Do You Need Transfer Pricing Policy Design? A Practical Starting Point
Most transfer pricing problems are not documentation problems — they are pricing decisions that were never designed, only inherited. A management fee set for cash-flow convenience five years ago, an intercompany loan left interest-free without a documented rationale, a Free Zone-to-mainland markup nobody has revisited since incorporation. PNPC's transfer pricing policy design engagement sits upstream of the annual Local File: we run the Functional, Asset and Risk analysis, select and test the pricing method for each intercompany flow, set defensible pricing bands, and produce a Board-approved policy document that tells your finance team exactly how to price the next invoice — before it is raised, not after the Federal Tax Authority asks about it.
Understanding the Service
Transfer pricing policy design is the forward-looking, decision-making exercise that determines how a UAE group prices its related-party transactions and connected-person payments on an arm's length basis going forward — as distinct from the annual documentation exercise that records and evidences pricing already applied. Under Article 34 of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022, applicable to financial years starting on or after 1 June 2023), every transaction or arrangement between Related Parties, and every payment or benefit to a Connected Person under Article 36, must be conducted on arm's length terms.
For the full scope, current process and what PNPC includes, see the dedicated Transfer Pricing Policy Design service page.
Is This Relevant to Your Business?
- A new intercompany arrangement is being planned — a management fee structure, cost-sharing agreement, royalty licence, or shared-services model — and pricing needs to be set correctly before it goes live, not reverse-engineered at year-end
- The group has been transacting between related parties for years using pricing that was set for cash-flow or administrative convenience, with no documented method or rationale behind it
- A Free Zone entity in the group holds Qualifying Free Zone Person status and its related-party pricing with mainland or foreign affiliates has never been formally tested against the arm's length standard
- Owner remuneration, director-owned premises rent, or shareholder loan interest have never been benchmarked to market terms and the group wants a defensible position before the next Corporate Tax return
What This Doesn't Cover
- The group has no related-party transactions or connected-person payments at all — the arm's length rules, and any policy exercise built on them, only engage where a qualifying relationship exists
- A Board-approved policy already exists, is current, and simply needs its annual Local File and disclosure form prepared for the year — that is the documentation engagement, not policy design
- The immediate need is a response to an active FTA information request or audit — that calls for urgent documentation production and technical engagement with the FTA, not a forward-looking policy exercise, though PNPC often runs both in parallel
Common Questions
What is the difference between transfer pricing policy design and transfer pricing documentation?
Policy design is the forward-looking exercise of deciding how related-party transactions will be priced — method selection, pricing bands, Board approval — before or as an arrangement goes live. Documentation, principally the annual Local File and Master File, is the backward-looking exercise of recording and evidencing pricing already applied during a completed financial year. A policy feeds directly into the documentation; documentation without an underlying policy tends to justify whatever happened rather than reflect a designed decision.
Do we need a formal written policy, or is a documented pricing rationale in the Local File enough?
A Local File can describe the pricing method applied for a completed year without there being a standalone policy document that governs future years. A written, Board-approved policy is not itself a UAE statutory filing requirement, but it is the strongest practical evidence that pricing decisions were made deliberately and consistently, which materially strengthens the arm's length position the Local File later describes — and it gives finance a working reference for pricing the next transaction correctly the first time.
How is the pricing method actually selected for a given transaction?
Method selection follows the Functional, Asset and Risk (FAR) analysis, not a default preference. We establish which entity performs which functions, owns which assets including intangibles, and bears which risks for each transaction category, then test whether Comparable Uncontrolled Price, Resale Price, Cost Plus, TNMM, or Profit Split fits those facts and whether reliable comparable data is available to support it.
Working With PNPC Global
Design the pricing before the invoice is raised, not the justification after it — talk to PNPC's Dubai transfer pricing desk about a Board-ready policy build.
PNPC Global has advised Dubai businesses since 1986. Explore the full UAE Taxation & Regulatory Compliance practice for related services, or go straight to the Transfer Pricing Policy Design page for specifics.
Rates, thresholds and filing dates are set by the relevant authority and revised periodically. Treat anything numeric here as "ask PNPC for the current figure," not as a quoted fact.