UAE CT: What is Transfer Pricing; and its Importance I Transfer Pricing Methods I TP Documentations

Transfer price refers to the prices of goods and services charged on transactions between the related parties and with the connected persons.

The key risk associated with the transactions between related parties, and with the connected persons is that the owner or the person in control can manage the transaction price between the related parties; or connected parties, which will help them to shift their taxable profits from high tax jurisdiction to the low tax jurisdiction; or reduce their taxable profits in the same tax jurisdiction which will ultimately help them to pay the lesser tax.

The other situation may be where the connected person of the entity is taking benefits or salaries which are not as per the market rates, and due to these non-arm length benefits, the taxable profits of the company will be reduced which will result in tax savings to the entity. Like a B Ltd. is giving extraordinary salaries and benefits to one of its officers.