India–UAE Related-Party Transactions: Transfer-Pricing Compliance Guide

Summary: India–UAE related-party transactions require coordinated transfer-pricing analysis because both jurisdictions apply the arm’s-length principle to covered dealings between associated or related enterprises. Common transactions include management and consultancy services, software development, intercompany loans, guarantees, royalties, distribution arrangements, cost sharing and reimbursements. For periods governed by the Income-tax Act, 1961, India’s principal framework is contained in Sections 92 to 92F and Rules 10A to 10E, while the Income-tax Act, 2025 reorganises the transfer-pricing framework for periods governed by the new legislation. UAE Corporate Tax law independently requires Related-Party transactions and specified dealings with Connected Persons to satisfy arm’s-length standards. A defensible transfer-pricing position therefore requires more than agreements and invoices: taxpayers should establish the commercial rationale, functions performed, assets used, risks controlled, pricing methodology and contemporaneous evidence supporting each material transaction. Indian businesses must also consider documentation and accountant-reporting requirements, while UAE entities may face disclosure, local-file and master-file obligations depending on applicable thresholds. The two countries’ analyses should remain factually consistent even where local rules differ. Transfer pricing must also be distinguished from withholding tax, GST or VAT, foreign-exchange requirements and treaty analysis under the India–UAE DTAA. Effective compliance is therefore a continuing process of aligning contracts, actual conduct, accounting records, pricing policies and tax disclosures across both jurisdictions.

Why Transfer Pricing Matters in India–UAE Structures

Transfer pricing affects where the profits of a multinational or cross-border group are reported.

Consider an Indian company that pays a substantial management fee to a UAE related party. If the UAE company has qualified personnel, performs identifiable work and charges a market-based fee, the payment may be commercially supportable.

The position becomes more difficult when the UAE entity has no employees, does not prepare any deliverables and merely issues a year-end invoice calculated as a percentage of the Indian company’s revenue. Indian tax authorities may question whether services were actually received, whether the payment produced a benefit and whether an independent business would have paid the same amount.

The reverse situation also requires attention. If an Indian company provides valuable operational support to a UAE affiliate without charging an appropriate fee, profits may have been shifted away from India. UAE transfer-pricing rules can independently examine whether the UAE company has paid an arm’s-length amount.

A single transaction may therefore need to satisfy:

• Indian transfer-pricing requirements;
• UAE Corporate Tax transfer-pricing requirements;
• The India–UAE Double Taxation Avoidance Agreement;
• Withholding-tax provisions;
• Goods and Services Tax or UAE VAT requirements;
• Foreign-exchange regulations; and
• Financial-reporting and company-law requirements.

Compliance in one area does not automatically settle the others.

Indian Transfer-Pricing Framework

For periods governed by the Income-tax Act, 1961, Sections 92 to 92F and Rules 10A to 10E contain the principal Indian transfer-pricing provisions.

Section 92 requires income arising from an international transaction to be computed with reference to the arm’s-length price. The rule also applies to relevant expenditure, interest and cost-allocation arrangements.

The legislation identifies:

• Associated enterprises;
• International transactions;
• Specified domestic transactions;
• Permitted methods for determining the arm’s-length price;
• Record-keeping requirements; and
• The obligation to obtain an accountant’s report.

The Income-tax Act, 2025 applies from 1 April 2026. Businesses should therefore use the statutory framework applicable to the relevant tax year and review the corresponding provisions, rules and prescribed forms under the new regime. Older section references remain important when reviewing years governed by the 1961 Act, assessments, appeals and pending proceedings.

When Two Enterprises Are Associated

Under the Indian framework applicable to periods governed by the 1961 Act, Section 92A covers relationships based on participation in the management, control or capital of another enterprise.

Association is not determined only by whether one company owns all the shares of another. The detailed tests may cover matters such as:

• Direct or indirect voting rights;
• Common ownership;
• Loans representing a prescribed proportion of the borrower’s assets;
• Guarantees covering a significant part of the borrower’s borrowings;
• Appointment of directors or executive directors;
• Dependence on intellectual property;
• Dependence on the supply of raw materials;
• Dependence on sales to another enterprise;
• Common control by individuals or their relatives; and
• Relationships involving firms, associations and family-controlled entities.

