What Records Does Transfer Pricing Require?

Unpacking that

Transfer pricing documentation is the evidence layer that supports the arm’s-length pricing of related party transactions. Where the arm’s-length principle requires connected-party transactions to be at market terms, transfer pricing documentation is how you demonstrate that they are, and the UAE corporate tax regime imposes documentation obligations whose extent scales with the business and its transactions.

The documentation requirements typically operate at a few levels. At the most basic, there may be a requirement to disclose related party transactions, a summary, often filed with or alongside the tax return, of the related party and connected-person transactions the entity has entered into. Above certain thresholds, more comprehensive documentation is required, commonly in the internationally-recognised form of a master file and a local file. The master file provides a high-level overview of the whole group (its structure, its business, its overall transfer pricing policies and its intangibles and financing) giving context. The local file focuses on the specific entity and its related party transactions, analysing them in detail and demonstrating that each is at arm’s length, typically through a functional analysis (what each party does, the assets used, the risks borne) and a comparability analysis (how the pricing compares to what independents would agree).

The extent of what any given business must maintain depends on thresholds relating to the size of the business or group and the scale of the transactions, and the precise requirements, thresholds and forms are set in the corporate tax legislation and should be confirmed there. But the principle across all levels is consistent: the documentation exists to demonstrate arm’s-length pricing. So the question ‘what records does transfer pricing require’ resolves into: enough to show that your related party transactions are at arm’s length, in the form and to the extent your size and transactions demand, which for a small business may be limited, and for a large group may be extensive master and local files.

The levels of transfer pricing documentation

Transfer pricing documentation obligations typically scale across these levels, with what applies depending on thresholds:

• Related party transaction disclosure: a summary of related party and connected-person transactions, often with the tax return
• Local file: detailed, entity-level analysis of your related party transactions, demonstrating each is at arm’s length
• Master file: group-level overview of structure, business, transfer pricing policies, intangibles and financing
• Functional analysis: within the documentation, setting out what each party does, the assets used and risks borne
• Comparability analysis: showing how the pricing compares to what independent parties would agree
• Supporting evidence: agreements, calculations and data underpinning the arm’s-length conclusions

What you must maintain depends on your size and the scale of your transactions, a small business with limited related party dealings has lighter obligations than a large group required to prepare full master and local files. But the purpose at every level is the same: to demonstrate arm’s-length pricing.

What the documentation actually demonstrates

Understanding what transfer pricing documentation is trying to show clarifies what makes it adequate rather than just voluminous.

The core thing the documentation must demonstrate is that each related party transaction is priced at arm’s length, at the terms independent parties would have agreed. To do this credibly, good transfer pricing documentation does two analytical things. The functional analysis establishes the economic substance of the transaction: what each party actually does, the assets it uses, and the risks it bears. This matters because arm’s-length pricing follows economic substance, the party doing more, using more valuable assets, and bearing more risk should earn more. The comparability analysis then benchmarks the pricing against what independent parties would agree in comparable circumstances, using comparable transactions or financial data, to show the intercompany price falls within an arm’s-length range.

Adequate documentation, therefore, is not just a description of the transactions but a reasoned demonstration, grounded in the functional and comparability analyses, that the pricing is arm’s length. A file that merely lists related party transactions without analysing whether their pricing is at arm’s length does not really do the job, even if it is lengthy. Conversely, a well-constructed local file that analyses the functions, assets and risks and benchmarks the pricing provides genuine support for the arm’s-length position.

This is why transfer pricing documentation is a specialised exercise, particularly the analytical elements. For simpler transactions the analysis may be relatively straightforward; for complex intercompany arrangements it can require real expertise in transfer pricing methods and comparables. The documentation’s value lies in the quality of that analysis, because it is what would support your position if the FTA examined your related party pricing.

Meeting your obligations proportionately

For a business, meeting transfer pricing documentation obligations means first establishing what applies to you, then preparing documentation proportionate to that, and keeping it current.

The first step is to determine your obligations: what documentation do the rules require given the size of your business or group and the scale and nature of your related party transactions? A small business with limited intercompany dealings may have only a disclosure obligation; a larger business or one that is part of a group meeting the thresholds may need full local and master files. Confirming which level applies to you, against the current thresholds and rules, is essential so you neither under-comply (missing a required file) nor over-prepare (building extensive documentation you are not required to maintain).

The second step is to prepare the required documentation to an adequate standard, genuinely demonstrating arm’s-length pricing through the functional and comparability analyses, not merely describing the transactions. For the disclosure level, this means accurately summarising the related party transactions; for the local and master file level, it means proper analytical documentation. The third is to keep it current: related party transactions and the business change, so documentation prepared once and never updated can become stale and unsupportive of the current position.

The practical cautions are to confirm your actual obligations rather than assuming, to prepare documentation that genuinely demonstrates arm’s-length pricing rather than just describing transactions, and to remember that for free zone companies transfer pricing compliance is a QFZP condition, giving the documentation added importance. Because transfer pricing documentation is technical, the obligations depend on thresholds, and the analytical elements require expertise, it is an area where advice pays off for any business with material related party transactions, both to establish what is required and to prepare documentation that would actually support your position under examination. Done proportionately and well, transfer pricing documentation is the evidence that makes your related party pricing defensible; neglected or done superficially, it leaves your intercompany dealings exposed despite the underlying pricing perhaps being sound.

What people get wrong

• Assuming transfer pricing documentation is only for large multinationals, when obligations scale to your size.
• Preparing documentation that merely describes transactions without demonstrating arm’s-length pricing.
• Under-complying by missing a required file at your threshold level.
• Over-preparing extensive documentation you are not required to maintain.
• Omitting the functional and comparability analyses that give the documentation its value.
• Letting documentation go stale as transactions and the business change.
• Neglecting documentation where it is a QFZP condition for free zone 0 per cent.

What to do about it

1. Determine your documentation obligations from the thresholds and your transactions.
2. Prepare the required level: disclosure, or local and master files.
3. Include the functional and comparability analyses that demonstrate arm’s-length pricing.
4. Keep the documentation current as transactions and the business change.
5. Get advice for material related party transactions and confirm the current rules.

Related questions

Frequently Asked Questions

Last reviewed 27 July 2026. Rates, thresholds and deadlines change, the e-invoicing provider deadline has already moved once. Confirm current requirements with the Federal Tax Authority before acting, or ask us to check your position.