The General Authority of Zakat and Tax (GAZT), Saudi Arabia, has published the latest transfer pricing bylaw, chalking out new regulations and policies on transfer pricing compliance for taxable businesses in KSA. The new bylaw is the latest initiative by authorities to bring Kingdom’s tax rules at par with international standards, while also enabling the GAZT monitory tools to track and protect its tax base from artificial profit shifts from the kingdom to other countries.

Here are summarized features of the new Transfer Pricing Bylaw:

• Arm’s Length range:

According to the bylaw, companies are required to submit the key financial indicators for the uncontrolled transactions including profit shares, pricing, margins etc. using the most relevant transfer pricing method based on comparability analysis

• Approved Methods

The approved transfer pricing methods include methods to be used by businesses include; Transactional Split Method, Comparable Uncontrolled Price Method, Transaction Net Margin Method, Resale Price Method, and Cost-Plus Method

• Disclosure requirements

All taxable businesses with party transactions have been mandated to submit a disclosure form detailing the complete related party transactions along with the annual income tax return.

• Master file and Local file:

All businesses exceeding an annual turnover of SAR 6 million are required to prepare and maintain a master transaction file as well as a local file. The master file is to include complete details of companies’ global business operations, whereas, the local file is to detail all controlled business transactions.

• Country by Country Reporting

Taxable companies that form the part of Multinational Enterprises (MNEs) with the annual revenue exceeding SAR 3.2 billion are mandated to prepare and submit a detailed Country-by-Country (CbC) annual report. The CbC report submitted by MNEs is to include detailed information regarding aggregate company revenue, income tax paid, stated capital, accumulated earning, profit before tax, loss before tax, income tax accrued and the number of employees.

• Transfer Pricing Adjustment

An adjustment to tax base is required from all taxable businesses, where transactions aren’t made using listed transfer pricing methods or in accordance with arm’s length outcome.

What’re the next steps for businesses?

The new bylaws can be ambiguous and complex for businesses, given various compliance requirements. Since these obligations are to be met before the tax return submission in April, companies need to act immediately and appropriately to be able to assess and take necessary steps for implementation of new bylaws and to remain compliant.

Companies with 31st December 2018 as the financial year closing are obligated to submit a detailed disclosure form as well as Country-by-Country report (where necessary) before 30th April 2019. Where relevant, businesses now have to prepare and maintain master and local files for accurate VAT return submission to GAZT.

More than anything, the most important obligation for the companies remain to understand the complexities and requirements under the new bylaw and ensure all inter-company (uncontrolled) transactions are valued using the right transfer pricing method; prescribed under the guidelines.