Page 73 - ENVISAGE - Souvenir 2024 - Flip Book

PAST SPEAKER MESSAGES PAST SPEAKER MESSAGES

Mr. Mahendra Khiani Mr. Manish Arora
Director - Advisory Services Tax Director
KPMG Lower Gulf Schneider Electric Middle East & Africa

Envisage 2030: GRC, AI, and the Evolving Role of Indian CAs in the UAE Simplifying Transfer Pricing for Multinational Corporations (MNCs)
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In 2022, a significant milestone was achieved when the United Arab Emirates (UAE) announced the introduction of Corporate Tax
As I reflect on the theme of Envisage: Profession, Bharat, and World Economy, a verse from the Bhagavad Gita comes to (CT). Subsequently, the Federal Decree Law on Corporate Tax was published, encompassing various related provisions such as
mind: “Tasmād asaktaḥ satataṃ kāryaṃ karma samāchara”—Therefore, always perform your duties without attachment. the General Anti-Avoidance Rule (GAAR), interest capitalization, and regulations concerning free zones. Among these related
This profound teaching emphasizes the importance of dedication to one’s responsibilities, not for personal gain but as a provisions was the stipulation regarding Transfer Pricing (TP), which adheres to the Arm's Length Principle.
means to contribute meaningfully to the world. For Indian Chartered Accountants (CAs), this message is a guiding light. It
reminds us that our work—whether in governance, risk management, compliance, or embracing AI—is not just a career but
a commitment to excellence and integrity. In the rapidly transforming global economy, this ethos becomes our compass, Simple yet complicated, TP is one crucial provision in CT law, becoming more significant given that compliance with TP provisions
guiding us to innovate and lead with purpose. is a prerequisite for the entities in freezone to qualify for CT exemption. Let us understand basics of TP and What is TP? It is not
a tax or any additional levy rather TP refers to the price which is applied in a transaction between related persons, and it should
The Confluence of Bharat’s Wisdom and the UAE’s Vision be accurately determined means TP should be equivalent to the price that would be charged in a transaction with an unrelated
person (i.e., Arm’s length price (ALP)). In simple words, to ensure TP compliance, taxable person must substantiate that the TP is
Indian CAs bring a unique blend of technical expertise and cultural adaptability to the UAE. Bharat’s civilizational ethos, consistent with ALP.
which emphasizes collective welfare, resonates with the UAE’s vision of sustainable growth. As S. Jaishankar outlines in
The India Way, Bharat’s economic resurgence isn’t just about numbers; it’s a values-driven approach to leadership in the While the concept appears easy and simple, however the unique characteristics of products or services, along with differing terms
global economy. and conditions between unrelated and related parties, complicate the identification of the ALP for specific transactions. In
For Indian CAs, this means adopting the dual role of enablers and innovators—enabling businesses to navigate regulatory instances where the ALP cannot be determined, it becomes necessary to assess and compare Arm's Length Profitability. To
complexities while innovating through tools like AI. The UAE’s embrace of AI, reflected in its National AI Strategy 2031, facilitate this process, a defined framework known as Nine steps TP process is employed. Below is the summary of this
creates a fertile ground for Indian CAs to leverage this technology in audit and risk management. Imagine streamlining framework:
complex audits through predictive analytics or identifying potential fraud risks in real-time using machine learning
algorithms—an unprecedented shift from reactive to proactive compliance. 1. Understanding the Transaction details – It includes comprehensive analysis of transaction such as nature of transaction
(goods, service etc.), industry/sector, parties involved etc.
GRC and AI: Guardians of Integrity in the Digital Age 2. Functional Analysis – The price of any transaction reflects the functions each party perform, considering asset
employed and risk assumed.
Governance, risk, and compliance are no longer confined to checklists and manuals. Today, they demand strategic 3. Economic Analysis – This step entails identifying comparable transactions or comparable entities, which can be either
foresight. AI, when used ethically, becomes an ally in enhancing audit quality and ensuring transparency. Here lies the role internal or external. Based on the availability of comparables and relevant data, one of the Transfer Pricing methods is
of the Indian CA: to integrate AI into GRC frameworks while upholding the profession’s ethical foundations. selected. The methods include Comparable Uncontrolled Price (CUP), Resale Price Method (RPM), Cost Plus Method (
As suggested in the book Timeless Leadership, true leaders are those who embrace change without losing sight of their CPM), Profit Split Method (PSM), Transactional Net Margin Method (TNMM), and other Method.
purpose. Indian CAs in the UAE must embody this philosophy, becoming thought leaders who not only adapt to AI but also 4. Comparability Adjustment – This involves adjusting for any differences between the comparable transactions or
guide its ethical implementation. entities that may impact the price or profitability.
5. Benchmarking – Finally, the interquartile range is applied to the final set of comparables, and the profitability of the
A Future Rooted in Purpose taxable entity is benchmarked against this range.
The Bhagavad Gita teaches us to focus on the process, not just the outcome: “Karmanye vadhikaraste ma phaleshu To ensure compliance and streamline TP adherence, the following steps should be observed:
kadachana.” For Indian CAs, this translates to staying committed to continuous learning and aligning professional growth 1. Robust Documentation – Ensuring all the transaction and basis of pricing is properly documented. Transfer pricing policy and
with societal impact. The opportunities in the UAE—whether in fintech, ESG auditing, or AI-driven governance—are immense, Intercompany agreements are part of the suggested documentation.
but they demand preparation. 2. Substance over form – While documentation is crucial, it is equally important to ensure that actual conduct aligns with
The journey ahead is both thrilling and demanding. As professionals rooted in Bharat’s wisdom and equipped with the documented terms.
cutting-edge skills, we have the tools to redefine the narrative of Indian CAs globally. Let us embrace this challenge with the 3. Transaction Specific approach – Regardless of the profitability reported at the legal entity level, the pricing and
clarity of purpose and the spirit of innovation, shaping a future where governance, technology, and humanity converge benchmarking of each transaction must comply with TP regulations.
harmoniously.
In conclusion, it is imperative to emphasize that TP compliance should never be undervalued. MNCs ought to adopt a proactive
In closing, I leave you with this thought: Our profession is not just about compliance; it is about creating value, ensuring approach rather than a reactive one. Therefore, let us not wait until the end of the fiscal year or the commencement of an audit;
trust, and enabling growth. The world needs leaders who can envision a better tomorrow. Are you ready to step up? it is essential to act now.!!!

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