Saudi tax authority publishes draft transfer pricing bylaws

By Anas Salhieh  (Senior Tax Executive, Al Tamimi & Company, Riyadh, Saudi Arabia)

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Saudi Arabia’s General Authority for Zakat and Income Tax has published for public comments draft transfer pricing bylaws as part of the Kingdom of Saudi Arabia’s commitment to the OECD’s base erosion and profit shifting (BEPS) project.

The main objective of the Transfer Pricing Bylaws is to ensure that related-party transactions are conducted at an arm’s length basis.

The Transfer Pricing Bylaws are broadly based on the OECD’s Transfer Pricing Guidelines and implement the OECD’s recommendations on BEPS Action Point 13, on transfer pricing documentation, in line with Saudi Arabia’s commitment to the BEPS minimum standards.    

Transfer pricing methods

The Transfer Pricing Bylaws set out approved transfer pricing methods to determine an arm’s length result and provisions on an arm’s length range, which are based on the OECD Transfer Pricing Guidelines.

The approved transfer pricing methods are: comparable uncontrolled price method, resale price method; cost plus method; transactional net margin method; and transactional profit split method. However, taxpayers may apply a different transfer pricing method where they are able to demonstrate that none of the five prescribed transfer pricing methods provide a reliable measure of an arm’s length result.

A new country-by-country reporting requirement

The Transfer Pricing Bylaws introduce new compliance requirements that will affect all taxpayers in Saudi Arabia.

The key measures include a new disclosure requirement, preparation of “master” and “local” files and a country-by-country (CbC) reporting requirement. 

All taxpayers with related-party transactions will be required to submit to the tax authority, along with their annual income tax returns, a disclosure form that includes details of their related-party transactions. 

The first disclosure form will be required within 120 days from the end of the 2018 financial year. 

Taxpayers that are part of a Multinational Enterprise Group (MNE Group) and have consolidated group revenue exceeding SAR3.2bn are required to submit a CbC report within 12 months from the MNE’s year-end and notify the tax authority regarding the submission of the CbC report within 120 days of the end of the reporting year.

The CbC report will include information related to the aggregate value of revenue, profit (or loss) before tax, income tax paid, income tax accrued, stated capital, accumulated earnings, and the number of employees.

Taxpayers with related-party transactions with an annual value above SAR6m and above are required to prepare and maintain a “master” file containing information on the global business operations and transfer pricing policies of the group and a “local” file containing detailed information on all controlled transactions.