Downward Transfer Pricing Adjustments in UAE Corporate Tax Returns

The FTA's clarification reinforces that businesses can make downward transfer pricing adjustments without prior approval, but they must disclose these adjustments correctly and maintain sufficient supporting documentation. Reviewing related-party transactions before filing your Corporate Tax Return can help reduce compliance risks and ensure alignment with the arm's length principle.

The Federal Tax Authority (FTA) has issued a Public Clarification explaining how businesses should report downward transfer pricing adjustments under the UAE Corporate Tax regime. The clarification provides greater certainty for businesses dealing with related-party transactions and outlines the conditions under which these adjustments can be made.
It also confirms that businesses can make eligible downward transfer pricing adjustments without obtaining prior approval from the FTA. However, they must disclose the adjustment correctly in their Corporate Tax Return and maintain sufficient supporting documentation to demonstrate compliance with UAE Corporate Tax rules.

What Is the FTA Public Clarification About?

The FTA's Public Clarification explains how taxable persons should report downward transfer pricing adjustments when filing their UAE Corporate Tax Return.
The clarification confirms that businesses can reduce their taxable income through a downward adjustment where the conditions under the UAE Corporate Tax Law are met. It also explains the disclosure requirements and the documentation businesses should maintain to support these adjustments if reviewed during an FTA audit.
This guidance helps businesses apply the transfer pricing rules more consistently while improving Corporate Tax compliance.

What Is a Downward Transfer Pricing Adjustment?

Transfer pricing refers to the pricing of transactions between related parties, such as companies within the same group. Under UAE Corporate Tax rules, these transactions must follow the arm's length principle, meaning they should be priced as if they were conducted between independent businesses.
There are two types of transfer pricing adjustments:

Upward Adjustment

An upward adjustment increases a business's taxable income. This happens when a related-party transaction is priced below the arm's length value, resulting in lower reported profits.
Downward Adjustment
A downward adjustment reduces taxable income. It is made when a related-party transaction has resulted in taxable income that is higher than the arm's length amount, and an adjustment is required to align the transaction with transfer pricing rules.

When Can You Make a Downward Adjustment?

A business may make a downward transfer pricing adjustment when a related-party transaction has not been recorded at the arm's length price and an adjustment is required to comply with the UAE Corporate Tax Law.
The FTA clarification confirms that businesses are responsible for assessing whether a downward adjustment is appropriate based on their facts and supporting evidence. Importantly, prior approval from the FTA is not required before making the adjustment.
However, businesses should ensure that the adjustment is fully supported by proper transfer pricing documentation and can be justified if reviewed by the FTA.

What Must Be Disclosed in the Tax Return?

Businesses making a downward transfer pricing adjustment must disclose the adjustment in their Corporate Tax Return.
The disclosure requirement applies to all related-party transactions where a downward adjustment has been made, regardless of the value or type of transaction. Proper disclosure helps the FTA understand the adjustment and supports greater transparency in tax reporting.
Failing to disclose relevant adjustments could increase the risk of compliance issues during future tax reviews.

Documents You Should Keep

Businesses should maintain complete records to support any downward transfer pricing adjustment. Proper documentation will help demonstrate that the adjustment complies with the arm's length principle if requested by the FTA.
Important documents include:

• The reason for making the downward adjustment.
• Arm's length or benchmarking analysis supporting the revised pricing.
• Reconciliation between the financial statements and the Corporate Tax Return.
• Supporting records and agreements relating to transactions with related parties.
• Any additional transfer pricing documentation supporting the adjustment.

Maintaining organised records also helps businesses prepare for future tax audits and reduces compliance risks.

Key Takeaways for UAE Businesses

Businesses involved in related-party transactions should regularly review their transfer pricing arrangements to ensure they comply with UAE Corporate Tax requirements.
Some important points to remember include:

• Review related-party transactions on a regular basis.
• Ensure all transactions follow the arm's length principle.
• Keep complete and accurate transfer pricing documentation.
• Properly disclose any downward adjustments in the Corporate Tax Return.
• Be prepared to provide supporting records if the FTA reviews the adjustment during a tax audit.

Taking these steps helps businesses strengthen their Corporate Tax compliance and minimise potential disputes.

How TheController.ai Can Help

Managing transfer pricing requirements can be complex, especially for businesses with multiple related-party transactions. TheController.ai helps businesses simplify Corporate Tax compliance through expert support and AI-powered accounting solutions.
Our team can assist with:

• Reviewing transfer pricing adjustments.
• Corporate Tax compliance and advisory.
• Corporate Tax Return preparation and filing support.
• Preparing transfer pricing documentation.
• Audit readiness and ongoing compliance support.
• By maintaining accurate accounting records and proper documentation, businesses can confidently meet their Corporate Tax obligations while reducing compliance risks.

Conclusion

The FTA's latest clarification confirms that businesses may make downward transfer pricing adjustments without obtaining prior approval, provided the adjustments comply with UAE Corporate Tax rules. However, these adjustments must be properly disclosed in the Corporate Tax Return and supported by sufficient documentation.
Reviewing related-party transactions before filing your Corporate Tax Return, maintaining complete records, and ensuring compliance with the arm's length principle can significantly reduce tax risks and improve audit readiness. Businesses that proactively manage their transfer pricing obligations are better positioned to meet the UAE's evolving Corporate Tax requirements.