Businesses should not assume that transfer pricing is irrelevant merely because the shareholding is below 50%. The statutory tests must be examined individually.

The UAE definition of a Related Party also extends beyond wholly owned group companies. It covers specified ownership, control and family relationships. Transactions involving owners, directors, officers and certain connected persons may consequently require separate review under UAE Corporate Tax law.

Meaning of an International Transaction

An Indian enterprise’s transaction with a non-resident associated enterprise can fall within the definition of an international transaction.

The definition is broad and may include:

• Purchase or sale of goods;
• Provision or receipt of services;
• Transfer or use of tangible property;
• Transfer or use of intangible property;
• Borrowing or lending money;
• Guarantees;
• Cost-sharing arrangements;
• Business restructuring;
• Transfer of functions, assets or risks;
• Deferred payments and receivables; and
• Arrangements affecting profits, income, losses or assets.

Transactions need not always involve an immediate cash payment. An interest-free loan, delayed trade receivable, free use of intellectual property or provision of services without charging a fee may still require an arm’s-length analysis.

In specified circumstances, a transaction between an enterprise and an independent party can also be treated as a deemed international transaction where a related foreign enterprise has a prior agreement concerning the transaction or effectively determines its terms.

UAE Transfer-Pricing Framework

The UAE Corporate Tax Law requires transactions and arrangements between Related Parties to meet the arm’s-length standard. The rules also cover payments and benefits provided to Connected Persons.

UAE transfer-pricing requirements apply to domestic as well as cross-border transactions. Therefore, a UAE company cannot ignore the rules merely because both parties are established in the UAE. Transactions involving free-zone entities, mainland companies, exempt persons or persons subject to different Corporate Tax outcomes can receive particular attention.

Under the UAE framework, a transaction satisfies the arm’s-length principle when its result is consistent with the result that would have arisen between independent parties under comparable circumstances.

The Federal Tax Authority may consider the contractual terms together with:

• The actual conduct of the parties;
• Functions performed;
• Assets used;
• Risks assumed;
• Characteristics of the goods, services or rights;
• Market and economic circumstances; and
• Business strategies followed by the parties.

If the contract says that a UAE company controls an important commercial risk but all decisions are made by personnel in India, the written allocation may not be accepted without supporting facts.

Transactions Commonly Seen Between Indian and UAE Businesses

Management and Consultancy Fees

Management fees are among the most frequently questioned related-party payments.

A valid agreement and invoice are necessary, but they do not establish that services were actually provided. The payer should be able to demonstrate:

• The commercial need for the services;
• Who performed the work;
• The time spent;
• Deliverables produced;
• Benefits received by the payer;
• The cost base used;
• The reason for the markup; and
• The basis of allocation among group companies.

Shareholder activities should be distinguished from services supplied to an operating company. Costs incurred only because a person owns or supervises an investment may not justify a service charge to the subsidiary.

Duplicative services can also be challenged. An Indian company may find it difficult to justify paying a UAE affiliate for work already performed by its own employees or another service provider unless an additional commercial benefit can be demonstrated.

Intercompany Loans

Loans between Indian and UAE related parties should carry commercially supportable terms.

The analysis should consider:

• Currency of the loan;
• Amount and duration;
• Creditworthiness of the borrower;
• Security provided;
• Repayment schedule;
• Seniority;
• Market interest rates;
• Purpose of the borrowing;
• Guarantees or implicit group support; and
• Options realistically available to the parties.

Applying the lending company’s domestic bank rate without considering currency and borrower risk may produce an unreliable result.

An interest-free loan should not be treated as automatically acceptable merely because both companies have the same owner. Apart from transfer pricing, the parties must consider India’s foreign-exchange and overseas-investment rules, withholding tax, interest-deduction restrictions and UAE Corporate Tax consequences.

