Quick Take

As Corporate Tax filing deadlines approach for many UAE businesses, related-party transactions are moving higher up the compliance agenda.

On 15 July 2026, the UAE Federal Tax Authority issued Corporate Tax Public Clarification CTP011, setting out how taxpayers should deal with downward transfer pricing adjustments in their Corporate Tax Returns.

The clarification is particularly relevant for group companies, family-owned businesses, holding structures and entities transacting with shareholders, directors or other connected parties.

The core message is simple:

A downward adjustment may reduce taxable income, but it must be commercially justified, properly disclosed and supported by reliable transfer pricing evidence.

Why Has the FTA Issued This Clarification?

Transactions between related parties are common across the UAE business landscape.

A group company may charge management fees to another entity. A shareholder may provide financing to a company. One business may sell goods or services to another company under common ownership. Group expenses may also be allocated across several entities.

The challenge is that these transactions are not always priced in the same way as transactions between independent businesses.

For example, a related-party transaction may involve:

• management fees that are higher than commercially supportable;
• goods sold above or below market value;
• loans provided without interest or at below-market rates;
• group expenses allocated without a clear basis; or
• charges that an independent customer, supplier or lender would not ordinarily accept.

CTP011 explains how businesses should deal with these situations where correcting the price in the Corporate Tax Return would reduce taxable income.

It also clarifies the disclosure and documentation expectations that apply when a taxpayer makes such an adjustment.

The Arm’s Length Principle

Under the UAE Corporate Tax Law, transactions between related parties must satisfy the arm’s length principle.

In practical terms, the price, fee, interest rate or commercial condition applied should be comparable to what independent parties would agree under similar circumstances.

The practical question is:

Would an independent party have accepted the same terms?

Where the answer is no, a transfer pricing adjustment may be required.

That adjustment may either:

• increase taxable income, known as an upward adjustment; or
• decrease taxable income, known as a downward adjustment.

What Is a Downward Adjustment?

A downward adjustment arises where the income recorded in the financial statements is higher, or the expense recorded is lower, than the amount that would have applied under arm’s length conditions.

The adjustment is then reflected in the Corporate Tax Return and reduces taxable income.

However, this should not be viewed as a simple tax-saving mechanism.

The taxpayer must be able to demonstrate that the revised amount is commercially reasonable and supported by an appropriate transfer pricing analysis.

A Practical Example

Assume Company A, a UAE company, sells goods to a related group company for AED 1,000,000.

As part of its year-end transfer pricing review, Company A determines that independent businesses would have charged AED 850,000 for the same goods under comparable circumstances.

The financial statements therefore include AED 150,000 more revenue than the arm’s length amount.

Company A may consider making a downward adjustment of AED 150,000 in its Corporate Tax Return.

Before making the adjustment, Company A should be able to explain:

• why the original price was not commercially appropriate;
• how the revised price of AED 850,000 was determined;
• what benchmarking or market data supports that price;
• how the financial statement amount reconciles with the Corporate Tax Return; and
• whether the related company has applied a corresponding treatment.

Without clear evidence, the FTA may challenge the adjustment during a future tax audit.

No Prior Approval, but Full Responsibility

A taxpayer does not need to obtain prior approval from the FTA before making a downward transfer pricing adjustment.

The UAE Corporate Tax regime operates on a self-assessment basis. This means the taxpayer is responsible for determining whether the adjustment is correct and whether it is adequately supported.

The FTA may, however, review the adjustment at a later stage.

This is why internal estimates or management calculations alone may not be sufficient. The adjustment should be supported by a clear transfer pricing methodology and reliable commercial evidence.

Disclosure May Be Required Regardless of Value

One of the most important points in CTP011 is that every related-party transaction for which a downward adjustment is made must be disclosed in the Corporate Tax Return.

This applies regardless of the value or nature of the transaction.

As a result, even where a transaction falls below the usual related-party disclosure threshold, it may still need to be reported if a downward adjustment is claimed.

Businesses should therefore not assume that a smaller transaction can remain outside the disclosure process.

What Supporting Documents Should Be Maintained?

A business making a downward adjustment should retain a strong supporting file.

This may include:

• a written explanation of the adjustment;
• an arm’s length analysis;
• a suitable benchmarking study;
• a reconciliation between the financial statements and the Corporate Tax Return;
• details of the transfer pricing method used; and
• evidence of the corresponding treatment applied by the related party.

The stronger the documentation, the easier it will be to defend the adjustment if the FTA requests further information.

Why the Timing Matters

The clarification was issued as many UAE businesses are finalizing their accounting records and preparing upcoming Corporate Tax Returns.

CTP011 does not necessarily introduce a new legal requirement. The arm’s length principle already applies under Article 34 of the UAE Corporate Tax Law.

What the clarification does is explain how the existing rule should be applied where a taxpayer seeks to reduce taxable income through a downward adjustment.

Its publication is therefore a timely reminder that transfer pricing reviews should not be left until the final stage of the filing process.

Before submitting a Corporate Tax Return, businesses should:

• review all related-party transactions;
• identify any pricing that may not reflect market terms;
• prepare appropriate benchmarking support;
• confirm the corresponding treatment by the related party; and
• ensure that all required disclosures are completed correctly.

The DFO View

For family businesses and corporate groups, related-party transactions are often part of normal commercial operations.

The risk arises when those transactions are not documented, not benchmarked or not reviewed before filing.

A downward adjustment can be valid and commercially appropriate. However, it must be approached as a technical transfer pricing position rather than a simple tax reduction.

The taxpayer should be able to show not only that the original price was incorrect, but also that the revised price reflects what independent parties would reasonably have agreed.

Final Takeaway

The FTA’s message is clear:

A downward adjustment may reduce taxable income, but it must be fully justified, properly disclosed and supported by reliable evidence.

For businesses preparing their Corporate Tax Returns, now is the right time to review related-party transactions, resolve pricing inconsistencies and strengthen the supporting documentation before the filing deadline.