The Impact Of Transfer Pricing On Multinational Enterprises (MNEs) In The Middle East

In recent years, there has been a significant change in the tax landscape in the Middle East. This article takes an in-depth look at developments specific to transfer pricing...
United Arab Emirates Tax
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In recent years, there has been a significant change in the tax landscape in the Middle East. This article takes an in-depth look at developments specific to transfer pricing in the region and their impact on multinational enterprise (MNE) operations.

History of the Middle East tax landscape

Tax landscape changes in the region have mainly been driven by global initiatives issued by the Organization for Economic Corporation and Development (OECD) such as the Base Erosion and Profit Shifting (BEPS) project and the introduction of a global minimum tax under the Pillar Two project. As part of the BEPS project, the OECD introduced 15 action points to equip governments with domestic and international rules to address tax avoidance and transfer pricing issues.

Prior to the introduction of the Pillar Two project, the Gulf Cooperation Council (GCC) countries, which are primarily exporters of oil, had adopted nil to relatively low corporate tax (CT) rates. Although the Kingdom of Saudi Arabia (KSA) already taxes foreign corporates at 20 percent of their net adjusted profits, other countries such as the United Arab Emirates (UAE) only imposed CT on oil and gas companies at rates of up to 55 percent, and on branches of foreign banks at an emirates level flat tax rate of 20 percent. All other companies operating in different sectors were not subject to tax. Similarly, Bahrain, applies a CT rate on oil and gas companies at a rate of 46 percent whilst all other companies operating in different sectors are not subject to tax.

The initiatives introduced by the OECD and the requirements to meet international standards coupled with the need for a diversification of fiscal revenues have had a huge impact on the tax landscape of countries in the Middle East. Measures have already been taken by some Middle Eastern countries to ensure they meet these goals.

For instance, on 3 October 2022, the UAE solidified its commitment to global tax transparency and fiscal responsibility with the issuance of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (UAE CT Law)1. The UAE CT Law was the introduction of UAE TP rules as covered under Articles 34, 35, and 55. This cements its position as a leading global hub for businesses and investment and reaffirms the UAE's commitment in meeting international standards for tax transparency and preventing harmful tax practices. Additionally, Bahrain (as per various sources) are currently proposing to draft a corporate tax law and present it to the legislative authority during 2024.

Transfer pricing developments in the Middle East

The transfer pricing (TP) landscape has also evolved as a result of Middle East countries implementing the BEPS minimum standards, specifically Action 13 related to TP documentation and Country-by-Country Report (CbCR)2. This has resulted in countries such as Bahrain, Egypt, Jordan, KSA, Oman, Qatar, and most recently the UAE, to introduce TP and/or CbCR requirements.

It is important to note that the majority of countries that have adopted TP regulations in the Middle East region have aligned them with the OECD TP guidelines, with relatively minor but specific local requirements. This has allowed ease of interpretation of the rules and provides multinational enterprises (MNEs) with international based rules to interpret and ensure that the arm's length principle is appropriately applied on intercompany transactions / arrangements.

In the last couple of years, there have been many additional developments in the transfer pricing space in the Middle East, including the following:

  • Qatar – The introduction of TP rules, including the requirement to submit a TP master file and local file for financial years starting on or after 1 January 2020.
  • Oman – The introduction of CbCR requirements effective for financial years starting on or after fiscal years 1 January 2020.
  • Jordan – Joining the global forum on tax transparency and the inclusive framework on BEPS. Introduction of transfer pricing rules in the official Gazette on 7 June 2021.
  • United Arab Emirates – Introduction of the CT law and TP rules for all taxpayers effective for financial years starting on or after 1 June 2023.
  • KSA – Amending the 2019 version of the TP guidelines and extending the applicability of the TP Bylaws to Zakat payers effective for financial years starting on or after 1 January 2024.
  • Bahrain – Based on various sources, Bahrain is set to implement CT in the upcoming years and potentially transfer pricing rules.

Typical intercompany transactions in the Middle East and their role in MNEs

Transfer of assets

A common intercompany transaction that is prominent among many Middle Eastern MNEs is the transfer of assets such as raw materials, inventory and finished products between related parties within the region. This could include the movement of goods from manufacturing facilities in one country to distribution centres or retail outlets in another.

Key takeaway: Middle Eastern MNEs should document intercompany transfers of tangible assets thoroughly and benchmark prices against independent entities to ensure arm's length pricing of such transfers. A range of transfer pricing methods could be employed, depending on the operating model of the MNE.

Intra-Group service transactions

Intra-group service transactions are prevalent among Middle Eastern MNEs, with entities offering shared services such as HR, IT support or administrative functions to other subsidiaries within the group. For such low value adding services, which are supportive rather than core to the group's business, MNEs typically adopt a simplified approach, applying a 5 percent markup on relevant costs. It is important to note that according to OECD TP guidelines, this markup doesn't require substantiation through benchmarking studies. However, these service transactions necessitate careful evaluation of the value contributed to ascertain their supportive nature and non-core status within the MNE group.

Key takeaway: Higher value-added services can warrant a higher markup, or an even higher profit-based fee if appropriate, and would require separate benchmarking. Understanding this distinction allows MNEs to set appropriate prices for intra-group service arrangements and leverage simplified methods effectively.

Intercompany loan transactions

Moreover, intercompany loan transactions play a significant role in MNEs' financial management strategies in the Middle East. Subsidiaries may provide financing to other group entities for working capital needs, investment projects or liquidity management purposes. Some important factors MNEs should consider to determine the interest rate to charge in intercompany loans include the commercial and financial perspectives of the borrower, credit rating of the borrower, credit rating of the group, covenants and availability of guarantees.

