Transfer Pricing Solutions and Rules - Kingdom of Saudi Arabia
In February 2019, the Zakat, Tax and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) formally released the final Transfer Pricing Bylaws ('TP Bylaws'). The ZATCA also subsequently issued the first edition of the Transfer Pricing Guidelines in March 2019 ('2019 TP Guidelines'). The 2019 TP Guidelines serves to provide guidance on how the TP Bylaws are to be applied in the KSA.
On 1 June 2020, the ZATCA issued the second edition of the Transfer Pricing Guidelines ('2020 TP Guidelines'). The 2020 TP Guidelines do not usher in any significant changes/additions to the application of the TP Bylaws.
The arm's length principle can be found in article 10 of the Bylaws to the Income Tax Law (Income Tax Bylaws). This regulation allows the ZATCA to disallow any expense that is caused by applying non-arm's length pricing between related parties.
This article already announced in 2014 that the ZATCA would issue detailed guidance on this topic aligned with international standards. Accordingly, the 2019 and 2020 TP Guidelines were issued in March 2019 and in June 2020, respectively.
Scope of Legislation
The TP Bylaws are applicable on all taxable persons, as defined in the Income Tax Law. This includes all entities that are ZAKAT paying, jointly owned by Gulf Cooperation Council (GCC) and foreign (non-GCC) shareholders (mixed entities). The TP Bylaws also apply to mixed companies, but only to the extent that they are subject to income tax.
The TP Bylaws apply to resident capital companies, with respect to shares of non-Saudi partners. Further, the provisions of Income Tax Law also apply to:
- a resident non-Saudi natural person who conducts business in the KSA;
- a non-resident who conducts business in the KSA through a permanent establishment (PE);
- a non-resident with other taxable income from sources within the KSA;
- a person engaged in the field of natural gas investment; and
- a person engaged in the field of oil and hydrocarbons production
Specific details regarding additional Transfer Pricing forms, disclosure requirements, and return schedules required by ZATCA.
Guidelines on preparing and maintaining the Local File, including documentation thresholds and required transaction details.
Information on the Master File requirements for multinational enterprise groups operating within the KSA.
Details on the CbCR notification and filing obligations, including revenue thresholds and deadlines applicable to KSA entities.
ZATCA's accepted practices and guidelines for using external benchmarking databases to support arm's length pricing.