In accordance with Article 55(2) of the Federal Decree-Law No. 47 of 2022 and Ministerial Decision No. 97 of 2023, Taxpayers engaged in related-party transactions are required to maintain a Transfer Pricing Local File. The Local File provides detailed information on a taxpayer’s intercompany transactions (both domestic and international) and focuses on the local entity’s related-party dealings, functional and economic analyses, and the selection and application of the most appropriate transfer pricing method. It serves as critical documentation supporting the arm’s-length nature of transactions. Under the UAE Transfer Pricing Regulations, maintaining an accurate and comprehensive Local File enables taxpayers to demonstrate compliance, enhance transparency, and mitigate the risk of transfer pricing disputes during tax audits conducted by the Federal Tax Authority (FTA).

Pursuant to the UAE Transfer Pricing Regulations and Ministerial Decision No. 97 of 2023, taxpayers meeting the applicable thresholds are also required to prepare and maintain a Transfer Pricing Master File. The Master File provides a high-level overview of the multinational enterprise (MNE) group’s global business operations, transfer pricing policies, and allocation of income and economic activities. It includes key information about the group’s organizational structure, intangibles, financing arrangements, and overall transfer pricing framework. By maintaining a robust and well-prepared Master File, taxpayers ensure consistency between global and local transfer pricing documentation, provide the Federal Tax Authority with a clear understanding of the group’s value creation and pricing policies, and reduce potential exposure to transfer pricing adjustments and disputes.

Why Choose Young Global?

Our team at Young Global possesses extensive experience in assisting multinational and local groups with the preparation of Transfer Pricing Local Files and Master Files in accordance with the UAE Transfer Pricing Regulations and OECD Guidelines. Having supported clients across diverse industries and jurisdictions, we bring deep technical expertise in functional analysis, benchmarking, and documentation best practices. Through our comprehensive approach, we help taxpayers maintain full compliance, enhance transparency, and minimize transfer pricing risks during tax audits or inquiries.

Transfer Pricing Documentation – Key Challenges

A. Critical Considerations for Local File Documentation

• • Incomplete or Inaccurate Transaction Description: A frequent challenge in preparing the Local File is the incomplete or insufficiently detailed documentation of intercompany transactions. In many instances, companies provide only a high-level overview without adequately specifying transaction terms, volumes, contractual arrangements, or underlying assumptions. Such gaps may result in additional inquiries from FTA, requests for clarification, or potential adjustments during an audit.

Young Global addresses this by conducting a thorough review of all related-party transactions. We ensure that every transaction is clearly documented, including its commercial rationale, contractual terms, and any relevant supporting agreements. This level of detail provides the FTA with a complete picture and strengthens the defensibility of the Local File.

• • Insufficient Functional, Asset, and Risk (FAR) Analysis: Another common challenge in Local File preparation is the insufficient analysis of the functional, asset, and risk (FAR) profile of the local entity. An inadequate FAR assessment can undermine the rationale for selecting the tested party or the applied transfer pricing method, potentially leading to inconsistent pricing, increased risk of adjustments, and exposure to penalties.

Our team conducts a comprehensive FAR analysis for each controlled transaction, clearly identifying the entity performing key functions, bearing material risks, and contributing significant assets. This approach ensures that the Local File accurately reflects the economic substance of transactions, is aligned with OECD Transfer Pricing Guidelines, and complies fully with UAE Ministerial Decision No. 97 of 2023.

• • Benchmarking Errors and Limited Comparability: Errors in benchmarking are another significant source of exposure. Taxpayers sometimes rely on inappropriate comparables, outdated data, or fail to adjust for material differences between the tested entity and reference companies. Such oversights can result in pricing that is not defensible under audit.

Young Global mitigates this risk through rigorous benchmarking studies. We select comparables that closely match the tested party’s functions, assets, and risks, and make adjustments to account for any material differences. This structured approach ensures that intercompany pricing is robust, transparent, and fully aligned with the Arm’s Length Principle.

• • Insufficient Documentation of Key Assumptions and Adjustments: A frequent oversight is the failure to properly document the assumptions, adjustments, or justifications used in applying transfer pricing methods. Without clear documentation, the FTA may challenge the reliability of the analysis, particularly for transactions involving intangibles, financing, or complex services.

Our methodology includes explicit documentation of all critical assumptions, adjustments, and the rationale behind them. By providing a clear audit trail, we help taxpayers reduce the risk of disputes and demonstrate that their transfer pricing policies are reasonable and compliant.

• • Lack of Integration with Master File or Group Policies:Finally, Local Files sometimes fail to reflect the broader MNE group policies captured in the Master File. Inconsistencies between local pricing and global strategies can trigger scrutiny during audits.

Young Global ensures that the Local File is fully aligned with the Master File and the group’s overall transfer pricing framework. This integration provides a consistent narrative to the FTA, showing that local pricing decisions are grounded in the group’s global value creation and transfer pricing strategy.

B. Critical Considerations for Master File

• • Incomplete Group Overview and Organizational Structure: A frequent issue in Master File preparation is the lack of a clear and comprehensive description of the MNE group and its organizational structure. Some taxpayers provide only basic information about group entities without detailing ownership, governance, or reporting lines. This can make it difficult for the FTA to understand the group’s operational and decision-making framework, potentially triggering additional inquiries.

Young Global ensures that the Master File includes a full overview of the MNE group, outlining all relevant entities, their roles, ownership structure, and key management responsibilities. This provides tax authorities with a transparent view of the group’s structure and supports the rationale for intra-group pricing policies.

• • Insufficient Coverage of Intangibles and Key Value Drivers: Master Files often underreport or inadequately describe intangibles, proprietary assets, or other key value drivers of the group. Without this information, the FTA may question whether profits are appropriately allocated or whether certain transactions reflect true economic substance.

Our team conducts a detailed analysis of all significant intangibles and value drivers within the MNE group. We document ownership, legal protections, economic significance, and their role in generating revenue. This ensures that the Master File accurately reflects the group’s value creation and supports the pricing of intercompany transactions.

• • Inadequate Disclosure of Intercompany Financing Arrangements: Another common pitfall is the insufficient disclosure of intercompany financing arrangements. Groups sometimes fail to report loan terms, interest rates, guarantees, or repayment schedules, leaving the FTA unable to assess whether financial transactions are priced at arm’s length.

Young Global addresses this by fully documenting all financing arrangements between group entities, including terms, conditions, and interest rates. This ensures that the Master File provides a clear and defensible picture of the group’s funding structure and related-party financing policies.

• • Weak Alignment Between Master File and Local File: In many cases, Master Files do not align with Local Files, creating perceived inconsistencies between global policies and local implementation. This misalignment can raise red flags for auditors and result in additional scrutiny.

We ensure that the Master File is fully integrated with Local File documentation. By aligning global strategies with local transactions, we demonstrate that pricing policies are consistent across jurisdictions, enhancing transparency and audit defensibility.