On 17 June 2019, the General Authority of Zakat and Tax (GAZT) of Saudi Arabia has organized a transfer pricing seminar in Riyadh to simplify the key areas of the transfer pricing (TP) regulations published on 15 February 2019 and to address taxpayer questions about transfer pricing compliance requirements. The following topics were covered in this seminar:
TP documentation deadline:
Generally, taxpayers with related party transactions in excess of SAR 6 million are required to submit a master file and local file consistent with action 13 of the OECD BEPS project.
The GAZT may request information regarding the master file and local file any time after the due date of the taxpayer’s annual tax return. After that, the taxpayer has at least 30 days from the date of the request for information. For taxpayers whose due date for the tax return falls into calendar year 2019, a further 60 days will be granted in addition to the minimum of 30 days from the date of the request for information. The FAQs published on the GAZT website have been updated to reflect the deadlines to submit transfer pricing documentation.
CbC reporting:
GAZT ensured that Saudi Arabia has signed the Agreement on the Multilateral Competent Authority for the Exchange of Country Reports (CbC MCAA), which will permit Saudi Arabia to build up a wide network of exchange relationship for automatic exchange country-by-country reports (CbCR).
The CbCR aspect of transfer pricing regulations applies to both income and Zakat pay entities (excluded pure Zakat pay entities from the requirement to prepare master files and local file). GAZT plans to launch an online portal to facilitate the submission of CbCR. Taxpayers who have already submitted CbCR will need to resubmit their report after the new portal is launched. GAZT will have additional workshops on portal launch and resubmission requirements in the next coming few months.
TP disclosure form:
The final regulation states that the taxpayer must file a disclosure form clarifying related party transaction with their tax return. The taxpayers who filed a tax return before the transfer pricing regulations are finalized or before the disclosure form could be used for electronic filing may submit the disclosure form manually to their GAZT relationship manager and an affidavit must be filed with the tax return that applies to the accountant’s affidavit to prove that the taxpayer’s transfer pricing policy is consistent. The affidavit does not require a specific format. GAZT clarified that taxpayers who have not filed a tax return should submit an affidavit to the GAZT Relationship Manager as soon as possible.
Comparable used for Loss-making companies
The GAZT also decides whether companies performing at a loss should be used as comparable when determining an arm’s length range of acceptable prices for transfer pricing purposes. When conducting a comparability analysis to determine transfer prices, a company (the tested party) is compared to similar companies. The GAZT repeated that loss-making companies should not be used as comparable when conducting a comparability analysis. Rather, the GAZT recognizes that the tested party may be in the start-up phase or undergoing market penetration, in which case adjustments could be made to the comparability analysis to account for such scenarios.
The regulations are effective for tax returns filed on or after 1 January 2019.
