UAE CT: Profit Split Method of Transfer Pricing I Arm's Length Price I Connected & Related Parties

The Profit Split Method (PSM) is among the five transfer pricing methods outlined in the guidelines published by the Organization for Economic Cooperation and Development (OECD) and provided in detail in the transfer pricing guidance (CTGTP1) issued by the Federal Tax Authority.
In the OECD’s guidelines, it has been stated that PSM is “A transactional profit method that identifies the combined profit to be split for the associated enterprises from a controlled transaction (or controlled transactions that it is appropriate to aggregate under the principles of Chapter III) and then splits those profits between the associated enterprises based upon an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm’s length”.
The method necessitates identifying and dividing combined profits between associated enterprises, using comparables or considering functions, risks, and assets when comparables are unavailable. The OECD guidelines highlight two prominent approaches for splitting profits: contribution analysis and residual analysis, among various available methods.