Corporate Guarantees

A parent or group company may guarantee a bank loan obtained by a related enterprise. Tax authorities may examine whether an independent guarantor would have charged a fee and, if so, the arm’s-length amount.

The analysis should identify the benefit produced by the guarantee. It may involve access to funding, an increase in borrowing capacity or a reduction in the interest rate.

Not every form of group support has the same character. A formal legally enforceable guarantee should be distinguished from passive association or an expectation that a parent may protect its subsidiary’s reputation.

Royalties and Intellectual Property

A UAE company may charge an Indian affiliate for using a trademark, software platform, technical process, customer database or other intellectual property.

The existence of a registered legal owner does not, by itself, establish entitlement to all income from the intangible. The analysis should examine which entity:

• Developed or acquired the asset;
• Funded its development;
• Maintains and protects it;
• Makes decisions concerning its exploitation;
• Controls the associated risks; and
• Performs functions that increase its value.

A royalty calculated as a percentage of revenue may require benchmarking against comparable licensing arrangements. The taxpayer must also consider whether the payment is classified as royalty under Indian domestic law and the India–UAE DTAA, whether tax must be withheld and whether GST implications arise.

Distribution and Trading Arrangements

A UAE company may purchase products from an Indian related party and resell them in the Middle East, or an Indian distributor may sell products manufactured by a UAE affiliate.

The pricing analysis should reflect the distributor’s actual role. A routine distributor with limited market risk is different from an enterprise that owns customer relationships, develops the local market, maintains inventory and assumes credit, warranty and product risks.

The contract should be consistent with actual conduct. Describing an entity as a limited-risk distributor will not be persuasive if it bears substantial losses, controls pricing and independently manages strategic market functions.

Software, Technical and Support Services

India–UAE groups frequently exchange software development, accounting, marketing, customer support and technical services.

Cost-plus pricing may be appropriate for some routine services, but the selected cost base must be accurate. Pass-through expenses, shareholder costs, duplicated work and expenses unrelated to the recipient should be separately considered.

The parties should retain:

• Project plans;
• Service requests;
• Timesheets;
• Employee details;
• Technical reports;
• Emails;
• Meeting records;
• Work products;
• Acceptance confirmations; and
• Calculations supporting the charge.

A generic invoice stating “consultancy services” provides little assistance during an audit.

Cost-Sharing and Reimbursements

Group businesses commonly share accounting software, office facilities, insurance, subscriptions, travel or central personnel.

A reimbursement without a markup may be acceptable where one entity merely pays an external cost on behalf of another and does not add value. However, the taxpayer should be able to trace the original expense and demonstrate that it belongs to the recipient.

Where the paying entity performs an additional service, manages vendors, assumes risk or uses its own personnel, an arm’s-length markup may be appropriate.

Allocation keys should reflect the benefit received. Depending on the expense, reasonable allocation factors may include employee numbers, users, transaction volume, floor area or revenue. Revenue should not be used automatically for every cost simply because it is convenient.

Selecting the Transfer-Pricing Method

Indian and UAE rules recognise the commonly accepted transfer-pricing methods. These include:

• Comparable Uncontrolled Price Method;
• Resale Price Method;
• Cost Plus Method;
• Transactional Net Margin Method;
• Profit Split Method; and
• Other permitted methods where appropriate.

No single method is automatically suitable for every transaction.

Comparable Uncontrolled Price Method

This method compares the price charged in a controlled transaction with the price in a comparable transaction between independent parties.

It can be useful for loans, royalties, commodities and transactions where reliable internal or external comparable prices exist. Comparability adjustments may be required for volume, geography, credit risk, contractual terms and market conditions.

Resale Price Method

This method generally begins with the price at which a product purchased from a related party is resold to an independent customer. An appropriate resale margin is deducted to determine the arm’s-length purchase price.

It is often relevant for routine distributors that do not add substantial value or own valuable marketing intangibles.

Cost Plus Method

The Cost Plus Method applies an arm’s-length markup to an appropriate cost base. It may be suitable for routine manufacturing, support or service activities.

The reliability of the result depends on consistent treatment of direct costs, indirect costs, pass-through expenses and accounting classifications.

