Saudi Arabia Transfer Pricing Guidelines: Second Edition
In February 2019, the General Authority of Zakat and Tax (GAZT) in the Kingdom of Saudi Arabia (KSA) formally released the final Transfer Pricing Bylaws (TP Bylaws). The GAZT also subsequently issued the First Edition of the Transfer Pricing Guidelines (TP Guidelines) in March 2019. The TP Guidelines serves to provide guidance on how the TP Bylaws are to be applied in KSA.
On 1 June 2020, the GAZT has issued the Second Edition of the TP Guidelines. The Second Edition does not usher in any significant changes / additions to the application of the TP Bylaws.
The key highlights of the Second Edition of the TP Guidelines are provided below;
• Definitions have been added for the following terms;
• The TP Guidelines reinforces on the fact that there is no materiality threshold for the applicability of the arm’s length principle on controlled transactions. Hence, the underlying principle is that all controlled transactions, irrespective of the value, should be at arm’s length.
• The TP Guidelines state that when identifying Related Persons via Effective Control the facts and circumstances of the situation should also be carefully considered to determine if this results in Effective Control. Even though there is a presumption of control through governance, funding or business it would be up to the taxpayer to evaluate and demonstrate that there is in fact, no Effective Control.
• The TP Guidelines further reinforces the fact that for Audit Procedures and fines / penalties reference should be made to the respective Articles in the Income Tax Law.
• Further guidance is provided in respect of Country by Country Reporting (CbC Reporting), specifically in terms of the following instances;
3. The registration process for GAZT’s CbCR portal is explained in details in an appendix to the TP Guidelines. This content has been provided previously by GAZT when the CbCR portal was launched.
• Article 14 (B) of the TP Bylaws state that the Disclosure Form of Controlled Transactions (DFCT) is to be submitted within 120 days of the end of the financial year of the taxpayer. This would usually coincide with the deadline for filing of the Tax Declaration. However, the TP Guidelines state that the 120 days period would still apply for filing of DFCT even if there were exceptions to the deadline of filing of Tax Declarations.
• The TP Guidelines state that, in terms of the Chartered Accountant’s Certificate (TP Affidavit), GAZT would accept both “limited” and “reasonable” assurance engagements provided the same is provided by a licensed auditor in KSA.
As mentioned earlier, most of the changes in this Second Edition are merely cosmetic in nature. However, the taxpayer has now the possibility to “opt out” of Transfer Pricing, if he can substantiate that no effective control relationship exists. It remains unclear how taxpayers are expected to demonstrate this and how GAZT would approach such cases.
Our qualified teams with a strong background and knowledge in transfer pricing and corporate tax combined with familiarity with related local and regional legal frameworks, can help you understand the GAZT’s requirements and expectations. Furthermore, as part of KPMG’s global network, our experts have good understanding of issues that generally arise with the introduction of Transfer Pricing regulations. We seek to localize our international experience for the benefit of our clients.
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