Does CTP010 Expand the Connected Person Concept Too Far?

Recently, the FTA issued the long-awaited Public Clarification CTP010 on the meaning of “director” and “officer” for the purposes of payments to Connected Persons under Article 36 of the UAE Corporate Tax Law.

There are many practical issues in this clarification.[1] One of them is whether a General Manager, a manager named in a trade licence, or a person described as a key officer in board resolutions is always an “officer”. We addressed that issue separately.[2]

In this note, we would like to look at the broader concept: whether the clarification may, in some cases, capture persons whose position does not create the mischief that Article 36 seems designed to address.

The basic treatment under CTP010

Article 36 of the Corporate Tax Law limits the deductibility of payments or benefits provided by a Taxable Person to its Connected Persons. Where a payment or benefit is made to a Connected Person, it is deductible only to the extent it corresponds with the Market Value of the service, benefit, or other matter provided, and only where it is incurred wholly and exclusively for the purposes of the Taxable Person’s Business.

Clause 2(b) of this Article includes in “Connected Person” scope “a director or officer of the Taxable Person”. CTP010 clarifies that the term “officer” includes a person who falls within any of the following categories:

A person who possesses the authority and responsibility for planning, directing, and controlling the activities of a Taxable Person, in line with the framework used in IAS 24 on related party disclosures.[3]

A person who has authority to make strategic decisions in relation to the financial, operational, or commercial matters of the Taxable Person.

A person who has authority to enter into agreements or approve actions that legally or contractually bind the Taxable Person.

The clarification also provides an important negative rule: a person is not an officer if he or she does not possess final (ultimate) strategic decision-making authority or binding authority. This guidance is useful because it confirms that the analysis is not purely formal. A job title, appointment, licence entry, power of attorney, or board resolution may be relevant evidence, but it is not necessarily conclusive. The real question is whether the person has actual authority, responsibility, discretionary power, strategic decision-making authority, or binding authority.

The policy concern

In my view, however, this is only the first level of the analysis. CTP010 helps identify who may be a director or officer. But a separate question remains: should every payment or benefit to such person automatically be treated as raising the Connected Person concern, even where that person cannot influence the relevant transaction?

Article 36 appears to be designed to address payments or benefits where the connection between the recipient and the Taxable Person may affect the amount, approval, or terms of the payment. In other words, the rule is not aimed merely at seniority, title, or formal status. It is aimed at the risk that a person’s position may allow non-market value to be embedded in a payment or benefit.

This policy rationale is clear. If a person can influence the company’s decisions, contracts, remuneration arrangements, or approval process, then there is a risk that a payment to that person, or to that person’s Related Parties, may be affected by that influence. Article 36 responds to that risk by limiting deductibility to Market Value and requiring disclosure where applicable.

But the mere fact that a person is a director or officer does not necessarily mean that such person can influence every transaction with the company. A person may be an officer for one purpose because he or she has strategic authority over a certain area of the business, while having no authority at all over his or her own remuneration, bonus, benefit, reimbursement, or other payment arrangement.

This is where the policy concern arises. If Article 36 is applied only by asking whether the recipient is a director or officer, without asking whether the recipient’s position gives him or her any actual ability to influence the relevant transaction, the rule may become over-inclusive. It may capture transactions that do not bear the relevant controlled-transaction feature: the ability of the recipient, directly or indirectly, to affect the pricing, approval, or terms of the payment.

Why strategic authority matters — and when it should not be enough

The strategic decision-making authority described in CTP010 is relevant because it may indicate that a person is part of the real decision-making structure of the Taxable Person. Such a person may have the kind of influence that justifies Connected Person treatment.

However, strategic authority in the abstract should not be confused with authority over the relevant transaction. For Article 36 purposes, the concern is not simply that the recipient is important within the company. The concern is that the recipient’s position may affect the payment or benefit made to that recipient, or to his or her Related Parties.

Therefore, the relevant question should not be only: Is this person an officer? The more precise question should be: Does this person’s position give him or her the ability, legally or in fact, to influence the transaction, its approval, its amount, or its commercial terms?

