The recent introduction of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (“UAE CT Law”) and the subsequent Ministerial Decision No. 97 of 2023 on Transfer Pricing (TP) compliance has fundamentally reshaped the way intra-group dealings are viewed in the UAE. While taxpayers have traditionally operated in an environment with minimal scrutiny around common control transactions such as intra-group transfers, business restructuring at book value, or interest-free funding, the advent of a robust TP regime has brought these practices into sharp focus.

What are common control transactions?
Broadly, common control transactions are arrangements between two or more entities that are under direct or indirect common ownership or control. Unlike third-party dealings, these transactions may not be driven by market forces but by group-level strategic or commercial considerations. Such transactions often include:

1. Share transfers at nominal or book value
   • Parent transferring shares of a subsidiary to another group company without consideration or at book value.
   • Intragroup reorganizations where shares are transferred to achieve simplified holding structures
2. Business transfers / hive-oƯs
   • Transfer of a line of business, division, or assets between group entities at net book value
   • Internal restructurings, spin-oƯs, or consolidation of business verticals.
3. Financing and funding transactions
   • Interest-free loans or funding facilities.
   • Provision of guarantees, comfort letters, or cash pooling arrangements without arm’s length compensation.
4. Intragroup service arrangements without compensation
   • Provision of management support, back-oƯice functions, or technical services without charging fees.
   • Instances of implicit support extended between entities
5. Transfers of intangible assets or rights
   • Assignment or migration of intellectual property at historical or book values.
   • Licensing or cost-free use of trademarks or know-how.

While these transactions are often justified as “internal” to the group and hence taxneutral in many jurisdictions, the UAE TP framework requires them to be tested against the arm’s length principle if they fall within the ambit of related party dealings.

The UAE TP perspective

Statutory Requirements
The UAE CT Law requires taxpayers to ensure that transactions with related parties (defined broadly, including common ownership and control scenarios) are conducted at arm’s length and in line with the OECD Transfer Pricing Guidelines (OECD TPG). The regime introduces:

• Article 34 of the CT Law – mandating arm’s length principle for related party transactions.
• Article 55 and Ministerial Decision No. 97 of 2023 – requiring disclosure of related party transactions, TP documentation (Local File, Master File), and evidence of compliance.

Thus, any common control transaction that has a bearing on taxable income is potentially within the TP net

Analysis of specific common control transactions

(a) Share Transfers at Nominal or Book Value
From a UAE TP perspective, such transactions raise critical issues:

• TP Implication: If the exemption from a UAE CT perspective applies, the transfer may not alter taxable income and arguably TP adjustment is not required.
  However, adequate documentation must substantiate the exemption conditions.
• Challenge: Where exemptions do not apply (e.g., cross-border transfer, nonqualifying holding), the valuation at book value versus fair market value could lead to a material tax exposure.

Solution: Taxpayers should:

• Perform a valuation exercise aligned with OECD guidelines to benchmark transfer prices, even if intra-group relief is available.
• Document the rationale for using book values (e.g., qualifying group relief, no external parties impacted).

(b) Business Transfers at Book Value

• TP Implication: The key concern is whether the book value reflects arm’s length consideration. The OECD TPG suggests that restructurings involving transfer of business or functions should be priced at fair value unless tax-neutral treatment applies.
• Challenge: Authorities may scrutinize whether value-driving intangibles (e.g., customer contracts, goodwill) have been transferred for nil or nominal value, especially where exemption provisions are not available.

Solution:

• Conduct a functional and valuation analysis of transferred business segments.
• Prepare documentation to demonstrate that either (i) exemption applies, or (ii) arm’s length valuation has been undertaken.

(c) Financing Transactions (Interest-Free Loans, Guarantees)

• TP Implication: Authorities may impute notional interest income or guarantee fees to align with arm’s length terms.
• Challenge: In practice, many UAE groups historically used shareholder loans without charging interest. This could now result in TP adjustments if material.

Solution:

• Conduct a creditworthiness and comparability analysis for intragroup loans.
• Where commercial rationale exists (e.g., short-term cash management), document reasons for zero interest.
• For guarantees or cash pools, assess the need for arm’s length remuneration.

(d) Intragroup Services Without Compensation 

• TP Implication: OECD TPG allows exclusion of “shareholder activities” or lowvalue services, but taxpayers must justify the categorization.
• Challenge: UAE entities may provide extensive support functions (e.g., treasury, strategy) without cross-charging. Authorities may demand justification for no compensation.

Solution:

• Apply benefit test – demonstrate whether services provide economic or commercial value to the recipient.
• Where services are shareholder in nature, maintain evidence to support exclusion.

(e) Transfers of Intangibles at Historical Values

• TP Implication: Arm’s length valuation of IP, considering DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) functions, is mandatory.
• Challenge: Under-valuation could result in significant tax adjustments.

Solution:

• Undertake robust IP valuation aligned with OECD Chapter VI.
• Document DEMPE functions within the UAE versus overseas entities.

Situations with No TP Implications

Not all common control transactions necessarily trigger TP adjustments. Certain situations may legitimately be outside the ambit:

• Qualifying Intra-group transactions under Article 27 – where exemptions apply and both entities are UAE resident.
• Transactions with no impact on Taxable Income – e.g., pure equity contributions, dividend distributions.
• Shareholder Activities – costs incurred solely for the benefit of shareholders without benefit to subsidiaries.

However, documentation is key to substantiate the absence of TP implications.

Documentation and Practical Guidance

Taxpayers should proactively prepare:

• Local File / Master File: Ensure all common control transactions are identified and characterized.
• Valuation Reports: Independent valuations for share, business, or IP transfers.
• Intercompany Agreements: Legal agreements to substantiate terms and commercial rationale.
• Benefit Tests: Evidence of benefits derived by service recipients.
• Board Resolutions / Internal Notes: Document commercial rationale for restructuring or financing decisions.

Anticipated Regulatory Approach in the UAE 

Based on global practice and OECD guidance, UAE authorities are likely to evaluate the commercial and business rationale and the underlying basis at which such transactions are entered into. Given the experience as to how these transactions are viewed globally by the Tax Authorities, the UAE authorities, at the time of audit, may:

• Scrutinize financing transactions and intangibles most closely, given inherent risks.
• Challenge nominal value transfers where taxable income could be understated.
• Demand clear and contemporaneous documentation even where exemptions apply.
• Follow OECD’s emphasis on substance over form, testing whether the arrangements align with commercial reality.

Key Takeaways for Taxpayers

1. Identify all common control transactions – not just obvious financing but also reorganizations, service arrangements, and intangibles.
2. Assess tax neutrality – leverage exemptions where possible but substantiate eligibility.
3. Apply arm’s length principle – for all material transactions impacting taxable income.
4. Document commercial rationale – board minutes, valuations, and agreements are essential.
5. Prepare for audits – UAE authorities are expected to scrutinize high-risk transactions in early years of the regime.

Common control transactions, long considered routine housekeeping exercises in the UAE, now require rigorous TP and tax analysis under the new regime. Whether transferring shares at book value, funding subsidiaries without interest, or reorganizing businesses, taxpayers must align with the arm’s length principle and be prepared with robust documentation.

Practitioners should note that all related party transactions may be subject to review. The availability of exemptions or a nil tax outcome does not eliminate the need for contemporaneous documentation to substantiate the position and mitigate the risk of disputes.

The UAE’s TP landscape is still in its formative stages, but the approach to common control transactions will be a defining feature of how robustly the regime evolves. Taxpayers who anticipate these challenges, rather than react to them, will position themselves to avoid controversy and maintain compliance in this new environment.