Your UAE company charges management fees to a related entity in a 2% tax country — at an unusually low rate. The FTA notices. Here's what happens next and what directors need to do.
⚠️ Patch LLC charges Assai Pty Ltd unusually low management fees — shifting profit to the 2% jurisdiction
When two companies in the same group trade with each other — whether for goods, services, loans, or intellectual property — the price they set is called a transfer price. Because these companies are related, they could theoretically set any price they like, rather than what the open market would charge.
This matters for tax because the price determines how profit is split between the companies — and if those companies are in different countries with different tax rates, there's an incentive to shift profit to wherever tax is lowest.
In the Spot PJSC group, Patch LLC (UAE, 9% CT) is charging Assai Pty Ltd (Androglia, 2% CT) an unusually low fee for specialist management services. This means Patch LLC reports less income in the UAE (taxed at 9%) and Assai keeps more profit in Androglia (taxed at only 2%). The group pays less tax overall — but potentially at the expense of what the UAE treasury is owed.
In plain terms: Transfer pricing rules exist to stop companies from artificially shifting profits to low-tax countries by manipulating the prices they charge each other. The FTA can look at any related-party transaction and ask: would an independent company have agreed to this price?
The arm's length principle is the global standard for transfer pricing. It asks one simple question:
"What would two independent, unrelated companies have agreed to charge for this transaction?"
If Patch LLC were providing these specialist management services to a genuinely unrelated third party — a company with no ownership connection — what fee would it have charged? Almost certainly more than the unusually low rate it charges Assai.
The FTA is entitled to adjust Patch LLC's taxable income to reflect what an arm's length fee would have been. This means:
Two things are correct in this scenario: (1) The FTA adjustment will increase the tax paid by Patch LLC, and (2) the adjustment will set the fee income at arm's length. Both outcomes flow directly from the arm's length principle.
When the FTA makes a transfer pricing adjustment, it is essentially rewriting the transaction for tax purposes. The actual commercial agreement between Patch LLC and Assai is not changed — but for UAE CT purposes, Patch LLC is treated as having received the arm's length fee, not the unusually low one it actually charged.
Note on Assai Pty Ltd: Whether Androglia also makes a corresponding adjustment to reduce Assai's deductible expense — matching the UAE's upward adjustment — depends on whether Androglia has equivalent transfer pricing rules and whether the two tax authorities cooperate. This is where UAE CT advisory intersects with international tax.
There are five main methods used to determine arm's length pricing for transfer pricing purposes. The FTA follows OECD Transfer Pricing Guidelines, which the UAE has adopted under its CT framework.
| Method | How it Works | Best Used When |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | Compare the related-party price to the price in a comparable uncontrolled transaction | Identical or near-identical transactions exist between independent parties |
| Resale Price Method | Work back from the resale price to determine an arm's length gross margin | Distributor or reseller scenarios with minimal value-add |
| Cost Plus Method | Add an appropriate mark-up to the cost base of the supplier | Manufacturing, straightforward service provision |
| Profit Split Method ✅ Best for this case | Split the combined profits of both parties in proportion to their contributions | Highly specialised, unique contributions from both parties — no comparable transactions available |
| Transactional Net Margin Method (TNMM) | Compare the net profit margin earned by the tested party to that of comparable independent companies | One-sided transactions where one party makes a routine contribution |
The Profit Split method is most appropriate here because Patch LLC provides specialist management services in a highly specialised area of music technology. These are unique, hard-to-replicate services — there are likely no comparable transactions between independent parties that the FTA could use to benchmark the price. The specialist nature of both parties' contributions means splitting the combined group profits by contribution is the most reliable approach.
Simply put: Because Patch LLC's services are specialist and unique, you can't just Google "what does a management services firm charge?" You have to look at what value Patch LLC and Assai Pty Ltd together create, and divide it fairly based on who contributes what.
For groups with consolidated revenue exceeding AED 200 million, UAE CT Law requires formal transfer pricing documentation. Given that the Spot PJSC group has AED 4 billion in revenue, comprehensive documentation is mandatory.
A high-level overview of the multinational group — its structure, business, intangibles, financing, and financial positions. Provides context for all related-party transactions across the group.
Specific documentation for each material related-party transaction undertaken by the UAE entity (in this case, Patch LLC). Must demonstrate that the pricing of each transaction — including the management fees charged to Assai Pty Ltd — meets the arm's length standard.
For groups with consolidated revenue above AED 3.15 billion, a CbCR must be filed — showing how revenue, profit, tax, employees, and assets are distributed across each jurisdiction. This is exactly the type of document that would flag the low-tax Androglia entity and the disproportionately low fees paid to Patch LLC.
Penalty risk: Failure to maintain adequate transfer pricing documentation can result in FTA penalties in addition to any tax adjustment. For a group of this size, the documentation requirement is not optional — it must be in place before the CT return is filed, not assembled retrospectively after an FTA query.
Transfer pricing rules apply to all UAE taxable persons that have transactions with related parties or connected persons. However, formal documentation requirements (Master File, Local File) only apply to entities with annual revenues exceeding AED 200 million, or those that are part of a multinational group with consolidated revenue above AED 3.15 billion.
Under UAE CT Law, related parties (connected persons) include entities in which the same person holds a 50% or greater ownership interest, directors and their families, and entities under common control. The Spot PJSC group in our scenario is clearly related — 100% common ownership connects all entities.
Imagine two companies in the same group work together to create something valuable — one provides specialised expertise, the other provides market access. The Profit Split method takes the total profit earned by both together and divides it between them based on how much each contributed. For Patch LLC and Assai Pty Ltd, this means working out what proportion of the group's combined profit is attributable to Patch LLC's specialist management input.
Yes. The FTA can review transactions from previous tax periods within the statute of limitations period. For UAE CT purposes, records must be kept for 7 years. If related-party transactions in those prior periods were not priced at arm's length, the FTA may issue adjustments and penalties for those years too.
This guide reflects UAE CT Law and OECD Transfer Pricing Guidelines as adopted in the UAE, as at March 2026. Consult a qualified CT advisor for advice specific to your group structure.