If the answer is yes, the policy basis for applying Article 36 is strong. If the answer is no, the position is more doubtful.

For example, an officer may have authority over operations, sales, procurement, or technical matters, but no authority over his or her remuneration or benefits. The compensation system may be designed so that the amount is determined by independent shareholders, an independent board committee, another governing body, or persons who are not connected with that officer. The officer may have no voting right, no approval right, no recommendation power, no ability to set the amount, and no practical influence over the decision.

In such a case, the payment may be made to a person who is formally an officer. But the transaction itself does not appear to be “controlled” by that officer in the relevant economic sense. The pricing is not affected by the recipient’s power, because the recipient has no power over that pricing.

The distinction between status and transaction control

This distinction is important:

CTP010 deals mainly with status: who is a director, and who is an officer.

Article 36, however, operates on payments or benefits.

The practical tax effect of the rule arises at the level of a transaction. A person’s status as an officer may create a presumption that payments to that person should be reviewed carefully. But it should not necessarily be treated as conclusive proof that the person could influence the transaction.

There may be cases where the officer has real influence over the payment. For example, the officer may approve his or her own remuneration, negotiate directly with subordinates who are dependent on him or her, influence the board recommendation, participate in the decision-making process, or control the budget from which the payment is made. In these cases, Article 36 addresses a real risk.

But there may also be cases where the opposite is true. The payment may be determined under a pre-approved remuneration policy. The amount may be fixed by shareholders. The officer may be excluded from the decision-making process. The relevant approval may be made by persons independent from the officer. The officer may merely receive the payment without having any ability to shape it.

In this second category, the transaction lacks the main feature that appears to justify the Connected Person control: the potential for the recipient’s position to affect the price or terms.

The broader transfer pricing rationale: influence is the key concern

The same conclusion follows from the broader transfer pricing rationale. The FTA describes transfer pricing as “a tax concept, … which … refers to the pricing of transactions or arrangements between Related Parties or Connected Persons that are influenced by the relationship between the transacting parties”.[4] The FTA further explains that “when independent parties transact with each other, the conditions of their commercial and financial relations … ordinarily are determined by market forces and negotiations”. By contrast, “Related Parties or Connected Persons may not be subject to the same external market forces in their dealings and may be influenced by the relationship between the parties involved”.

Therefore, transfer pricing is not concerned with formality alone. It is concerned with whether the relationship may influence the terms of the transaction.

The same logic is reflected in paragraph 3.26 of Chapter III of the OECD Transfer Pricing Guidelines. The OECD notes, in the context of minority shareholders, that their presence may be one factor bringing the outcomes of controlled transactions closer to arm’s length, but this is not determinative by itself. What matters is whether the minority shareholder has, and actually exercises, influence on the pricing of intra-group transactions.[5]

This reasoning is relevant. Influence matters. If the relevant person has no ability to influence the pricing or terms of the transaction, the transaction is closer, in economic substance, to an uncontrolled arrangement, even if the recipient formally has the status of director or officer.

Accordingly, in my view, the practical analysis should not stop at identifying whether the recipient is a director or officer. It should also ask whether the recipient’s position can affect the payment, its approval, its amount, or its commercial terms.

The transaction should be analysed in its broader economic and contractual context

A similar point may be drawn from situations where the price of a transaction is embedded in a broader arrangement that includes both connected and independent elements.

For example, where the amount of a management fee is determined in a fund’s constitutional or founding documents, and those documents are agreed with an independent investor, there is a strong argument that the fee should not be tested only by reference to a later execution agreement between related or connected parties. The broader arrangement matters.[6] If the price was fixed in a document agreed with an independent party, that independent component may provide evidence of the arm’s length nature of the price.

The same reasoning is relevant for payments to directors or officers. The fact that the recipient is a director or officer identifies a potential Connected Person. However, the transaction should still be delineated by looking at the arrangement under which the payment was fixed, approved, and implemented. It may not be enough to isolate the later payment event and say: “at the time of payment, the recipient was an officer, therefore the transaction is controlled”.

