Introduction

The introduction of Corporate Tax in the UAE has changed the way businesses approach financial reporting, related-party transactions, and tax compliance. One area that requires particular attention is transfer pricing benchmarking.

For businesses that undertake transactions with related parties or connected persons, it is important to demonstrate that the pricing and terms of those transactions are consistent with the arm’s length principle—in other words, comparable to what independent parties would agree under similar circumstances.

The UAE Federal Tax Authority (FTA) recognises several transfer-pricing methodologies, including the Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), and Profit Split Method.

But benchmarking is not simply about finding a percentage from a database. A reliable benchmarking exercise requires a structured review of the business, transaction, functions, risks, financial data, and comparable companies.

In this article, we discuss the major checks businesses should consider when conducting corporate tax and transfer-pricing benchmarking in the UAE.

What Is Corporate Tax Benchmarking?

Corporate tax benchmarking, particularly in the context of transfer pricing, involves comparing a UAE business’s related-party transactions with similar transactions or businesses involving independent parties.

The purpose is to determine whether the pricing or profitability is consistent with the arm’s length standard.

For example, a UAE company may receive:

Management services from its overseas group company
Loans or financing from a related party
IT or technical support from a group entity
Distribution or marketing services from a related company
Goods purchased from a related manufacturer
Royalty or intellectual-property arrangements with a related party

These transactions may need to be evaluated to determine whether the terms are commercially reasonable.

The UAE transfer-pricing rules are designed to ensure that related-party transactions are not artificially influenced by the relationship between the parties.

Major Checks for UAE Corporate Tax Benchmarking

1. Identify All Related-Party Transactions

The first step is to identify the transactions that may fall within the transfer-pricing framework.

Businesses should review their:

Sales to related companies
Purchases from related companies
Intercompany services
Management fees
Technical service fees
Loans and financing
Guarantees
Royalties
Intellectual-property transactions
Cost-sharing arrangements
Intercompany reimbursements
Distribution arrangements

A proper review should cover the entire financial year rather than focusing only on large transactions.

2. Perform a Functional Analysis

One of the most important components of a benchmarking study is the functional analysis.

The analysis should consider three key areas:

Functions

What does each party actually do?

For example:

Procurement
Manufacturing
Distribution
Marketing
Sales
Administration
IT support
Management
Research and development

Assets

What assets are used?

This may include:

Physical assets
Equipment
Warehouses
Technology
Intellectual property
Customer relationships

Risks

Which party assumes the relevant business risks?

Examples include:

Market risk
Inventory risk
Credit risk
Foreign exchange risk
Product liability risk
Operational risk

The functional analysis helps determine which transfer-pricing method is most appropriate.

3. Select the Appropriate Transfer-Pricing Method

The UAE FTA recognises five principal transfer-pricing methodologies:

Comparable Uncontrolled Price (CUP) Method
Resale Price Method
Cost Plus Method
Transactional Net Margin Method (TNMM)
Transactional Profit Split Method

The appropriate method depends on the nature of the transaction and the availability and reliability of comparable information.

Comparable Uncontrolled Price Method

The CUP method compares the price charged in a controlled transaction with the price charged in a comparable transaction between independent parties.

This method can be highly reliable where sufficiently comparable transactions are available.

Resale Price Method

This method can be relevant for distributors that purchase products from related parties and subsequently resell them to independent customers.

The resale price is reduced by an appropriate gross margin to determine an arm’s-length purchase price.

Cost Plus Method

The Cost Plus Method starts with the costs incurred by the supplier and applies an appropriate mark-up.

This can be relevant for routine manufacturing, support, or service arrangements.

Transactional Net Margin Method

The TNMM compares the net profit margin earned by a tested party with the margins earned by comparable independent businesses.

This is widely used where reliable gross-margin or direct price comparisons are difficult to obtain.

Transactional Profit Split Method

The Profit Split Method may be appropriate where transactions involve highly integrated operations or valuable unique contributions from both parties.

