FTA intensifies transfer pricing audit focus on arm's length documentation

The Federal Tax Authority is placing increased emphasis on transfer pricing and related-party transaction documentation in corporate tax audits. Businesses must demonstrate that transactions follow the arm's length principle and maintain supporting evidence including intercompany agreements, service allocation basis, benefit analysis, and reconciliation to financial records.

The shift reflects a broader governance concern for UAE boards. Transfer pricing positions now sit much closer to financial statement audit files, meaning weak tax documentation can affect audit opinions and provisions. Auditors are increasingly requiring concurrent documentation showing that pricing policies existed, operated, and were monitored during the year—rather than retroactive explanations.

Key areas under scrutiny include related-party and connected person transactions, management fees and intercompany charges, free-zone entity structures, brand ownership arrangements, intra-group funding, and transfer pricing disclosures. The FTA's Transfer Pricing Guide addresses documentation standards, intra-group services, financial transactions, intangibles, and risk assessments.

Practical steps include maintaining concurrent transfer pricing files, ensuring agreements match actual conduct, documenting management judgments, reconciling tax positions to financial records, keeping approval trails, and identifying related parties early to assess disclosure thresholds.