Transfer Pricing in simple terms

The United Nations in its practice Manual on Transfer Pricing (“TP”) defines TP as follows- “Transfer Pricing is the general term for pricing of cross border, intra firm transactions between related parties. Transfer Pricing therefore refers to the setting of prices for transactions between associated enterprises involving the transfer of property or services. These transactions are also referred to as “controlled transactions” distinct from uncontrolled transactions between Companies that are not Associated and can be assumed to operate independently (on an “arm’s length basis”) in setting terms for such transactions.”

Some relevant provisions of the Qatar Income Tax Law dealing with Transfer Pricing

Article 33 of the Tax Law gives the tax authority the right to counteract the tax advantage obtained by a taxpayer through an arrangement the main purpose of which is to avoid the payment of tax. This includes applying the arms-length principle to a transaction. Under Article 51 The Arms-Length Principle shall be applied in accordance with the Unrelated Comparable Price Method (“CUP”). The Unrelated Comparable Price Method simply means the Price that would have been adopted had the transaction been undertaken with a Third-Party unrelated entity. In case data under CUP is not available, the taxpayer is allowed to apply any other method approved by OECD, subject to approval from the Tax Authority. The OECD is Organization for Economic Cooperation and Development of which Qatar is a member as well and the OECD has laid down detailed guidelines to be followed with respect to Transfer Pricing.

The Tax Law states that the term Related Party must be considered in accordance with the classification under International Accounting Standards and require the Arm’s Length Price to be set up no longer than the date of filing of the Income Tax Return.

Filing Obligations

The following are the gist of the Transfer Pricing Filing obligations in Dhareeba Portal in Qatar:

Executive Summary

Companies in Qatar need to be extra careful while having transactions undertaken with Related Parties specifically considering the advent of the Transfer Pricing Regulations in Qatar. Transactions like advances and loans between related party entities, inter corporate guarantees, sale of goods and services, cross charge of head office expenses and other corporate expenses are all examples of transactions that can have a transfer pricing implication. If the arms length price of these transactions are not adequately documented, there is a high chance of the tax authorities making a TP adjustment/ addition to the total income declared by the tax payer for tax purposes. This can result in huge tax liability and penalties arising. Caution is the need of the hour and it is important for all Companies to have a robust Transfer Pricing Policy in Place at the entity level and at the Group Level to counter and tax assessments from a Transfer Pricing perspective. The key to all future tax litigation lies in extensive documentation – Arm’s length is going to be a definite key word moving forward for all tax assessments!!!