4. Check the Quality of Comparable Companies

Finding comparable companies is not enough.

The quality and relevance of the comparables should be carefully assessed.

Businesses should examine factors such as:

Industry
Business activity
Geographic market
Company size
Revenue
Functional profile
Risk profile
Ownership structure
Availability of financial information
Accounting policies
Intangible assets
Operating model

A company that operates in a completely different industry may not be an appropriate comparable simply because it reports a similar profit margin.

Good benchmarking is about comparability—not just similarity in numbers.

5. Review the Geographic Market

Geographic differences can have a significant impact on profitability.

A business operating in the UAE may face different:

Operating costs
Labour costs
Market conditions
Customer demand
Competition
Regulatory requirements
Financing costs

Therefore, businesses should consider whether international comparables are sufficiently comparable to UAE operations.

Where foreign comparables are used, the benchmarking analysis should explain why they remain appropriate and whether reasonable adjustments are necessary.

6. Check the Tested Party

For many TNMM benchmarking studies, one party is selected as the tested party.

The tested party is generally the entity for which reliable financial information and comparable data can be obtained.

Businesses should carefully document why a particular entity was selected.

For example, a UAE distribution company performing routine functions with limited risks may be easier to benchmark than a group company owning valuable intellectual property and assuming significant commercial risks.

7. Analyse the Profit Level Indicator

The benchmarking study should identify an appropriate Profit Level Indicator (PLI).

Depending on the nature of the business, commonly considered indicators may include:

Operating profit / sales
Operating profit / operating costs
Gross profit / sales
Return on assets

The appropriate indicator should reflect the economics of the tested transaction and the functions performed.

8. Establish the Arm’s-Length Range

After selecting appropriate comparables, the financial results are generally analysed to establish an arm’s-length range.

Businesses should not simply select the highest or lowest margin because it produces a preferred tax result.

Instead, the analysis should explain:

Why the comparable companies were selected
Whether any comparables were rejected
What adjustments were made
How the financial data was calculated
Why the final range is appropriate
Where the UAE entity falls within the range

The objective is to produce a defensible and commercially meaningful result.

9. Review Intercompany Agreements

A benchmarking report should not be considered separately from the actual contractual arrangements.

Businesses should compare the benchmarking analysis with their intercompany agreements.

For example, if an agreement describes a UAE company as a limited-risk distributor but the financial records show that the UAE company bears substantial inventory, credit, and market risks, the arrangement should be reviewed.

The agreement, actual conduct, accounting records, and benchmarking analysis should tell a consistent story.

10. Check the Financial Data

The quality of the financial information used in benchmarking is critical.

Businesses should reconcile the benchmarking calculations with their accounting records.

Important checks include:

Revenue reconciliation
Cost classification
Operating expenses
Exceptional items
Related-party expenses
Depreciation
Foreign exchange effects
One-off income or expenses
Intercompany charges

Incorrect classification can materially affect the resulting profit margin.

11. Consider Year-on-Year Changes

Benchmarking should not necessarily be treated as a one-time exercise.

Businesses should monitor whether there have been significant changes in:

Business model
Related-party transactions
Pricing policies
Functions
Assets
Risks
Industry conditions
Profitability
Comparable companies

A benchmark prepared several years ago may no longer accurately reflect the company’s current circumstances.

12. Review Transfer Pricing Documentation Requirements

The UAE Corporate Tax framework includes transfer-pricing documentation requirements intended to support the arm’s-length position of taxpayers.

The Ministry of Finance has highlighted the importance of maintaining appropriate documentation to demonstrate the arm’s-length basis of related-party transactions.

Depending on the taxpayer and applicable thresholds, businesses may need to consider documentation such as:

Master File
Local File
Related-party transaction information
Supporting agreements
Benchmarking studies
Financial analysis
Other records required under UAE Corporate Tax rules

Businesses should assess their specific circumstances rather than assuming that every company has identical documentation requirements.

