The written foundation of a group transfer pricing policy

A transfer pricing policy is a written document setting out how a group prices each category of intercompany transaction — goods, services, financing and intangibles — and why that pricing meets the arm's length principle. It records the method applied, the economic rationale behind it, and how the policy is governed in practice. It is the single reference against which pricing is applied, explained on enquiry, and kept consistent from one year's filing to the next.

A group needs a policy to price its intercompany transactions consistently and to explain and defend its positions if the FTA enquires. Without one, pricing tends to be set transaction by transaction and held in the knowledge of a few individuals — a fragile position, difficult to substantiate and easily challenged. A documented policy turns that into a durable, defensible basis that survives changes in personnel.

The policy should identify the group's related parties and the categories of transaction between them; state the transfer pricing method selected for each and its arm's length basis, supported by functional analysis and benchmarking; align with the underlying intercompany agreements; and describe how the policy is applied, monitored and updated. It should remain consistent with the Local File, the Master File and the filed Disclosure Form — the same account told across every document.

Beyond its contents, a robust policy is grounded in economic analysis, not assertion. The functional analysis of each party and the benchmarking behind the arm's length range are what give it substance, while the intercompany agreements — the contracts that give the policy legal effect — ensure the terms on paper match the pricing actually applied. Together these give the policy both an economic foundation and legal force, rather than leaving it a statement of intent.

Under this service we record the policy, translating the group's approach into a clear, usable document applied consistently across entities and periods. Where the policy itself requires design, that work sits within the Advisory service: documentation records and substantiates a policy already soundly designed, rather than devising the pricing approach from scratch. The two services meet, but do not overlap.

Our approach

  • We record the agreed pricing basis for each category of intercompany transaction.
  • We set out the economic rationale, linking pricing to the functional analysis and benchmarking evidence.
  • We align the policy with the group's intercompany agreements, so terms and pricing match.
  • We describe how the policy is applied, monitored and updated, and keep it consistent with the Local File, Master File and filed disclosure.

The UAE position

  • Grounded in — Functional analysis and benchmarking evidence, consistent with the OECD Guidelines and the FTA TP Guide
  • Related documents — Intercompany agreements; Benchmarking Study; Local File; Master File