Understanding the Arm's Length Rule

At the core of transfer pricing lies the internationally recognized Arm's Length Principle.

This principle mandates that the price established in a transaction involving related entities must mirror the price in a comparable transaction between unrelated parties. From a global tax perspective, the arm's length principle serves as a pivotal safeguard against profit manipulation and tax evasion.

In certain instances, cross-border transactions might occur between jurisdictions with varying tax rates, such as high-tax and low-tax regions.

This scenario tempts Multi-National Enterprises (MNEs) to potentially manipulate transfer prices, aiming to shift profits from high-tax to low-tax regions to alleviate their overall tax burden. However, the arm's length principle acts as a formidable barrier against such manipulations, compelling MNEs to price their transactions as if they were conducted between independent entities.

In Dubai, transfer pricing advisors play a crucial role in guiding companies to adhere to these arm's length standards, ensuring transparency and fairness in transactions while navigating the intricacies of global taxation.

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