The proposed Corporate Tax Regime in the UAE vide release of Public Consultation Document inter-alia introduces TP rules to ensure that the price of a transaction is not influenced by the relationship between the parties involved.
The Proposed CT regime requires the ‘Arm’s Length’ principle to be followed while undertaking transactions between “Related Parties” and “Connected Persons”.
As per Public Consultation Document, a related party is an individual or entity that has a pre-existing relationship with a business that is within the scope of the UAE Corporate Tax regime through ownership, control, or kinship (in the case of natural persons).
The following rules are prescribed to determine whether parties involved in the transaction would be considered “Related Parties” for the purpose of UAE Corporate Tax:
|
1.
Two or more individuals |
Related to the fourth degree of kinship or affiliation, including by birth, marriage, adoption, or guardianship |
|
2.
An individual and a legal
entity |
Individuals
alone or together with a related party directly or indirectly owns a 50% or greater share in, or controls the legal
entity |
|
3.
Two or
more legal entities |
•
Legal entity alone, or together with a
Related Party, directly or indirectly owns a 50% or greater share in or
controls the other legal entity. •
Taxpayer alone, or with a related party,
directly or indirectly owns a 50% share of each or controls them |
|
4.
Taxpayer |
Its
branch or permanent establishment |
|
5.
Unincorporated partnership |
All
partners |
|
6.
Exempt and
non-exempt business |
Activities
of the same person |
Payments or benefits provided by a business to its “Connected Persons” will be deductible only if the business can demonstrate that the payment or benefit:
