Transfer Pricing 2025: Purpose, Key Methodologies and UAE–India Compliance

Transfer pricing has become one of the most closely scrutinised areas of international tax planning for multinational groups operating between the UAE, India and other global jurisdictions. With new transfer pricing rules under UAE corporate tax and evolving OECD guidance, businesses need a clear, practical understanding of transfer pricing purpose, arm’s length principles, and accepted methodologies in 2026.​

What Is Transfer Pricing?

Transfer pricing refers to the prices charged for goods, services, intangibles, financing and cost allocations between related parties within the same multinational group. These “controlled transactions” can significantly influence how profits and taxes are allocated across countries, which is why tax authorities closely monitor them for profit shifting and base erosion risks.​

At the core of modern transfer pricing regulations is the arm’s length principle. This requires that related-party transactions be priced as if they were conducted between independent enterprises in similar circumstances. If tax authorities find that intra-group prices deviate from arm’s length, they can adjust taxable income and impose interest and penalties.​

Why Transfer Pricing Matters for Businesses

Properly designed transfer pricing policies serve several crucial purposes for multinational enterprises:

• Ensure compliance with OECD guidelines and local rules in jurisdictions such as UAE and India, reducing audit and litigation risk.​
• Align reported profits with economic substance and value creation across global operations.​
• Support strategic tax efficiency while avoiding aggressive structures that attract regulatory scrutiny.​

From a management perspective, transfer pricing also helps allocate revenues, costs and profits between subsidiaries or business segments, improving performance measurement and internal decision‑making.​

Overview of OECD‑Accepted Transfer Pricing Methods

The OECD Transfer Pricing Guidelines recognise five primary methods, grouped into traditional transaction methods and transactional profit methods.​

1. Comparable Uncontrolled Price (CUP) Method

The CUP method compares the price charged in a controlled transaction with the price charged for comparable goods or services in an independent (uncontrolled) transaction. If a reliable comparable uncontrolled price exists, CUP is generally regarded as the most direct and reliable way of applying the arm’s length principle.​

For example, if a UAE subsidiary sells the same product to an independent customer and to its Indian affiliate, the price charged to the independent customer can be used as a benchmark, subject to adjustments for differences in volumes, contractual terms, credit period, freight or quality. CUP requires a high degree of comparability, which is why it is often used for commodities, financial transactions or standardised services where market prices are publicly observable.​

2. Resale Price Method (RPM)

The resale price method starts with the price at which a product purchased from a related party is resold to an independent customer. A suitable gross margin—based on comparable uncontrolled transactions—is deducted from this resale price to arrive at the arm’s length purchase price between related parties.​

This method is commonly applied where a related‑party distributor in the UAE or India purchases finished goods from a group manufacturing entity and resells them without substantial value‑adding activities. RPM works best when reliable data on gross margins of comparable independent distributors is available and when the reseller does not significantly transform the goods.​

3. Cost Plus Method (CPM)

Under the cost plus method, the starting point is the supplier’s cost of producing goods or providing services in a controlled transaction. An appropriate mark‑up—reflecting the functions performed, assets used and risks assumed—is added to these costs to determine the arm’s length transfer price.​

This method is often used for contract manufacturers, routine service providers, captive shared service centres and low‑risk contract R&D entities. For instance, if a captive IT service centre in India bears limited risk and incurs operating costs of INR 50,000 per unit, and comparable independent service providers earn a 20% mark‑up, the arm’s length price would be INR 60,000 per unit.​

4. Transactional Net Margin Method (TNMM)

TNMM examines the net profit margin relative to an appropriate base (such as costs, sales or assets) that a taxpayer earns from a controlled transaction, and compares it to the net margins of comparable independent enterprises. It is one of the most widely used methods globally due to its flexibility and lower comparability requirements than CUP or RPM.​

For example, a routine UAE distribution company might be tested under TNMM using an operating margin on sales benchmarked against similar independent distributors in the region. As long as the tested party’s margin falls within an arm’s length range, the transfer price is considered compliant.​

5. Profit Split Method (PSM)

The profit split method is typically used when transactions involve unique intangibles or are highly integrated, making it difficult to evaluate the parties separately. PSM identifies the combined profit from the controlled transactions and then allocates it between associated enterprises based on their relative contributions, functions, assets and risks.​

This method is particularly relevant for complex global value chains in sectors like technology, pharmaceuticals or digital platforms, where multiple group entities jointly develop and exploit valuable intangibles.​

Choosing the Most Appropriate Method

Modern transfer pricing rules focus on applying the “most appropriate method” rather than following a strict hierarchy. In practice, businesses must:​

• Analyse the functional profile of each entity (functions, assets, risks).​
• Review data availability for internal and external comparables.​
• Consider the nature of the transaction (tangible goods, services, intangibles, financing).​

Where a reliable CUP exists, tax authorities generally prefer it. Otherwise, TNMM or cost plus are widely accepted, especially in UAE–India structures where benchmark data is more readily available.​

Transfer Pricing Compliance in UAE and India 2026

Both UAE and India now require robust transfer pricing documentation, including a local file, master file and, in some cases, country‑by‑country reporting (CbCR) for large groups. Taxpayers must maintain contemporaneous documentation that supports their method selection, benchmarking analysis and intercompany agreements, ready for submission during audits.​

Non‑compliance can lead to income adjustments, double taxation, interest and heavy penalties, making proactive transfer pricing planning and documentation a strategic priority.​

How Strategic Bureaux (SBx) Adds Value

Specialist advisors like SBx help UAE‑ and India‑focused groups design defensible transfer pricing models aligned with OECD standards and local regulations. This includes functional analysis, method selection, benchmarking studies, policy implementation and ongoing documentation support to remain audit‑ready and tax‑efficient in 2026 and beyond.​

By combining regulatory insight with commercial understanding, SBx ensures your transfer pricing not only passes scrutiny but also supports sustainable global growth.