Benchmarking Related Party Transactions for Annual Audits: Best Practices for UAE Businesses
With the UAE's corporate tax framework now in effect, related party transactions are under sharp regulatory focus. Whether you're a small enterprise or a large multinational group operating in the UAE, benchmarking these transactions is critical to avoid tax risks and stay compliant during annual audits.
This blog explores how UAE businesses can benchmark related party transactions effectively, ensuring compliance and defending their pricing strategies during audits.
What Are Related Party Transactions?
Related party transactions (RPTs) occur between:
Parent and subsidiary companies
Sister companies (under common control)
Companies and their directors/shareholders
Family-owned entities under common ownership
Examples include:
- Management service fees
- Rent paid to related landlords
- Loan interest between sister companies
- Director’s consultancy fees
Because these transactions are not between independent parties, there's a risk of manipulated pricing, which is where benchmarking becomes essential.
Why Do You Need Benchmarking for Annual Audits?
Benchmarking proves that the prices set for related party transactions comply with the arm’s length principle—the global gold standard for transfer pricing.
In UAE audits, businesses must:
Justify the pricing of RPTs
Present benchmark data showing market comparables
Provide documentation in Local Files and Disclosure Forms
Key Elements of Effective Benchmarking for RPTs
1. Clear Functional Analysis
Define what each party contributes, functions, assets, and risks.
2. Method Selection
Common benchmarking methods for RPTs include:
Comparable Uncontrolled Price (CUP)
Transactional Net Margin Method (TNMM)
Cost Plus Method
3. Use of External Comparables
Support pricing with third-party transaction data from:
TP databases (Orbis, RoyaltyRange)
Market reports
Public financials of independent companies
4. Adjustments for UAE Market
Factor in local cost structures, market risks, and operational scales.
Common Benchmarking Mistakes in UAE Audits
Using only internal comparisons without third-party data
Failing to update benchmarks annually
Applying the wrong pricing method
Not documenting director or shareholder transactions
Overlooking non-monetary transactions (e.g., free services)
How Daxin Global Can Help
Daxin Global’s tax professionals and auditors help you:
Identify and classify RPTs
Benchmark using global-standard methods
Prepare audit-ready documentation
Align disclosures with UAE tax law
We bring clarity, credibility, and compliance to your annual audit process.