Key takeaway: According to the OECD's TP Guidance on Financial Transactions (GOFT), the prevalence of borrowing and lending markets, along with readily available information of loan markets, facilitates the application of the Comparable Uncontrolled Price (CUP) method in financial transactions more than in other types of transactions. Additionally, other financial transactions such as guarantees and cash pools should also be priced on an arm's length basis.


In the Middle East region, intangibles hold significant importance due to several factors, including the prevalence and growth of Middle Eastern brands, the distinct and evolving customer preferences and the expanding knowledge sector. As a result of the non-physical nature of intangible assets, businesses often find it challenging to measure their value and contribution to the business and have not focused much on determining the arm's length pricing of intangibles.

Key takeaway: Conducting a DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) analysis is essential for determining the arm's length pricing of transactions involving intangibles. Considering that transactions involving intangibles may be subject to scrutiny by tax authorities, businesses need to ensure that they accurately price intangibles and accordingly remunerate the group entities involved in performing the DEMPE functions.

TP audits in the Middle East region

As a result of the introduction of TP rules, TP audits in the region have been on the rise, with a focus on ensuring that transactions performed between related parties meet the arm's length standards. We have observed significant trends in transfer pricing audits in the Middle East, notably a heightened scrutiny by tax authorities on arrangements where foreign businesses establish entities with limited functions, assets and risks in the Middle East, with most key functions undertaken by foreign entities.

An example of this can be seen where contracts are signed by local entities of MNEs in Middle Eastern countries, yet the execution and most functions associated with contract fulfilment take place abroad. This practice often leads to the shifting of profits to other Middle Eastern jurisdictions, prompting Middle Eastern tax authorities to closely examine the allocation of profits and ensure that transactions reflect arm's length principles. Consequently, businesses operating in the region should be vigilant in documenting their transfer pricing policies and demonstrating the substance of operations conducted within the Middle East to mitigate the risk of tax disputes.

Transfer pricing compliance requirements

Name of country Local file Master file Local File / Master file Submission requirements CbCR TP / Related Party Disclosure Form TP Affidavit Form TP Penalties
Bahrain No No N/A Yes No No N/A
Egypt Yes Yes Submit within two months of filing of their income tax return. Yes Yes (as part of the tax return) No Failure to declare accurate value of related party transactions:  1% of the total value of undeclared related party transactions during the year.

Failure to submit Local File / Master File: 3% of the total value of the relatedparty transactions during the year.

Failure to submit CbCR / CbC Notification (if the taxpayer is the UPE of a MNE or taxpayer is constituent entity: 2% of the total value of the related party transactions during the year.
Jordan Yes Yes Submit within 12 months following the tax period. Yes Yes Yes Failure to submit TP documentation: JOD 300 – JOD 1,000
KSA Yes Yes Maintain and submit within 30 days of request. Yes Yes Yes No TP specific penalties. All penalties and fines under the KSA Income Tax Law are applicable to TP matters. Penalties under the KSA Income Tax Law could range from 5% of the unsettled tax to 25% of the unsettled tax if the delay exceeds one year.
Kuwait Recommended 3 No Maintain and submit within one – two weeks of request. No No No Interest on any additional income tax due as a result of a TP adjustment: In the event of transfer pricing adjustments leading to an assessment of additional income, a penalty interest of 1% per month is applied.
Oman Recommended 4  No Maintain and submit within 30 days of request. Yes Yes (as part of the tax return)    Failure to submit CbCR: OMR 5,000
Qatar Yes Yes Submit within 60 days of the tax return filing deadline.  Yes Yes No Late submission of TP Documentation (i.e., Master File, Local File, and Disclosure Form): QAR 500 per day up to QAR 180,000.

Interest on any additional income tax due as a result of a TP adjustment: 1.5% per month of delay (capped at the amount of income tax due).
UAE 5 Yes Yes Maintain and submit within 30 days of request Yes Yes No No TP specific penalties. Penalties are expected to be applied as per Tax Procedures Law of 2017.

While local files can typically be submitted in English in most jurisdictions listed in the table above, it's important to note that tax authorities may request a translated version in Arabic. Taxpayers should be prepared to translate a local file into Arabic if requested, or have one readily available in the event of an inquiry.

It is important to note that other Middle Eastern countries such as Palestine, Iraq and Iran, not listed in the table above, currently do not have transfer pricing rules. However, it is still advised that all intercompany transactions with entities / branches in these countries are undertaken on an arm's length basis and documented accordingly.

Key takeaways

In response to the formal introduction of transfer pricing regulations across the Middle East region, MNEs should ensure that a detailed review is performed on their intercompany arrangements, which would include the following:

  1. Identification of related parties based on the local transfer pricing regulations. Notably, the definition of related parties is wider in many Middle East countries compared to the rest of the world.
  2. Testing the arm's length nature of the transfer pricing policies on the intercompany transactions. This should be an end-to-end assessment, from a functional and economic approach, all the way to testing the implementation of the policies in the annual accounts and tax returns.
  3. Maintaining contemporaneous TP documentation to support the application of the arm's length principle on the intercompany transactions (i.e. local file, master file), and translated into Arabic if required.
  4. Maintaining intra-group legal agreements to support the applicability of the intra-group transactions. These agreements should also be reviewed from a wider CT and indirect tax perspective.


1. Federal-Decree-Law-No.-47-of-2022-EN.pdf (

2. Action 13 - OECD BEPS

3. It is advisable to maintain and update TP documentation in case of an audit by Department of Inspections and Tax Claims.

4. The Oman Tax Authority expects that appropriate TP documentation is maintained and updated in the event of an audit.

5. TP documentation will be required to be prepared for financial years starting on or after 1 June 2023.

Originally Published 14 May 2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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