Transactional Net Margin Method

The Transactional Net Margin Method compares the tested party’s net profit indicator with the margins earned by comparable independent enterprises.

Possible indicators include operating profit relative to sales, costs or assets. The tested party is generally the entity for which reliable comparable data and fewer complex adjustments are required.

Although this method is widely used, it should not become a substitute for understanding the transaction. A database search cannot correct an inaccurate functional analysis.

Profit Split Method

The Profit Split Method may be appropriate where both parties make unique and valuable contributions, own important intangibles or conduct highly integrated activities that cannot be reliably evaluated separately.

This method requires a reasoned basis for identifying combined profit and dividing it according to the parties’ contributions.

Functional Analysis: The Foundation of the Study

A credible transfer-pricing report begins with a functional analysis, often described as a functions, assets and risks analysis.

It should identify what each party actually contributes.

Functions may include:

• Product design;
• Procurement;
• Manufacturing;
• Quality control;
• Marketing;
• Sales;
• Customer support;
• Financial management;
• Strategic decision-making; and
• Intellectual-property development.

Assets may include:

• Equipment;
• Inventory;
• Offices;
• Software;
• Trademarks;
• Customer relationships;
• Proprietary information; and
• Skilled personnel.

Risks may include:

• Market risk;
• Inventory risk;
• Credit risk;
• Product-liability risk;
• Foreign-exchange risk;
• Research and development risk;
• Capacity risk; and
• Regulatory risk.

A risk should not be allocated to an entity merely through contractual language. The entity should possess the capability and authority to manage that risk and the financial capacity to bear its consequences.

Indian Documentation and Form 3CEB

For periods governed by the Income-tax Act, 1961, Section 92D and Rule 10D prescribe transfer-pricing documentation requirements.

The documentation may include:

• Group ownership and organizational structure;
• Business description;
• Nature and terms of international transactions;
• Functional and risk analysis;
• Economic and market analysis;
• Method-selection reasoning;
• Comparable-company or comparable-transaction searches;
• Adjustments made;
• Arm’s-length calculations;
• Agreements and invoices; and
• Supporting correspondence and evidence.

Rule 10D historically provided relief from maintaining the complete prescribed documentation where the aggregate value of international transactions did not exceed INR 1 crore. This relief should not be misunderstood as an exemption from the arm’s-length requirement. The taxpayer should still maintain sufficient evidence to demonstrate that its pricing is reasonable.

Section 92E required a person entering into an international transaction or specified domestic transaction to obtain and furnish an accountant’s report in Form 3CEB.

There is generally no broad minimum-value exemption from Form 3CEB merely because a transaction is small. Even transactions that do not require the complete Rule 10D file may still have to be reported.

Applicable deadlines, forms and electronic-filing procedures should be checked for the relevant tax year, particularly following the commencement of the Income-tax Act, 2025.

Larger multinational groups may also need to examine Indian master-file and country-by-country reporting requirements, including the prescribed forms and monetary thresholds.

UAE Disclosure and Documentation Requirements

A UAE taxable person may have to complete the transfer-pricing disclosure schedule as part of its Corporate Tax Return when the prescribed conditions and thresholds are met.

Under current Federal Tax Authority guidance, the disclosure thresholds generally consider:

• Aggregate Related-Party transactions exceeding AED 40 million, with disclosure by transaction category generally applying where the category exceeds AED 4 million; and
• Payments or benefits to Connected Persons exceeding an aggregate of AED 500,000.

The applicable return, decisions and Federal Tax Authority guidance should be checked for the relevant tax period.

A master file and local file are generally required where the taxable person:

• Is a constituent company of a multinational enterprise group with consolidated group revenue of at least AED 3.15 billion; or
• Has revenue of at least AED 200 million in the relevant tax period.

Whether a particular transaction must be included in the local file also depends on the status of the counterparty under the applicable UAE rules.

Taxpayers falling below these documentation thresholds are not released from the arm’s-length principle. They should retain records proportionate to the nature and value of their transactions.

