment Manager Exemption, transfers with a foreign PE etc), sufficient supporting documentation should be maintained to substantiate the arm’s length nature of these transactions
- TP documentation guidelines– Further guidance regarding maintenance of TP documentation including specific formats for Local file & Master file are expected from the Authority. This guidance may also need to address where there are multiple entities of the same Group in UAE and whether filing and maintenance of single Master File for the Group would suffice.