What are the Procedures to be Followed Under the APA Scheme in the UAE

The UAE has been known for its tax-friendly environment and the strategic tax framework that it has brought for the businesses. Once such scheme is the APA scheme in relation to the transfer pricing norms and the CT. Under this scheme the persons can voluntarily opt for entering into an agreement with the FTA in determining the arm’s length price for the controlled transactions over a period of time, and that too in advance.

The procedures to apply for the APA might be complicated and overwhelming, but here is the breakdown of the procedures, which can assist the businesses and persons to understand the time period, the documents, and other details that are to be kept in mind while applying for the APA. 

The procedures

The FTA had released the guide stating the procedures to apply for the APA scheme; the simplified version of the procedures is provided below, which could avoid further complexities for the persons.

Stage 1: The pre-filing consultation step

Before applying or getting the approval first, the person must make a request to the FTA as per the form in Appendix 2 of the guide. The request must further include the following details:

• The proposed controlled transactions, the period covered, and the scope of the APA
• Description of any other controlled transactions
• Details of any transfer pricing issues or any other complexities
• Evaluation of the proposed TP method regarding its suitability
• Any other relevant information along with the prior APAs in any foreign jurisdiction

Under stage 1 there are further procedures that must be followed and would include

 The thorough review of the APA pre-filing request made: The FTA would conduct the review of the request made and would conclude it within 6-9 months from the receipt of such request. During this timeline the person must provide full cooperation with the FTA and provide all the required and missing details, if any.

The pre-filing meeting: This is the next step where the FTA and the person would have a meeting in order to evaluate and assess the possibility of the APA. Within the 60 days of the meeting conducted, the FTA would communicate regarding the understanding of the TP issues. If the FTA is satisfied with the available documents, then the person must be communicated to provide the UAPA application within the 40 days from the date of the notification from the FTA.

Rejecting of the request: There could be certain circumstances where the pre-filing request would be rejected by the FTA upon the review. The reasons would include the following:

o If there is any tax avoidance strategy related to the proposed controlled transactions

o If the controlled transactions are superficial

o If there is any limited scope only

o Where the arms-length principle can be reliably applied

o If there is any potential restructuring that could happen during the proposed tax period and would affect the relevancy of the APA

o If the person includes or excludes the controlled transactions without any specific rationale

o If there are discrepancies noted in the methods selected.

Stage 2: Filing of the application

The next stage is the filing of the application for the APA.

Once the person has received the notification from the FTA, then he can proceed with the filing of the application for the APA. The application needs to be filed within 2 months of the notification made prior to the 12 months from the starting of the first tax period. The application must be filed as per format in Appendix 3.

The further steps would include:

Submission of the application: The application for APA with the required documents must be submitted either in English or in Arabic. Further, the FTA can request any further documents during the process.

Review of the application: The FTA may conduct further review of the application, documents, and also the further documents demanded. The FTA may also conduct the site visits and interviews of the key personnel of the business and the engagement industry and experts if required.

Rejection of the application: The FTA may reject the application under the following circumstances, but they are not limited to:

o If the materiality threshold is not met

o If the application doesn’t provide a satisfactory explanation of the concerns raised during the pre-filing consultation

o There are significant discrepancies noted regarding the person’s businesses related to contracts, etc.

o If the situation and the circumstances have been drastically changed after the pre-filing consultation of the person

o There is unreliable economic analysis.

o The request made for the additional documents has not been met.

o The application includes incorrect information.

o The person has not kept sufficient records.

Stage 3: Evaluation and Negotiation

Once the first 2 stages are done, then the FTA would conduct evaluation and analysis. It would further include the following steps:

Evaluation and analysis: The FTA would conduct the evaluation and prepare a TP analysis based on the manner of determination of the Arm’s Length Price, the criteria, and any other terms or conditions.

Negotiation: Once the analysis is received, the person can, within 30 days of the receipt of such analysis, provide feedback. The person can apply for further negotiation. If even after such negotiation the person is not satisfied with the outcome, then the APA application would be closed.

Stage 4: Concluding and Implementation

The last stage would include the signing of the APA agreement based on the terms and conditions that are mutually agreed.

How can CDA assist during the APA procedures?

CDA has been providing the tax assistance to its clients for more than a decade and has enabled the businesses in the UAE to ensure compliance, reduce tax liability, and enable transparency in tax-related matters. The experts of the CDA would further assist the businesses in identifying the complexities in the APA procedures and also would provide the guidance regarding the documents that are to be maintained, the format of the application, the review that is to be followed, etc. Hence, our team would provide full professional support to get the APA agreement approved by the FTA.

To know more about the services, connect with our experts today!

Mitesh Maithia

Tax Manager

Mitesh is a Tax Professional with expertise in direct, indirect, and international taxation, including transfer pricing, since 2018. Passionate about making complex tax matters simple, he shares insights to help businesses stay compliant and forward-looking.