For two years, the working assumption among UAE tax advisers was simple: if you wanted to reduce your taxable income with a downward transfer pricing adjustment, you had to ask the FTA first. On 15 July 2026 the Federal Tax Authority put that assumption to rest.
TL;DR: FTA Public Clarification CTP011 confirms you do not need prior approval to make a primary downward transfer pricing adjustment under Article 34(1) in your corporate tax return. It is a self-assessment. But you must disclose every affected transaction regardless of value, and back it with a rationale, a benchmarking study, a reconciliation, and proof the related party made a matching adjustment. Corresponding adjustments under Articles 34(10) and 34(11) still follow a separate application process.
What Is a Downward Transfer Pricing Adjustment?
A downward transfer pricing adjustment lowers your taxable income when your books did not reflect arm's length pricing on a related-party transaction. Say your UAE company was charged AED 1.2 million for a service by a connected entity, but the arm's length price was AED 900,000. Correcting the AED 300,000 overcharge in your return is a downward adjustment.
The arm's length principle sits in Article 34 of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022). It requires related parties to price transactions as if they were independent businesses dealing at market terms (Federal Tax Authority, 2026). When they do not, the tax figure has to be adjusted, up or down, to what arm's length would have produced.
Do You Need FTA Approval to Make One?
No, not for a primary adjustment you make yourself. CTP011 states plainly that you do not need to obtain prior approval from the FTA to execute a downward adjustment in your tax return (Regfollower, 2026). Corporate tax runs on self-assessment, so the taxpayer applies Article 34(1) and files.
That is a genuine change in practice. Until this clarification, many businesses believed any downward adjustment needed sign-off first. What has not changed is exposure: the adjustment stays fully open to a later FTA tax audit. Getting it wrong does not cost you a permission slip; it costs you the audit finding.
What Evidence Do You Need to Keep?
Four things, and all four have to hold up on their own. CTP011 sets a documentation bar rather than an approval gate, which means the burden of proof sits with you at filing.
First, a rationale explaining why the original price failed the arm's length standard. Second, a formal benchmarking analysis showing the adjusted figure is consistent with an accepted transfer pricing method. Third, a reconciliation that maps the original numbers to the adjusted ones. Fourth, evidence that the related party made a symmetrical corresponding adjustment on its side (Regfollower, 2026).
The symmetry point catches people out. You cannot quietly shave your own tax base while the counterparty leaves its numbers untouched. If you take AED 300,000 out of your income, the related entity has to add it back, so the overall tax position stays balanced.
Which Transactions Must You Disclose?
All of them. There is no value threshold for the disclosure of a downward adjustment. Every transaction or arrangement you adjust downward must be disclosed in the return, whatever its size or nature (Regfollower, 2026).
This is stricter than the general related-party disclosure form, which only bites once aggregate related-party transactions pass AED 40 million or a single connected person is paid more than AED 500,000. A downward adjustment carries its own disclosure duty on top, with no minimum. In our experience, this is where small groups slip: they assume a modest adjustment is too small to report and leave it off the return.
Primary Versus Corresponding Adjustments
CTP011 only covers primary adjustments you initiate under Article 34(1). It does not extend to corresponding adjustments under Articles 34(10) and 34(11) (Regfollower, 2026).
Those arise when someone else moves first. If a foreign tax authority adjusts your counterparty's profits upward, or the FTA itself adjusts a related party after an audit, you may be entitled to a matching downward adjustment to avoid the same income being taxed twice. That route runs through a formal application to the FTA, not self-assessment. One question clients always ask is whether the July clarification lets them self-correct after a foreign audit. It does not; that is the 34(11) path, and it is separate.
Your Documentation Bar Under CTP011
If your revenue is at or above AED 200 million, or your group's consolidated revenue is at or above AED 3.15 billion, you already have to prepare a Master File and Local File and produce them within 30 days of an FTA request (Federal Tax Authority, 2026). A downward adjustment simply needs to be consistent with that documentation.
Below AED 200 million there is no formal file requirement, but the arm's length obligation still applies and contemporaneous evidence is still expected on enquiry. When we reviewed a client's books ahead of filing, the adjustment itself was defensible; what was missing was the benchmarking study to prove it. That gap is the difference between a clean audit and a reversed adjustment. If an FTA audit is a real prospect, our guide on how to prepare for an FTA tax audit walks through what to have ready.
Frequently Asked Questions
Does making a downward adjustment increase my audit risk?
It does not trigger an automatic audit, but the adjustment stays open to review for years, and a weak file invites a harder look. Treat the four evidence pillars as the price of making the adjustment, not optional support. Keep the benchmarking study and the reconciliation filed with the return, not reconstructed later.
What happens if I get the adjustment wrong?
If the FTA disagrees on audit, it can reverse the reduction and tax the additional income. A filed incorrect return carries an administrative penalty of AED 500 for a first offence and AED 2,000 for a repeat within 24 months under Cabinet Decision No. 129 of 2025, though the penalty can be waived if you correct the return before the original due date (GFLO Law, 2026). The real cost is the tax on the reversed adjustment, not the fixed fine.
Do I need a corresponding VAT adjustment too?
Possibly. Where a transfer pricing adjustment changes the consideration between related parties, it can carry a VAT consequence: a price increase may add output VAT, and a decrease may allow an output VAT credit (Grant Thornton, 2026). Check the VAT date of supply before you post the entry, and keep corporate tax and VAT treatment aligned.
Does this apply to purely domestic UAE groups?
Yes. The arm's length principle applies to related-party transactions inside the UAE just as it does across borders. A downward adjustment on a transaction between two UAE entities still needs the same disclosure and the same four evidence pillars, and it should tie back to your first corporate tax return positions.
Can I make a downward adjustment for a prior tax period?
Not through this self-assessment route. CTP011 addresses primary adjustments in the current return. Correcting a filed period runs through a voluntary disclosure, which has its own penalty rules and closes once the FTA issues an audit notice for that period.
Not sure whether your related-party pricing needs a downward adjustment, or whether your benchmarking would survive an FTA review? Get in touch - we work with UAE groups on transfer pricing documentation and can check your position before you file.