FTA Public Clarification Sets Out Requirements for Downward Transfer Pricing Adjustments

This week has seen a number of significant publications from the FTA. Today we take a detailed look at Public Clarification CTP011, which addresses one of the more sensitive areas of the UAE transfer pricing framework: downward adjustments made by a Taxable Person in its Corporate Tax Return. While the self-assessment nature of the regime means no prior FTA approval is required, the clarification sets out enhanced disclosure and documentation requirements.

Notably, all Related Party transactions subject to a downward adjustment must be disclosed in the Corporate Tax Return irrespective of value, a stricter standard than the threshold-based general disclosure rules. Taxpayers are also expected to maintain contemporaneous documentation, including a rationale for the deviation from the originally recorded pricing, a benchmarking study, a reconciliation to the Financial Statements, and evidence of a symmetrical corresponding adjustment by the counterparty.

Given that downward adjustments reduce Taxable Income, they are likely to attract heightened scrutiny during a tax audit. In the alert prepared by our team, we take a detailed look at the requirements of CTP011 and share practical recommendations to consider before reflecting a downward adjustment in the Corporate Tax Return.