That approach may be too narrow. It may ignore the broader commercial context in which the payment terms were established. For example, if remuneration terms were agreed before the person became an officer, or were fixed under a compensation policy approved by independent shareholders, or were determined by a board committee from which the officer was excluded, the later payment is rooted in an arrangement that may not have been influenced by the officer’s position.

In such cases, the subsequent execution of the payment should not necessarily change the character of the underlying pricing arrangement. The payment may be made after the person becomes an officer, but the amount may have been fixed by persons who were independent from that officer and not subject to his or her influence.

This is important because the transfer pricing concern is not merely chronological. It is substantive. The question is whether the relationship or position could influence the terms of the transaction. Where the price was determined through a process that excluded the officer’s influence, the transaction may lack the core feature of a controlled transaction.

The same logic applies where a document formally involving a Connected Person simply implements terms already determined elsewhere. In that case, the implementation document should not necessarily be treated as the only relevant transaction. The earlier and broader arrangement may be the correct starting point for delineating the transaction.

This is particularly relevant where:

the compensation was fixed before the person assumed the officer role;

the amount was determined under a policy or constitutional document agreed with independent parties;

the approving body was independent from the officer;

the officer had no voting rights or approval rights in relation to his or her own compensation;

the officer was excluded from the relevant decision-making process; or

the officer merely received amounts calculated under pre-agreed terms that he or she could not vary.

In these circumstances, the fact that the recipient later holds the status of officer should not automatically mean that the transaction is affected by the mischief of Article 36. The relevant question remains whether the officer’s position could affect the payment, its amount, its approval, or its terms.

This does not mean that formal status is irrelevant. A director or officer relationship is an important warning signal and may justify additional review. But it should not replace proper transaction delineation. The analysis should identify the actual arrangement that set the price, the parties who agreed or approved it, and whether the officer had any ability to influence that process.

A more targeted reading

A more targeted reading would distinguish between two questions:

The first question is whether the person is a director or officer of the Taxable Person. CTP010 provides guidance on this question.

The second question is whether the specific transaction with that person carries the relevant risk that Article 36 is designed to address: the risk that the person’s connection with the Taxable Person may affect payment, its amount, its approval, or its commercial terms.

Under this approach, the attributes of an officer remain relevant, but they are not enough by themselves. The analysis should also consider whether those attributes can be exercised in relation to the payment or benefit in question.

The practical questions may include the following:

Who determines the amount of the payment?

Who approves the payment?

Can the recipient participate in the approval process?

Can the recipient influence the persons who approve the payment?

Can the recipient set or vary the commercial terms?

Can the recipient bind the company in respect of this transaction?

Is the payment determined by a pre-approved policy, independent body, shareholder decision, or market-based mechanism?

Was the officer excluded from the relevant decision-making process?

Where the payment is determined by parties who are not related or connected with the officer, and where the officer has no authority or practical power to influence the decision, the transaction may lack the controlled nature that Article 36 appears to target.

This may be especially relevant where the compensation system is structured in a way that removes the officer from the decision-making process. For example the officer may be unable to influence the compensation where:

another person has unilateral authority to determine it;

the officer’s proposal requires approval by shareholders, the board, a committee, or another independent decision-maker; or

the officer sits on the relevant body but has no voting right or decision-making authority in relation to his or her own compensation.

In such circumstances, the payment may be made to a person who is, formally speaking, a director or officer. But the transaction itself is not controlled by that person in the relevant economic sense. The recipient’s position does not create the pricing risk that Article 36 appears to address.

This does not mean that the transaction should be ignored. It may still be prudent to test and disclose the payment where the law, FTA forms, or applicable thresholds require it, especially unless and until a favourable private clarification is obtained. But conceptually, there is a strong argument that transactions which the director or officer cannot affect should not be treated in the same way as transactions where the director or officer can determine, influence, approve, or shape the payment.

