UAE Corporate Tax: Downward Transfer Pricing Adjustments
A practical guide to FTA Public Clarification CTP011 on how Taxable Persons should manage downward adjustments made in the Tax Return
If your business deals with related parties — parent companies, subsidiaries, or other connected entities — the UAE Federal Tax Authority (FTA) has issued an important clarification you need to understand. Public Clarification CTP011 explains the rules around downward adjustments made in a Tax Return to comply with UAE Corporate Tax Law, and getting this wrong could expose your business to unwanted scrutiny during a tax audit.
The Core Rule: Arm’s Length Pricing
Under Article 34(1) of the Corporate Tax Law, all transactions and arrangements between Related Parties must meet the arm’s length standard — meaning the pricing should reflect what unrelated parties would agree to in a similar deal.
In an ideal world, your financial statements already reflect arm’s length pricing. But in practice, this is not always the case. When a transaction with a related party is not priced at arm’s length in your financial statements, you are required to make a transfer pricing adjustment in your Tax Return to correct this.
This adjustment can go in one of two ways:
- Upward adjustment – increases your Taxable Income
- Downward adjustment – decreases your Taxable Income
CTP011 focuses specifically on the downward kind, since these carry extra disclosure and documentation obligations.
No Pre-Approval Needed — But Be Ready for an Audit
Because Corporate Tax operates on a self-assessment basis, you do not need the FTA’s prior approval to make a transfer pricing adjustment in your Tax Return. You assess the need for adjustment yourself.
That said, self-assessment does mean no oversight. Any adjustment you make — upward or downward — can be reviewed as part of a Tax Audit. So, while you have autonomy, you also carry the full burden of proof if the FTA comes asking questions.
Disclosure: When Do You Need to Report It?
This is where downward adjustments differ meaningfully from upward ones:
- Upward adjustments only need to be disclosed in the Tax Return if the transactions with related parties exceed the applicable thresholds.
- Downward adjustments must be disclosed regardless of value or nature of the transaction. There is no threshold exemption here — even a small downward adjustment must be reported.
This asymmetry makes sense from the FTA’s perspective: downward adjustments reduce taxable income, so they naturally warrant closer attention.
What Documentation Should You Keep?
If you make a downward adjustment, CTP011 says you need to maintain sufficient supporting documents, including:
Symmetrical corresponding adjustments – evidence that the related party on the other side of the transaction made a matching adjustment.
Rationale for the adjustment – a clear explanation of why the original pricing in your financial statements did not reflect arm’s length pricing, and how the revised figures now align with the arm’s length standard.
Arm’s length analysis – including a benchmarking study that shows your transfer pricing adjustment is consistent with applicable transfer pricing methods and regulations.
Reconciliation – a clear mapping between the values recorded in your financial statements and the arm’s length values disclosed in your Tax Return.
Two Practical Examples from the Clarification
| Scenario | What Happens |
| Upward adjustment | A company sells goods to a related party below the arm’s length price, then makes an upward adjustment in its Tax Return to correct its taxable income. Disclosure is only required if the transaction exceeds the applicable threshold. |
| Downward adjustment | A company sells goods to a related party above the arm’s length price, then makes a downward adjustment. Disclosure is required in the Tax Return no matter the size or nature of the transaction. |
What This Clarification Does NOT Cover
It is worth noting the scope limits stated in CTP011: this guidance applies only to adjustments required under Article 34(1). It does not extend to the “corresponding adjustments” covered under:
Article 34(11) where a foreign tax authority adjusts a transaction involving a UAE taxable person, and that person can apply to the FTA for a corresponding adjustment to their own taxable income.
Article 34(10) where the FTA or a Taxable Person adjusts taxable income for a transaction, and the FTA makes a corresponding adjustment to the related party’s taxable income.
Key Takeaways
| Quick Reference • Related-party transactions must reflect arm’s length pricing — if they do not, fix it via a Tax Return adjustment. • Downward adjustments must always be disclosed, regardless of value or transaction type. • No prior FTA approval is needed but be ready to defend the adjustment in a Tax Audit. • Keep four categories of documentation: rationale, benchmarking analysis, reconciliation, and evidence of a matching adjustment. • This clarification excludes corresponding adjustments under Articles 34(10) and 34(11). |