Corporate Tax Benchmarking Checklist for UAE Businesses

Before finalising a benchmarking study, businesses should ask:

Business Profile

Have we accurately documented our business activities?
Have we identified the functions performed?
Have we identified the assets used?
Have we documented the risks assumed?

Related-Party Transactions

Have all relevant related-party transactions been identified?
Are intercompany agreements available?
Do the agreements reflect actual business conduct?

Benchmarking

Is the selected transfer-pricing method appropriate?
Are the comparable companies genuinely comparable?
Has the geographic market been considered?
Is the tested party appropriate?
Is the selected PLI suitable?
Are the financial calculations accurate?

Documentation

Can we explain why the comparables were selected?
Are the benchmarking calculations reproducible?
Are accounting records reconciled to the analysis?
Is supporting documentation maintained?

Compliance

Have applicable UAE Corporate Tax and transfer-pricing requirements been reviewed?
Are filing and documentation obligations being monitored?
Has the benchmarking position been reviewed for the relevant tax period?

Why Professional Benchmarking Matters

A weak benchmarking study can create unnecessary tax risk.

A professional benchmarking exercise should be:

Accurate + Relevant + Defensible + Consistent + Well Documented

The objective is not simply to obtain a favourable profit margin. The objective is to demonstrate that the pricing or profitability is commercially supportable under the UAE’s transfer-pricing framework.

The UAE Corporate Tax regime is based on self-assessment, making the quality of a business’s records and supporting analysis particularly important. The Ministry of Finance states that Corporate Tax returns are generally filed within nine months from the end of the relevant Tax Period.

How Elysian Consulting Group Can Help

Elysian Consulting Group provides corporate tax, accounting, audit, VAT, and business advisory support to companies operating in the UAE.

Our tax services include:

Corporate Tax registration and compliance
Corporate Tax health checks
Tax compliance reviews
Transfer-pricing support
Tax advisory and consultation
Accounting and tax documentation review
VAT compliance
Accounting and bookkeeping
Audit support
Ongoing regulatory compliance assistance

Elysian Consulting Group supports businesses across sectors including trading, retail, construction, hospitality, healthcare, professional services, manufacturing, logistics, technology, e-commerce, and real estate.

Our approach focuses on understanding the client’s business, reviewing the financial and tax position, identifying compliance risks, and providing practical solutions tailored to the business.

About Elysian Consulting Group

Elysian Consulting Group is a Dubai-based financial advisory and accounting firm registered with the Dubai Department of Economy and Tourism. The firm provides accounting, auditing, corporate tax, VAT, and financial advisory services to businesses across the UAE.

With a growing professional team and experience across diverse industries, Elysian aims to provide businesses with practical, transparent, and compliance-focused financial solutions.

Contact Elysian Consulting Group

Website: https://elysianuae.com/
Email: info@elysianuae.com
Phone: +971 54 243 9656
Office: Burjuman Business Tower, Office No. 003, S2, Burjuman – Khalid Bin Al Waleed Road, Al Mankhool, Dubai, UAE.

Conclusion

Corporate tax benchmarking in the UAE requires more than comparing profit percentages.

Businesses should look at the transaction, functions, assets, risks, pricing methodology, comparable companies, financial information, contractual terms, and supporting documentation as one integrated analysis.

As UAE Corporate Tax and transfer-pricing requirements continue to become an important part of business compliance, maintaining a robust and well-supported benchmarking approach can help businesses manage tax risk and make better-informed decisions.

Need support with UAE Corporate Tax or transfer-pricing benchmarking?

Speak with the team at Elysian Consulting Group for practical guidance tailored to your business.

Author:
Sivaparasad R
Business Development Manager
Elysian Consulting Group

Major Checks for Corporate Tax Benchmarking in the UAE: A Practical Guide for Businesses