The FTA No Longer Asks You to Seek Permission Before Reducing Your Taxable Income – It Will Ask You to Prove It Afterwards
On 15 July 2026 the Federal Tax Authority issued Public Clarification CTP011, confirming that a taxable person does not need the FTA’s prior approval to make a downward transfer pricing adjustment in its corporate tax return. For groups preparing returns for financial years ended 31 December 2025 – due on 30 September 2026, seventy-one days from today – this removes a procedural obstacle that many finance teams had assumed was unavoidable. It also relocates the FTA’s scrutiny from before the filing to after it, and that is the part of the clarification that should command your attention.
What has changed, and what has not
Article 34(1) of Federal Decree-Law No. 47 of 2022 requires that transactions and arrangements between related parties meet the arm’s length standard. Where the pricing recorded in your financial statements does not meet it, you must adjust taxable income in the return. An adjustment that increases taxable income is an upward adjustment; one that reduces it is a downward adjustment, and it is downward adjustments that have historically been treated by practitioners as requiring the FTA’s sign-off in advance.
CTP011 confirms that this is not the position. Because the UAE corporate tax regime operates on self-assessment, the taxpayer evaluates its own need for an adjustment and makes it in the return. What has not changed is the standard the adjustment must meet. The clarification is confined to primary adjustments under Article 34(1). It does not extend to corresponding adjustments under Articles 34(10) and 34(11) – where the FTA adjusts one party and must adjust the related party, or where a foreign competent authority has made an adjustment and the UAE taxpayer applies to the FTA for relief. Those remain separate applications, and treating them as self-assessed would be a serious error.
Disclosure with no threshold at all
The ordinary transfer pricing disclosure regime is threshold-driven. The related party schedule of the disclosure form is triggered once aggregate related party transactions exceed AED 40 million, with individual categories disclosed above AED 4 million; the connected person schedule applies where payments or benefits to a connected person and their related parties exceed AED 500,000.
Downward adjustments sit outside that architecture entirely. CTP011 states that every transaction or arrangement for which a downward adjustment is made must be disclosed in the return, irrespective of its value or nature. A single downward adjustment on a modest intercompany recharge must be disclosed even where the group’s related party transactions fall well below every ordinary threshold. The FTA has deliberately given itself complete visibility over self-directed reductions in the tax base, and taxpayers who assume that a small adjustment can travel below the radar have misread the clarification.
Four pillars of evidence, prepared before you file
The FTA sets out what must be maintained to substantiate a downward adjustment: a written rationale explaining why the price originally recorded failed the arm’s length test and how the revised outcome satisfies it; a formal arm’s length analysis including a benchmarking study; a reconciliation mapping the values in the financial statements to the adjusted values in the return; and evidence that the counterparty has made a symmetrical corresponding adjustment. That last requirement is decisive. A taxpayer cannot unilaterally reduce its own taxable income while the other side of the transaction leaves its position untouched – the FTA expects the tax base to remain balanced.
None of this can be assembled in the week before filing. A defensible benchmarking study takes time, and a corresponding adjustment in another jurisdiction requires that entity’s advisers to act in parallel.
The cost of an adjustment you cannot defend
Where a UAE entity’s revenue exceeds AED 200 million, or it belongs to a multinational group with consolidated revenue above AED 3.15 billion, a master file and local file must be maintained under Ministerial Decision No. 97 of 2023 and produced within thirty days of an FTA request under Article 55(2). Failure to maintain the required records carries an administrative penalty of AED 10,000, rising to AED 20,000 for a repeat violation.
The larger exposure is the adjustment itself. If it is disallowed, the tax difference becomes payable with penalties. Under Cabinet Decision No. 129 of 2025, in force since 14 April 2026, a voluntary disclosure made before an audit notice attracts 1% per month on the tax difference; one made after an audit notice attracts a fixed 15% surcharge plus 1% per month; and unpaid tax accrues at 14% per annum. Self-correcting early is materially cheaper than being found out, and an unsupported downward adjustment is among the more visible things a return can contain.
Frequently Asked Questions
What is FTA Public Clarification CTP011?
FTA Public Clarification CTP011 explains how taxable persons should treat downward transfer pricing adjustments made in their UAE Corporate Tax returns. It confirms that taxpayers do not need prior FTA approval to make a transfer pricing adjustment in the return, but the adjustment remains subject to the arm’s length principle and may be reviewed by the FTA.
Does a UAE business need FTA approval for a downward transfer pricing adjustment?
No. Under CTP011, a taxable person must self-assess whether a transfer pricing adjustment is required and does not need to obtain prior FTA approval to make the adjustment in its Corporate Tax return. The FTA may subsequently examine the adjustment as part of a tax audit.
What is a downward transfer pricing adjustment in the UAE?
A downward transfer pricing adjustment is an adjustment that decreases a taxable person’s Taxable Income to align a Related Party transaction or arrangement with the arm’s length principle. CTP011 specifically addresses downward adjustments made under Article 34(1) of the UAE Corporate Tax Law.
Do downward transfer pricing adjustments have to be disclosed?
Yes. CTP011 states that all Related Party transactions and arrangements for which a downward adjustment is made in the Corporate Tax return must be disclosed, regardless of the value or nature of the transaction or arrangement.
Is there a minimum value for disclosing a downward transfer pricing adjustment?
No. The specific disclosure requirement for downward adjustments applies irrespective of the value or nature of the relevant Related Party transaction or arrangement. This is separate from the ordinary threshold-based Related Party disclosure requirements in the Corporate Tax return.
What documents are required for a downward transfer pricing adjustment?
CTP011 states that the taxpayer should maintain sufficient documentation, including the rationale for the adjustment, an arm’s length analysis including a benchmarking study, a reconciliation between financial statement values and arm’s length values reported in the return, and symmetrical corresponding adjustments by the relevant Related Parties.
Do all UAE businesses need a Master File and Local File?
No. The Master File and Local File requirements under Ministerial Decision No. 97 of 2023 apply when the relevant conditions are met, including where the taxable person’s revenue is AED 200 million or more, or where it is a constituent company of an MNE group with consolidated group revenue of AED 3.15 billion or more. Businesses below these thresholds must still comply with the arm’s length principle and should retain appropriate supporting records.
What are the UAE Master File and Local File thresholds?
A taxable person generally falls within the Master File and Local File requirements where its revenue is AED 200 million or more during the relevant tax period, or where it is a constituent company of a Multinational Enterprises Group with consolidated group revenue of AED 3.15 billion or more during the relevant tax period, subject to the applicable rules and exclusions.
Can the FTA audit a downward transfer pricing adjustment?
Yes. CTP011 confirms that a transfer pricing adjustment made by a taxable person in its Corporate Tax return may be subject to a Tax Audit. Businesses should therefore ensure that the adjustment is supported by appropriate transfer pricing analysis and documentation.
What happens if the FTA challenges a downward transfer pricing adjustment?
If the FTA determines that the adjustment does not comply with the UAE Corporate Tax Law, the taxable person’s Taxable Income may be adjusted. Any resulting tax difference may also lead to applicable penalties or late-payment consequences depending on the circumstances and timing of the correction.
Speak to us before you file
If your group is contemplating a downward adjustment this cycle or has made one in a previous return without the documentation CTP011 now describes contact Altus Citadel Services FZCO. Seventy days is sufficient to build the file. It is not sufficient to build it twice.
Contact us at: www.altuscitadelservices.com | +971 50 961 6354 or +971 50 161 9605 or info@altuscitadelservices.com
