The UAE Federal Tax Authority issued Public Clarification CTP011, confirming that downward transfer pricing adjustments under Article 34(1) of the Corporate Tax Law must be disclosed in full regardless of transaction value, and must be backed by rationale, benchmarking analysis, reconciliation, and evidence of symmetrical corresponding adjustments by related parties. 

RF Report

The UAE Federal Tax Authority (FTA) has issued Public Clarification CTP011 on 15 July 2026, clarifying the requirements for transfer pricing adjustments under the Corporate Tax Law.

It mandates that all transactions between Related Parties must adhere to the arm’s length standard, requiring a Taxable Person to adjust their Taxable Income if financial records do not reflect market-value pricing. While upward adjustments increase taxable income, downward adjustments decrease it and require rigorous disclosure in tax returns regardless of the transaction’s size.

Under Article 34(1) of the Corporate Tax Law (CTL), all transactions and arrangements between related parties must meet the arm’s length standard. When a taxable person’s financial statements do not reflect this standard, they must make a transfer pricing (TP) adjustment in their Tax Return. If this adjustment results in a decrease in the Taxable Income, it is classified as a downward adjustment.

The Federal Tax Authority (FTA) has outlined specific requirements and considerations for these downward adjustments to ensure strict compliance and transparency. These include:

Self-assessment basis and audit risk 

Because the UAE Corporate Tax regime operates on a self-assessment basis, a taxable person is empowered to evaluate their own need for a TP adjustment. You do not need to obtain prior approval from the FTA to execute a downward adjustment in your Tax Return. However, this autonomy is balanced by regulatory oversight, meaning that any adjustment you make is fully subject to a potential Tax Audit by the FTA.

Mandatory disclosure without thresholds 

The FTA imposes stringent disclosure rules specifically for downward adjustments. While upward adjustments (which increase taxable income) only require disclosure if the transactions exceed applicable prescribed thresholds, the rule for downward adjustments is absolute. All transactions and arrangements for which a downward adjustment is made must be disclosed in the Tax Return, irrespective of their value or nature. This ensures the FTA maintains total visibility over any self-directed reductions in a taxpayer’s taxable income.

Rigorous documentation requirements 

To substantiate the downward adjustment and defend it during a potential tax audit, a taxable person must maintain sufficient and comprehensive documentation. The FTA mandates four key pillars of documentation:

  • The rationale: You must clearly explain why the original pricing recorded in your Financial Statements failed to reflect the arm’s length principle, and demonstrate exactly how your revised outcome aligns with the arm’s length standard.
  • Arm’s length analysis: You must provide a formal analysis, which includes a benchmarking study, to serve as evidence that your TP adjustment is consistent with applicable TP methodologies and regulations.
  • Reconciliation: You must provide a clear mathematical mapping that reconciles the initial values recorded in your Financial Statements with the adjusted arm’s length values you are disclosing in the Tax Return.
  • Symmetrical corresponding adjustments: You must provide evidence that the relevant related parties involved in the transactions or arrangements have made symmetrical corresponding adjustments on their end.

Scope limitation 

It is critical to note that the FTA’s clarification on this matter has a strict scope. It applies solely to initial adjustments required under Article 34(1) of the CTL to ensure transactions meet the arm’s length standard. The guidance does not extend to corresponding adjustments under Articles 34(10) and 34(11) of the CTL. To distinguish these:

  • Article 34(10): It applies when the FTA (or the taxable person) adjusts the taxable income of one party, and the FTA must make a corresponding adjustment to the taxable income of the related party.
  • Article 34(11): It applies to international scenarios where a foreign competent authority adjusts a transaction, allowing the UAE taxable person to submit an application to the FTA for a corresponding adjustment to their own income.