As a business operating in the Kingdom of Saudi Arabia (KSA), it’s essential to understand the financial regulations and laws that govern the region. At REVE, our team of expert financial consultants is dedicated to providing guidance and support to businesses navigating the complexities of KSA’s financial landscape.
As businesses navigate the complex landscape of international taxation, Transfer Pricing Saudi Arabia remains a critical aspect of financial planning and compliance. Transfer pricing refers to the pricing of transactions between related parties, such as a parent company and its subsidiary. The goal of transfer pricing is to ensure that transactions between related parties are conducted at arm’s length, meaning that the prices charged are similar to those charged between unrelated parties in similar circumstances. Transfer Pricing in KSA is a complex and nuanced topic, requiring businesses to navigate a range of regulations and guidelines. By understanding and selecting the most appropriate transfer pricing method and maintaining detailed documentation, businesses can ensure compliance and transparency.
The Kingdom of Saudi Arabia (KSA) has specific regulations and guidelines for transfer pricing, which are overseen by the Zakat, Tax, and Customs Authority (ZATCA transfer pricing regulations). The key aspects of Saudi Arabia TP compliance include:
In Saudi Arabia, the arm’s length principle, as defined in Article 9 of the OECD Model Tax Convention and Article 1(2) of the Transfer Pricing Bylaws, ensures that related-party transactions are conducted at fair market value. This principle allows for adjustments to profits and taxation if transactions between related parties differ from those between independent parties, preventing profit shifting and ensuring tax compliance. This aligns with OECD-aligned transfer pricing rules.
The GAZT accepts several transfer pricing methods, including:
Transfer Pricing Documentation: Businesses must maintain detailed documentation to support their transfer pricing policies. A three-tiered approach to Transfer Pricing (TP) documentation, in line with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 13 guidelines. This framework consists of:
The Disclosure Form for Controlled Transactions (DFCT) in Saudi Arabia is a mandatory document for all taxpayers filing an income tax return. The DFCT helps the General Authority of Zakat and Tax (ZATCA) understand the taxpayer’s related-party transactions and transfer pricing practices, enabling them to assess potential transfer pricing risk. It provides information about controlled transactions, including:
The Transfer pricing Local File Saudi Arabia documentation provides a detailed overview of the local entity’s controlled transactions, including its management structure, business activities, material-controlled transactions, industry analysis, and financial information, such as annual financial accounts. This documentation ensures that all related-party dealings within Saudi Arabia are thoroughly documented and justifiable under arm’s-length pricing principles, promoting transparency and compliance with ZATCA transfer pricing regulations. This is mandatory for entities with revenue exceeding SAR 6 million and must be maintained and provided to the Zakat, Tax and Customs Authority (ZATCA) within 30 days upon request, ensuring compliance with Transfer Pricing documentation KSA.
The Transfer pricing Master File Saudi Arabia offers a comprehensive global overview of the Multinational Enterprise (MNE) group, detailing its organizational structure, business operations, intangibles, intercompany financial activities, and financial and tax positions. By providing this information, tax authorities can effectively assess the MNE’s transfer pricing policies and related-party transactions, ensuring alignment with international best practices and promoting transparency and compliance. For MNE groups with consolidated revenue of SAR 3.2 billion or more, the Master File is a required document. It must be submitted to the ZATCA within 30 days upon request, providing a comprehensive overview of the group’s global operations and Transfer Pricing Saudi Arabia policies.
Saudi Arabian entities of an MNE group will not be required to file a Country-by-Country Report (CbCR) if the group’s consolidated revenue doesn’t meet the statutory threshold in the parent entity’s jurisdiction or if the threshold is less than SAR 3.2 billion. For Multinational Enterprise (MNE) groups with consolidated revenue of SAR 3.2 billion or more, CbCR is applicable. The Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE) in Saudi Arabia must submit a CbCR notification within 120 days of the fiscal year-end and file the Country-by-Country report within 12 months after the fiscal year-end. Saudi Arabia participates in the CbC Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of CbC reports, facilitating international tax cooperation and transparency, reflecting OECD-aligned transfer pricing rules.
Failure to comply with Transfer Pricing (TP) regulations in Saudi Arabia may lead to audits, adjustments, and financial penalties. The Zakat, Tax and Customs Authority (ZATCA) closely monitors related-party transactions to prevent tax avoidance and ensure Saudi Arabia TP compliance, taking action when necessary to enforce adherence to TP rules.
Businesses must prioritize Transfer Pricing Saudi Arabia compliance to avoid costly disputes, minimize risks, and ensure transparency in their operations. By doing so, they can reduce the risk of tax audits, improve their reputation, increase efficiency, and make better-informed decisions. Prioritizing Transfer Pricing documentation KSA and its compliance are crucial for long-term success, enabling businesses to navigate the complexities of international taxation and focus on growth and expansion. By getting Transfer Pricing in KSA right, businesses can demonstrate their commitment to good governance, enhance stakeholder trust, and ultimately drive business success.