Why over-inclusion may be problematic

The Connected Person rules are not just a labelling exercise. They have practical consequences. If a payment or benefit is treated as made to a Connected Person, it may need to be tested against Market Value under Article 36. It may also need to be disclosed in the Tax Return if the applicable thresholds are met. This increases compliance obligations and may require additional documentation and analysis.

That burden is justified where the person’s position creates a realistic risk of non-market pricing. However, where the officer or director has no authority, no discretion, no practical influence, and no ability to affect the relevant transaction, the policy justification becomes weaker. The broader the rule is applied, the further it may move away from the apparent mischief of Article 36.

The risk is that transactions may be captured not because they are actually susceptible to influence by the recipient, but because the recipient is formally close to the company’s management or governance structure. In my view, this raises a legitimate doubt as to whether such an approach is expedient and fully aligned with the legislative intent of Article 36.

Conclusion

CTP010 provides helpful guidance because it confirms that “officer” is not determined by title alone. The clarification repeatedly points to actual authority, actual responsibility, final strategic decision-making power, discretionary authority, and binding authority. This is welcome.

At the same time, these features should be applied carefully. They help identify whether a person is an officer. But they should not automatically answer a separate question: whether a specific transaction with that person is affected by the type of influence that Article 36 is designed to address.

In my view, the better approach is to distinguish between the status of the person and the controlled nature of the transaction. A person may be an officer because he or she has authority over the company’s activities. But a payment to that person should raise the Article 36 concern only where the officer has, or may have, the ability to influence that payment, its amount, its approval, or its terms.

This requires looking not only at the payment itself, but also at the broader arrangement under which the payment was fixed. If the amount was agreed before the person became an officer, or was determined by independent shareholders, an independent board body, a committee from which the officer was excluded, or another process insulated from the officer’s influence, the transaction may lack the targeted feature of a controlled transaction.

The core issue is therefore not only whether the recipient is a director or officer. It is whether the recipient’s position can affect the transaction with the Taxable Person. If there is no such actual or potential influence, treating the transaction as controlled merely because of the recipient’s formal status may be difficult to reconcile with the purpose of Article 36 and the broader transfer pricing rationale, which is concerned with transactions whose terms may be influenced by the relationship between the parties.

A conservative compliance approach may still require disclosure and market value support where the FTA forms or thresholds require it. But from a conceptual perspective, a payment that is fixed through an independent or non-influenced process should not be equated with a payment whose amount or terms are shaped by the officer’s own power.

Disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.

This article should be read with that reminder in mind. It has not been commissioned, reviewed, approved, or endorsed by the MoF or the FTA. The author is not a policy maker and is not authorised to state, interpret, or determine the official policy or position of the MoF or the FTA.

Accordingly, all interpretations, conclusions, proposals, assumptions, surmises, guesswork, and other comments in this article represent only the author’s humble personal opinion on the matters discussed. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that I have tried my best to avoid. If you find any inaccuracies or errors, please let me know so that I can make corrections.

[1] See Evgenia Eremina’s notes on Willow Law Tax and Legal: https://willow.law/analytics-post/the-fta-has-released-a-public-clarification-ctp010/

[2] See “Is a (General) Manager or a “key officer” named in the trade license or in board resolutions always a Connected Person?”, available via link.

[3] We recommended to use this definition in our earlier publication: “Chief Financial Officer: Always Connected Person or Not?”, Jan 29, 2025, available via link: https://willow.law/articles-post/chief-financial-officer-always-connected-person-or-not/

[4] Transfer Pricing Corporate Tax Guide CTGTP1, Sec. 4.2.

[5] OECD (2022), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, OECD Publishing, Paris, https://doi.org/10.1787/0e655865-en

[6] FTA on page 28 of CTGTP1 and the OECD in Para 1.38 of the OECD TP Guidelines explain that “it may be necessary or useful to assess the transaction in a broader context, since assessment of the options realistically available to third parties is not necessarily limited to a single transaction but may take into account a broader arrangement of economically-related transactions”.