Transfer pricing challenges amid regional disruption in the Middle East

The ongoing regional disruption in the Middle East has fundamentally challenged how multinational businesses manage transfer pricing. Established supply chains, workforce locations, and operational hubs have been disrupted, creating complex compliance and economic challenges.

At Deloitte Middle East, we recognise the need for businesses to reassess and recalibrate their transfer pricing arrangements in real time. This article provides practical insights to help companies navigate these unprecedented challenges.

Key transfer pricing considerations include:

• Supply chain rerouting and cost allocation: Understanding how disrupted maritime routes and alternative logistics corridors increase costs and affect who should bear these extraordinary expenses.
• Loss allocation and functional profile changes: Assessing whether regional entities’ roles have shifted and how losses should be allocated consistent with their risk profiles.
• Permanent Establishment (PE) risks: Evaluating the tax implications of relocating key personnel outside traditional hubs and attributing profits accordingly.
• Intercompany financing under stress: Addressing the pricing of emergency loans and deferred receivables amid heightened credit risks in conflict-affected areas.
• Management fees and intercompany services: Ensuring fees reflect the actual services provided during disruption, not pre-disruption agreements.
• Jurisdictional specifics: Navigating the varying transfer pricing rules and enforcement approaches across Saudi Arabia, UAE, Egypt, and other Middle Eastern countries.

Timely, contemporaneous documentation and early engagement with tax authorities are critical to managing risks and demonstrating arm’s length outcomes. 

Explore these insights to understand how to adapt your transfer pricing strategy amid regional disruption and safeguard your business.