[World Tax News] UAE Tax Authority Provides Clarification on the Definition of “Related Party” and More

Editorial Team – [2024] 164 taxmann.com 621 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UAE Tax Authority provides clarification on the definition of “Related Party”

Under the new Federal corporate tax law, transactions and arrangements between related parties must adhere to the arm’s length standard when determining taxable income. For this purpose, two or more juridical persons are considered related if there is direct or indirect common ownership or control of 50% or more. A question arose regarding whether parties would still be considered related if the ownership or control, whether direct or indirect, is held by the UAE Federal or Emirate-level governments.

In Public Clarification CTP002 issued on 21 July 2024, the Federal Tax Authority (FTA) clarified that if the UAE Federal or Emirate-level governments hold direct or indirect ownership or control, the involved parties will not be regarded as related. Consequently, these transactions or arrangements do not fall under transfer pricing rules and are exempt from related transfer pricing documentation requirements. The notification provides the following illustrative example:

Consider two groups of companies, Group 1 and Group 2. Group 1 includes Entity 1, which holds 100% ownership in Entities A and B. Group 2 includes Entity 2, which holds 100% ownership in Entities C and D. If both Group 1 and Group 2 are held by a local Emirate-level government, the clarification specifies that Groups 1 and 2 are not considered related parties, and transactions between them are not subject to transfer pricing rules. However, transactions within each group (e.g., between Entity 1 and Entities A and B, or between Entity 2 and Entities C and D) are considered transactions between related parties and must comply with the arm’s length standard.

Source: tax.gov.ae

2. Hong Kong releases new FAQs and examples on Foreign-Sourced Income Exemption Regime

The Hong Kong Inland Revenue Department (IRD) has published new FAQs and examples on the Foreign-Sourced Income Exemption (FSIE) Regime. These examples include calculating the nexus fraction for the sale of qualifying intellectual property and determining if the “subject to tax” condition is met.

The FAQs cover topics like covered income, the economic substance requirement, and the participation requirement.

Source: Official website

• FAQs
• Examples

Click Here To Read The Full Article