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Transfer Pricing Requirements Subject to More Entities in Saudi Arabia

July 26, 2022

tp in 5 social sauda arabia

Transfer pricing legislation is spreading all over the Middle East and leading the way, of course, is Saudi Arabia. The country wants to diversify its revenue base and recognizes that transfer pricing could play a key role in that.

Earlier this month, the country’s Zakat, Tax and Customs Authority issued new transfer pricing bylaws, which would make Zakat payers responsible for more transfer pricing compliance. Public consultation regarding the bylaws is taking place until July 30.

If passed, the bylaws will be released within the next two months and take effect during the fiscal year ending on December 31, 2022. Some key changes: Obviously, the applicability of the laws.

Now, entities subject to Zakat, an Islamic tax assessment placed on GCC citizens, are only required to submit a country-by-country report or CbC report notification, depending on annual consolidated revenues. Under these new bylaws, they will be subject to the same rules as taxpayers under the income tax law.

The amendment proposes:

The amendment proposes to include all Zakat paying entities as “taxable persons,” so these entities would now be subject to additional transfer pricing requirements.  Small changes in definitions could add to the number of taxpayers subject to transfer pricing requirements as well.

For example, the definition of “related persons” refers to those who have the ability to control business. The bylaws proposes adding “effectively” before “control,” which could broaden the scope.

A new transfer pricing disclosure form would apply to Zakat payers. The disclosure would have to be submitted within 120 days after the last day of the fiscal year, and the proposal advocates for more transparency: details about assets, total funds, advance payments, debts, components of the Zakat base, the deductible amount, and details about the controlled transactions.

Disclosure forms must be submitted electronically in Arabic by every person engaged in the controlled transaction regardless of value. Tax and Zakat payers must submit an affidavit from their accountant declaring that their transfer pricing policy is also applied to the taxpayer in Saudi Arabia.

Preparation of the master file and local file would be requirements for Zakat payers with transactions whose arm’s length value exceeds SAR 6 million ($1.6 million) in a 12-month period—Zakat taxpayers with transactions valued less than that aren’t required to prepare the documentation.

What do taxpayers think of the proposal? We’ll have to wait for the results of the public consultation to find out.