UK E-Commerce and UAE Procurement: How Should Transfer Pricing Work?

UK E-Commerce and UAE Procurement: How Should Transfer Pricing Work?

Your UK e-commerce company sells to customers in Britain.

Now you have a UAE company handling procurement.

It negotiates with suppliers, manages purchasing and may take on some commercial risks.

So the obvious question is:

Should more of the group's profit now sit in the UAE?

Not simply because the procurement company is based there.

For related UK and UAE companies, the pricing needs to reflect the functions performed, assets used and risks assumed by each business. The UK–UAE tax treaty also applies the arm's-length principle to associated enterprises. GOV.UK

What Is the UAE Procurement Company Actually Doing?

Start with the real business activity.

Suppose the structure is:

UAE Procurement Company → UK E-Commerce Company → UK Customers

The UAE company might:

• find suppliers;

• negotiate prices;

• place orders;

• manage supplier relationships;

• arrange logistics;

• own inventory; or

• take certain commercial risks.

But the important question is:

Who actually performs those functions?

If the UK directors are still choosing suppliers, negotiating prices and making the important purchasing decisions, simply putting a procurement agreement between the companies does not automatically move those functions to UAE.

HMRC's guidance specifically stresses that the actual functions and risks need to support the transfer-pricing position. GOV.UK

How Should the UK and UAE Companies Set the Price?

The two companies are related parties.

So the price charged between them should generally reflect what independent businesses would have agreed in comparable circumstances — the arm's-length principle. GOV.UK

For example:

The UAE company purchases goods and supplies them to the UK company.

You cannot simply decide:

“We want more profit in UAE, so we'll increase the UAE company's margin.”

Instead, you need to ask:

What is the UAE company actually contributing?

If it performs a limited procurement service, its return may look very different from a business that genuinely controls procurement strategy, supplier relationships and relevant risks.

HMRC notes that the functions performed, assets used and risks assumed are important in determining the appropriate arm's-length reward. GOV.UK

Does Moving Procurement to UAE Move the Profit?

Not automatically.

This is where the structure needs careful review.

Imagine the UK company has historically handled all procurement.

Then the group creates a UAE company and says:

“Procurement has now moved to Dubai.”

But the same UK employees continue:

• choosing suppliers;

• negotiating contracts;

• deciding what to purchase;

• managing the commercial relationships.

The paperwork may have changed.

The business may not have.

HMRC's current transfer-pricing guidance identifies situations where claimed changes in functions, assets and risks do not match the actual business as a compliance risk. GOV.UK

So the question is not:

“Where is the procurement company registered?”

It is:

“Where are the important procurement functions actually being performed and controlled?”

What If the UAE Company Owns the Inventory?

That can change the analysis.

If the UAE company genuinely buys and owns the goods, controls relevant risks and has the people and resources needed to manage those risks, its role may be materially different from a simple procurement service provider.

But ownership on paper is not the whole answer.

You need to consider:

• Who negotiates with suppliers?

• Who makes purchasing decisions?

• Who owns the inventory?

• Who bears inventory risk?

• Who controls those risks?

• Which company has the people performing the work?

HMRC's guidance makes clear that risk and profit potential are linked to the functions and assets involved. GOV.UK

Which Transfer Pricing Method Should You Use?

There is no automatic “UAE procurement = X% mark-up” rule.

The appropriate transfer-pricing method depends on the actual transaction and the functions performed.

Potential methods include:

• comparable uncontrolled price;

• resale price;

• cost plus;

• transactional net margin; and

• profit split.

The UAE Federal Tax Authority recognises these transfer-pricing methodologies. FTA UAE

For a routine procurement service, a cost-plus approach might sometimes be appropriate.

But that conclusion should come after the functional analysis, not before it.

What Evidence Should You Keep?

An intercompany invoice alone is not enough to demonstrate how the arrangement works.

Depending on the structure, you may need evidence such as:

• intercompany agreements;

• supplier contracts;

• procurement policies;

• purchase orders;

• employee responsibilities;

• approval records;

• supplier negotiations;

• inventory records;

• risk-management procedures;

• pricing calculations; and

• benchmarking.

HMRC's transfer-pricing guidance highlights the importance of sufficiently detailed and evidenced functional analysis and documentation. GOV.UK

The contracts, accounting records and actual business activity should tell the same story.

A Simple UK–UAE Example

A UK e-commerce company generates £5 million in sales.

Its UAE group company now handles procurement.

Before deciding how much profit should sit with the UAE company, the group needs to establish:

• Who negotiates with suppliers?
• Who decides what to buy?
• Who owns the goods?
• Who carries the relevant risks?
• Who controls those risks?
• What would an independent procurement business earn for performing the same functions?

Those answers provide the foundation for the transfer-pricing analysis.

What Should You Review Before Moving Procurement?

Before changing the structure, check:

Functions

What does each company actually do?

People

Where are the important procurement decisions being made?

Assets

Who owns the relevant inventory, systems and other assets?

Risks

Which company actually bears and controls the commercial risks?

Pricing

How was the intercompany price determined?

Evidence

Can you prove that the arrangement operates as described?

This is particularly important where a UK business is trying to move part of its operating model to UAE.

The UAE Company Cannot Earn the Profit Just Because It Is in UAE

A UAE procurement company can have a genuine commercial role.

But its location does not automatically determine its share of the group's profit.

The reward should follow the real functions, assets and risks.

If the UAE company genuinely performs the procurement work and controls relevant risks, its arm's-length reward should reflect that.

If the UK company continues doing the important work, simply routing the transaction through UAE does not automatically justify moving the related profit.

That is the core transfer-pricing question.

How Evolve Tax Can Help

A UK e-commerce business using a UAE procurement company needs more than an intercompany invoice.

Evolve Tax helps UK businesses assess UK–UAE transfer pricing, procurement structures and the functions, assets and risks behind related-party transactions.

If you are moving procurement or purchasing functions to a UAE company, review the structure before changing how the group operates.

Speak to Evolve Tax about your UK–UAE structure.

Frequently Asked Questions

1. Does using a UAE procurement company automatically move profit to UAE?

No. The arm's-length reward should reflect the functions performed, assets used and risks assumed by each related company. GOV.UK

2. Do UK and UAE companies need to consider transfer pricing?

Both the UK and UAE have transfer-pricing rules for relevant related-party transactions. GOV.UK

3. Can a procurement company use a cost-plus mark-up?

Potentially. But the appropriate method depends on the actual functions and risks rather than a predetermined percentage. FTA UAE

4. Is an intercompany agreement enough?

No. The actual conduct of the businesses and supporting evidence also matter. GOV.UK

Conclusion

Moving procurement to UAE does not automatically mean moving more profit to UAE.

The starting point is the actual business:

• Who performs the functions?
• Who uses the assets?
• Who controls the risks?
• And what would an independent business earn for doing the same work?

Answer those questions first.

Then determine the appropriate transfer-pricing position.