The independent analysis a documented position rests on

A benchmarking study is an independent economic analysis that compares the pricing or profitability of a group's related party transactions against those of comparable independent companies. Through a comparability analysis it establishes the arm's length range and shows where the tested transaction sits within it. It is what distinguishes a position asserted to be arm's length from one that can be demonstrated to be so.

In the UAE the study forms the analytical core of the Local File and supports the positions disclosed to the FTA. It is the evidence that a related party price meets the arm's length principle — the foundation not only of the documentation itself but of any response to an FTA enquiry. Without it, a filing states a conclusion the group cannot substantiate on request.

A comparability analysis identifies independent companies or transactions sufficiently similar to the tested transaction to serve as a benchmark. It considers the functions performed, assets used and risks assumed by each party, the contractual terms and the economic circumstances, then applies screening criteria to arrive at a reliable set of comparables. It is the foundation of the study — the arm's length range is only as sound as the comparability analysis behind it.

The arm's length range is the band of prices or financial results produced by comparable independent transactions — the range within which a related party price is regarded as consistent with the arm's length principle. Where the tested transaction falls inside the range, it is supported; where it falls outside, an adjustment may be required, and the FTA may adjust the taxable income accordingly. Establishing and defending that range is the central purpose of the study.

Because the FTA may request supporting documentation within a short period, and may examine a transaction whether or not it fell within the disclosure thresholds, a contemporaneous benchmarking analysis is best prepared ahead of an enquiry rather than in response to one. Where positions have moved, prior-year studies are refreshed so the evidence remains current, rather than left to describe a structure that has since changed.

Our approach

  • We characterise the tested party through a functional analysis.
  • We select the most appropriate transfer pricing method and profit level indicator.
  • We conduct the comparability analysis — searching recognised databases and applying disciplined screening criteria.
  • We determine the arm's length range and position the transaction within it, refreshing prior-year studies where positions have moved.

The UAE position

  • Methodology — Comparability analysis and method selection under the OECD Transfer Pricing Guidelines and the FTA TP Guide
  • Related documents — Transfer Pricing Policy; Local File; Disclosure Form