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Transfer Pricing in the KSA

The document outlines the timeline and regulations for transfer pricing (TP) in Saudi Arabia, including the issuance of TP bylaws and guidelines from 2019 to 2024. It details the steps for setting arm's length pricing, compliance requirements for various entities, and the introduction of an Advance Pricing Agreement (APA) program effective January 2024. Additionally, it highlights exemptions for Zakat payers and provides a risk assessment framework for TP compliance.

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0% found this document useful (0 votes)
33 views8 pages

Transfer Pricing in the KSA

The document outlines the timeline and regulations for transfer pricing (TP) in Saudi Arabia, including the issuance of TP bylaws and guidelines from 2019 to 2024. It details the steps for setting arm's length pricing, compliance requirements for various entities, and the introduction of an Advance Pricing Agreement (APA) program effective January 2024. Additionally, it highlights exemptions for Zakat payers and provides a risk assessment framework for TP compliance.

Uploaded by

qasimalizafarfca
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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TRANSFER PRICING TIMELINE IN THE KSA

Event Date
TP Bylaws issued in KSA for Taxpayers and Mixed Entities February 2019
TP Guidelines issued March 2019
Proposal to extend TP Bylaws in KSA to Zakat Payers July 2022
TP Bylaws amended - Zakat Payers in scope & APA program created April 2023
New TP Bylaws applicable January 2024

TRANSFER PRICING OVERVIEW

Step 1: Identify Related Parties Step 2: Identify Controlled Step 3: Set Arm’s Length Pricing
Transactions

1. Ownership > 50%; or Controlled transactions types: Arm’s Length price:


2. Control via
• Governance (e.g., board 1. Services (e.g., IT, HR, Legal) The Price that would have
of directors, voting 2. Tangible goods (e.g., sale of been charged if the transaction
rights); product) took place between unrelated
• Business (significant 3. Intangibles (e.g., license of parties.
revenues/expenses); intellectual property)
• Funding (significant debt 4. Financial transactions (e.g.,
or guarantee) intercompany loans, guarantees)
SETTING AN ARM’S LENGTH PRICE

01 Functional Analysis and 02 Select Most 03 Economic Analysis 04 Select the Price
Value Chain Appropriate Method

Identify related party Based on functional Apply selected Based on results of


transaction, analysis, choose from: method, perform economic analysis,
benchmarking or other select the arm’s length
Evaluate functions, assets, 1. Comparable analyses, price
and risks of the related Uncontrolled Price Method
parties 2. Resale Price Method Make comparability
3. Cost Plus Method adjustments if needed,
Evaluate value chain of the 4. Profit Split Method and compute the arm's
business and identify the key 5. Transactional Net length range of results
contributions from related Margin Method
parties
MEETING TP COMPLIANCE REQUIREMENTS

Disclosure Form Affidavit Master File Local File Country by


(CTDF) country report

Description Discloses details of Attestation by a Documents Document Report


related party licensed containing containing support containing
transactions (e.g., accountant that information on for arm’s length information
amounts, TP controlled global nature of about the group
method, transactions align operations, controlled on a country-by-
counterparty) with the MNE’s value chain, transactions country basis
transfer pricing intangibles, including (referred to as
policy controlled benchmarking “CbCR”)
transactions, functional and
transfer pricing industry analysis
policies
Due date 120 days from the 120 days from Prepared within Prepared within 12 months from
last day of KSA the last day of 120 days from 120 days from the MNE group’s
taxpayer’s fiscal KSA taxpayer’s the last day of last day of KSA fiscal year-end
year fiscal year KSA taxpayer’s taxpayer’s fiscal
fiscal year year

Filing Yes Yes Submitted Submitted within Yes


requirements within 30 days 30 days of
of ZATCA’s ZATCA’s request
request
EXEMPTIONS FOR ZAKAT PAYERS

Requirement Related Party Transaction Amount Phase 1 (FY 2024– Phase 2 (FY 2027
(Aggregate) FY 2027) onwards)
Local File and Less than SAR 48 million Not Applicable Not Applicable
Master File
Between SAR 48 million to SAR 100 Voluntary Required
million
More than SAR 100 million Required Required
CTDF and Affidavit Mandatory requirement irrespective of - -
threshold and phases
Notes:
1. The 1st phase include the all taxapayers subject to zakat collections, with exception of financing funds.
2. The 2nd phase include financing funds also.
3. Consolidated Zakat filers are exempt from TP compliance requirements.
4. Government-owned Zakat-exempt entities are exempt from local file and master file requirements.
5. Investment funds must comply from Phase 2.
TP COMPLIANCE BURDEN

Compliance Category Compliance Requirements

Small & Not Complex Affidavit, CTDF

Medium & Complex Master File, Local File, Affidavit, CTDF

Large & Highly Complex CBCR, Master File, Local File, Affidavit, CTDF

OVERVIEW ON APA (ADVANCE PRICING AGREEMENTS)

What is being changed? Who does this impact?


As part of the update to the TB bylaws, ZATCA has The APA program will Allow companies to obtain an
announced an APA program for Taxpayers and agreement with the tax authority similar to a tax
Zakat Payers from financial years beginning on or ruling, which will be provide audit protection and
after 1 January 2024. reduced compliance requirements for their TP
arrangements.
When to a apply for APA? APA Years
• Transaction must be ≥ SAR 100,000,000 • APA valid for up to 3 years (advance years).
(exceptions apply). Annual clarifications required to evidence
• Request should be submitted at least 12 compliance.
months from the beginning of the first • The KSA APA program does not allow for any
financial year under the APA. Rollbacks.
STEPS OF A TP HEALTH CHECK

01 Identify all material related 02 Confirm which 03 Evaluate the appropriateness of


party transactions and existing TP transactions/entities fall into the group TP policies for in-scope
policy and support. scope of regulations. transactions using qualitative and
quantitative methods.

04 Identify adjustments required, 05 Provide a diagnostic report


gaps to fill, or potential with recommendations and next
opportunities. steps.

TP HEALTH CHECKS - KEY TRENDS


1. Non-Arm's Length Pricing

Interest-free loans Shared services with no remuneration Loss-making entities.

2. Accruing Intercompany Payments with No Settlement

3. Lack of Support for TP Policy

Missing agreements Benchmarking data Invoices


SAMPLE TP RISK ASSESSMENT SUMMARY

Transaction Overall Score Related Incentive to Materiality Policy Documentation Recommendations


Parties Shift Profits Aligned Support

Financial Yes Yes Low Yes Yes 1. Perform


Transaction benchmarking
analyses
Green 2. Prepare
(Minimal Risk) agreements
3. Prepare
documentation

Intellectual Yes Yes High Yes No -


Property

Yellow
(Moderate
Risk)

Shared Yes No High No Yes -


Services

Red (High
Risk)

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