Related party transactions (RPTs) have become a central focus for tax authorities in the UAE as multinational groups and regional businesses expand their cross-border operations. A structured review process helps ensure that pricing between related group entities is fair, compliant, and aligned with the arm’s length principle. Many UAE-based groups now rely on expert transfer pricing advisory services to navigate evolving regulations, maintain tax transparency, and avoid penalties arising from improper documentation or profit allocation.
Why Related Party Transaction Reviews Are Now Essential
The UAE has strengthened its corporate tax framework, introduced economic substance regulations, and adopted OECD-aligned transfer pricing disclosure obligations. As a result, tax authorities are actively examining whether profits are being shifted to low-tax or no-tax jurisdictions through related party charges.
A thorough review helps ensure transparency in pricing policies related to intercompany sales, support services, licensing fees, intellectual property, and financing arrangements. Organizations that proactively monitor related party pricing risks reduce audit exposure and build credibility with regulators.
Understanding the Nature of Related Party Transactions
Related party transactions include any transfer of goods, services, assets, or financial arrangements between entities under common ownership or control. These arrangements require special scrutiny because they do not occur under normal market competition.
When improperly structured, they can distort taxable profit allocation across jurisdictions. That is why internal controls and documentation frameworks are essential to maintain compliance. Many UAE businesses consult transfer pricing advisory services at this stage to validate structures, pricing models, and intercompany charging mechanisms.
Transfer Pricing Issues Commonly Detected During RPT Reviews
A well-conducted review typically reveals underlying policy or execution gaps such as:
- Incorrect pricing models that do not reflect arm’s length terms
- Lack of comparable benchmarking data
- Inadequate documentation of service contributions
- Misaligned cost-sharing or risk allocation agreements
- IP royalties charged without supporting valuation
- Intercompany loans lacking clear terms or market interest rates
- Management fee markups unsupported by economic benefit
Detecting these issues early helps businesses revise and defend their transactional pricing logic.
Regulatory Landscape in the UAE
The UAE Corporate Tax Law incorporates OECD transfer pricing advisory services principles through Articles 34 and 55 as well as Executive Regulations requiring reporting, documentation, and control frameworks. Tax authorities focus on economic substance, value creation, and accurate profit attribution across business lines.
Businesses must prepare documentation such as:
- Master File
- Local File
- Disclosure Forms
- Intercompany Agreements
- Benchmarking Studies
- Functional & Risk Analyses
Failure to provide compliant documentation may lead to adjustments, penalties, and reputational exposure.
The Importance of Functional and Risk Analysis
Before assessing pricing, a functional analysis must determine which entity performs core functions, holds valuable assets, and bears operational or financial risks. This ensures that profit allocation reflects actual contributions.
For example, a UAE entity that only acts as a routine distributor may not be entitled to the same profit margin as an entity performing high-value strategic or entrepreneurial functions. Role misalignment is one of the most common triggers for audit adjustments.
Identifying Gaps in Intercompany Contracts
Many related party disputes arise because contract wording does not reflect economic reality. A proper review compares contractual terms with what actually happens operationally. Areas that often require revision include:
- Performance obligations
- Pricing bases
- Risk allocation
- Payment schedules
- Intellectual property ownership rights
Businesses that align legal and economic substance are better positioned during audits or reviews.
Benchmarking and Arm’s Length Justification
To validate pricing, benchmarking studies are used to compare related party terms with third-party market conditions. This ensures that the intercompany transfer prices are commercially reasonable. Benchmarking must be based on current market conditions, proper industry comparables, and tested party selection aligned with OECD methodology.
Common High-Risk RPT Categories in the UAE Market
Some types of related party transactions attract more scrutiny than others, particularly in the UAE’s diversified economic sectors:
| Transaction Type | Key Risk Trigger |
| Management / Advisory Fees | Lack of economic benefit proof |
| Royalty Payments | Misaligned IP ownership |
| Intercompany Loans | Missing arm’s length interest rates |
| Contract Manufacturing | Improper margin allocation |
| Shared Service Centers | Unsubstantiated cost allocation |
| Logistics & Distribution Fees | Incorrect functional classification |
Proactively documenting these categories strengthens compliance.
Importance of Internal Controls for Related Party Reviews
Effective RPT reviews require strong internal control systems that ensure:
- Data traceability
- Intercompany agreement consistency
- Transparent cost allocation
- Governance approval mechanisms
- Periodic review of pricing policies
UAE regulators expect businesses to demonstrate structured governance, not ad-hoc adjustments.
Tax Authority Expectations in the UAE
During audits, authorities typically request clarity on:
- Whether pricing reflects market conditions
- Whether the UAE entity bears risk proportionate to its profit
- Whether documentation is contemporaneous
- Whether substance exists beyond contractual language
Businesses with weak documentation often face retroactive adjustments or disallowance of deductions.
Intercompany Financing and Interest Rate Risks
Loans between related entities are one of the most challenging areas because tax authorities examine whether the lending entity has genuine capacity to assume credit risk. They also evaluate whether repayment terms, collateralization, and pricing reflect market realities.
Thin capitalization concerns or hidden equity disguised as debt are frequently raised where structures are not backed by proper financial support.
IP and Intangible Asset Transactions
Technology and brand-driven businesses in the UAE increasingly face scrutiny over royalty or licensing fee transfers. Authorities verify whether:
- The IP is genuinely developed or owned by the charging entity
- The UAE entity receives measurable benefits
- The royalty rate is benchmarked
- Supporting valuation reports exist
In absence of support, fees may be recharacterized or disallowed.
Why Ongoing Monitoring Matters
Transfer pricing advisory services and related party risks evolve as business models change. A one-time review is not enough. Market conditions, regulatory interpretations, and economic substance requirements evolve over time, making ongoing monitoring essential.
Periodic reviews also ensure that policies remain defensible as revenue authorities become more data-driven and proactive.
Role of Professional Advisory in RPT Risk Mitigation
A structured review conducted by qualified professionals ensures that pricing models are defendable, documentation is aligned with OECD principles, and reporting obligations are met correctly. Advisory support also helps local UAE operations coordinate with global group policies.
By partnering with UAE-based experts, companies strengthen their readiness for tax authority queries, reduce penalty exposure, and ensure defendable transfer pricing frameworks tailored to business reality.
Also Read: Transfer Pricing Policy Design: Group-Wide Consistent Approach