Transfer-pricing documentation requested by the Federal Tax Authority must generally be provided within 30 days or another period specified by the Authority. Corporate Tax records ordinarily need to be retained for seven years following the end of the relevant tax period.

One Transaction, Two Transfer-Pricing Analyses

An India–UAE transaction should not be supported by two unrelated studies producing inconsistent conclusions.

For example, assume that an Indian company provides software development services to its UAE parent. The Indian study describes the Indian company as a routine service provider and applies a cost-plus return. The UAE file, however, states that the Indian company owns valuable technology and controls development risk.

Both descriptions cannot comfortably coexist.

The group should align:

• Transaction values;
• Agreements;
• Functional profiles;
• Method selection;
• Tested party;
• Profit-level indicator;
• Comparable period;
• Cost base;
• Adjustments; and
• Explanation of business circumstances.

This does not mean both countries will always accept the same result. Local rules and available data may differ. However, factual contradictions should be identified before the tax returns are filed.

Transfer Pricing Does Not Decide Withholding Tax

An arm’s-length price does not determine whether tax must be withheld.

An Indian company may establish that a management fee paid to a UAE affiliate is commercially reasonable, yet still need to examine:

• Whether the payment is taxable in India;
• Whether the UAE entity has a permanent establishment in India;
• Whether the payment is business income or royalty;
• Whether treaty relief is available;
• Whether the recipient is the beneficial owner;
• Whether a Tax Residency Certificate and Form 10F are available; and
• The applicable withholding procedure.

Transfer pricing determines the appropriate amount between related parties. Withholding rules determine whether and how tax should be deducted from the payment. Both analyses are required.

Corresponding Adjustments and Double Taxation

A transfer-pricing adjustment in one country can result in the same profit being taxed twice.

Suppose Indian authorities increase the income of an Indian company because its service fee to a UAE affiliate was considered too low. Unless the UAE reduces the corresponding profit previously reported by the UAE company, the same amount may remain taxable in both jurisdictions.

The India–UAE DTAA provides a mutual-agreement framework through which the competent authorities may seek to resolve treaty-related double taxation. Depending on the facts, a taxpayer may need to consider:

• A corresponding adjustment;
• The Mutual Agreement Procedure;
• Domestic appeal remedies;
• Foreign-tax-credit implications; and
• Whether protective claims or disclosures are required.

These options are time-sensitive. Businesses should not wait until all domestic litigation has concluded before examining treaty deadlines.

For material recurring transactions, an advance pricing agreement may provide greater certainty. India has a formal advance-pricing-agreement framework. The suitability of a unilateral or bilateral approach depends on transaction value, duration, complexity and the risk of double taxation.

Common Compliance Failures

Related-party transactions often become difficult because the documentation was prepared after the financial year had ended.

Common weaknesses include:

• No written agreement;
• Agreements signed after services were completed;
• Vague descriptions such as “business support”;
• Identical monthly invoices without supporting work;
• No evidence showing who performed the services;
• A markup selected without benchmarking;
• Charges allocated entirely by revenue without justification;
• Inconsistent Indian and UAE documentation;
• Interest rates copied from unrelated loans;
• Year-end true-ups unsupported by calculations;
• Royalty payments without evidence of intellectual-property rights;
• Failure to distinguish shareholder costs from services;
• Treating every group expense as a reimbursement;
• Ignoring long-outstanding receivables;
• Omitting transactions from Form 3CEB or UAE disclosures;
• Relying only on invoices and ledger entries; and
• Assuming that a tax deduction proves arm’s-length pricing.

Practical Compliance Process

An India–UAE group can improve its position by following a structured annual process.

Identify the Parties

Prepare an ownership and control chart covering direct, indirect and family ownership. Review loans, guarantees, board appointments and operational dependence rather than relying solely on shareholding percentages.

Create a Transaction Register

Reconcile all related-party transactions with the general ledger, financial statements, tax returns, withholding records, GST or VAT returns and bank payments.

Include non-cash and year-end entries.

Confirm the Commercial Rationale

Record why the transaction is needed, what each party contributes and the benefit expected by the recipient.

Finalize Agreements in Advance

The agreement should explain the services or property supplied, pricing formula, payment terms, ownership of work products, responsibilities and risk allocation.

Perform the Functional Analysis

Interview the employees who actually manage the arrangement. The tax file should reflect operational reality, not assumptions made by the finance team.

Select and Apply the Method

Document why the chosen method is more reliable than the alternatives. Use comparable data for the relevant period and make reasonable adjustments where differences materially affect the result.

Preserve Evidence Throughout the Year

Maintain deliverables, correspondence, timesheets, loan schedules, intellectual-property records and allocation workings as transactions occur.

Review Year-End Results

Compare actual results with the agreed policy before closing the accounts. Any true-up should be documented and reflected consistently in both countries.

Complete Both Countries’ Filings

Check Indian accountant-reporting obligations, master-file or country-by-country requirements, UAE disclosure thresholds, local-file requirements and filing deadlines.

Revisit the Policy When Facts Change

A pricing policy should be updated when the business launches a new product, restructures functions, transfers intellectual property, changes financing or reallocates important commercial risks.

Practical Example

Assume an Indian company and a UAE company are owned by the same family. The UAE company handles Middle East customer relationships, while the Indian company develops software and provides technical support.

The group decides that the Indian company will receive its costs plus a fixed markup.

Before applying this policy, the parties should determine:

• Which company owns the software;
• Who makes product-development decisions;
• Which company controls the development budget;
• Who bears the risk of project failure;
• Whether the Indian company performs only routine work;
• Whether it uses unique technical knowledge;
• Which expenses belong in the cost base;
• Whether third-party expenses require a markup;
• Whether comparable independent service providers exist; and
• Whether the UAE company has the personnel and authority to control the commercial risks assigned to it.

If the UAE entity consists only of an owner and an administrative office while the Indian team develops the technology, manages customers and makes strategic decisions, describing the Indian company as a routine provider may not reflect reality.

The appropriate result follows from the functions performed, assets used and risks controlled—not merely from the location where the customer invoice is issued.

Conclusion

Transfer pricing for India–UAE related-party transactions is not simply an annual report prepared to satisfy a filing requirement. It is a continuing process of aligning prices, contracts, conduct, accounting records and tax disclosures.

Both countries expect related parties to transact on terms that independent enterprises would have accepted in comparable circumstances. The taxpayer must therefore support not only the amount charged but also the commercial reality behind the transaction.

A defensible position generally begins with a clear agreement, an accurate functional analysis, an appropriate pricing method and contemporaneous evidence. Groups that examine these matters when a transaction is designed are in a stronger position than those attempting to reconstruct the justification after receiving a tax notice.

******

Disclaimer

This article is intended solely for general educational and informational purposes. It does not constitute legal, tax, transfer-pricing, investment or professional advice. Tax legislation, prescribed forms, monetary thresholds, filing procedures and official interpretations may change. The treatment of a transaction depends on its specific facts and the law applicable to the relevant period. Readers should verify the current Indian and UAE provisions and obtain professional advice before entering into a related-party transaction or filing a tax return.

References

1. Income-tax Act, 1961, Sections 92 to 92F, applicable to periods governed by that legislation.

2. Income-tax Rules, 1962, Rules 10A to 10E and prescribed transfer-pricing forms, applicable to the relevant period.

3. Income Tax Department, Government of India, Section 92—Computation of income from international transactions having regard to the arm’s-length price.

4. Income Tax Department, Government of India, international taxation resources.

5. Income-tax Act, 2025 and rules, forms and notifications applicable from 1 April 2026.

6. Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended, particularly the provisions relating to the arm’s-length principle, Related Parties and Connected Persons.

7. UAE Federal Tax Authority, Transfer Pricing Guide, CTGTP1.

8. UAE Federal Tax Authority, Corporate Tax Guides and references.

9. Ministerial Decision No. 97 of 2023 concerning requirements for maintaining transfer-pricing documentation.

10. India–UAE Double Taxation Avoidance Agreement and amending protocols.