On 15 February 2019, Saudi Arabia’s General Authority of Zakat and Tax (GAZT, now ZATCA) issued the final Transfer Pricing (TP) Bylaws, marking a significant development in the country’s tax and compliance landscape. These Bylaws were published after a public consultation on a draft version released in December 2018 and were accompanied by a detailed FAQ document to aid interpretation and implementation.

Key Features of the 2019 Transfer Pricing Bylaws

Alignment with International Standards

• The Bylaws are broadly in line with the OECD Transfer Pricing Guidelines, promoting consistency with international best practices.

Scope and Applicability

• The regulations apply to all entities in Saudi Arabia engaged in transactions with related parties, including both tax and Zakat payers.
• The definition of “related parties” is comprehensive, covering natural persons, legal entities, and situations of effective control or significant influence.

Approved Transfer Pricing Methods

• The Bylaws specify the following approved methods, in line with the OECD Guidelines:
  • Comparable Uncontrolled Price Method
  • Cost Plus Method
  • Resale Price Method
  • Profit Split Method
  • Transactional Net Margin Method
• Taxpayers may use alternative methods if they can demonstrate that the standard methods do not yield a reliable arm’s length result.

Documentation and Compliance Requirements

• Disclosure Form: All taxpayers with related party transactions must submit a disclosure form detailing these transactions, regardless of transaction value, along with their annual income tax return. The form must be filed within 120 days of the fiscal year-end.
• Affidavit Requirement: An affidavit from a licensed auditor in Saudi Arabia is required, certifying that the taxpayer’s transfer pricing policy has been consistently applied1.
• Master File and Local File: Entities with related-party transactions exceeding SAR 6 million must maintain a Master File and a Local File, documenting their transfer pricing policies and justifications.
• Country-by-Country Reporting (CbCR): Ultimate or surrogate parent entities with consolidated group revenues exceeding SAR 3.2 billion must submit a CbC report within 12 months of the fiscal year-end.

Adjustment and Enforcement

• If transactions are not conducted at arm’s length, taxpayers must adjust their tax base accordingly. ZATCA has the authority to reallocate or disregard results to ensure alignment with the arm’s length principle.

Language and Retention

• Documentation should be maintained in Arabic, although English may be accepted in some cases. All documentation must be retained for at least five years.

Key Changes from the Draft to Final Bylaws

• Clarification for Zakat Payers: The final Bylaws clarified their application to Zakat-paying entities, not just income tax payers.
• Extended Submission Deadlines: The period for submitting the Local File was extended.
• Auditor Certification: Introduction of the requirement for an auditor’s affidavit, which was not present in the draft.

Implementation and First Filing

• The first disclosure under the new rules was due by 30 April 2019 for companies with a financial year ending 31 December 2018.

Country by Country Reporting

The Transfer Pricing (TP) Bylaws introduced in Saudi Arabia in February 2019 integrated Country-by-Country Reporting (CbCR) as a core compliance requirement for multinational enterprises (MNEs), aligning with OECD BEPS Action 13 standards. Here’s how the two are connected:

1. CbCR as a Mandatory Obligation

• The TP Bylaws require ultimate or surrogate parent entities of MNEs with consolidated group revenue exceeding SAR 3.2 billion to submit a CbC report within 12 months after the fiscal year-end.
• This applies to both taxpayers and Zakat payers, extending the scope beyond traditional income tax entities.

2. Alignment with OECD Guidelines

• The CbCR framework under the Bylaws mirrors the OECD’s recommendations, ensuring standardized reporting of global allocation of income, taxes paid, and economic activity across jurisdictions.

3. Filing and Notification Requirements

• Submission: Reports must be filed electronically via ZATCA’s portal, requiring a one-time registration for MNEs.
• Deadlines:
  • CbCR notification must be submitted within 120 days of the fiscal year-end.
  • The CbC report itself is due within 12 months.

4. Expanded Scope Post-2019 Amendments

• While the 2019 Bylaws initially introduced CbCR, subsequent amendments (e.g., 2023) clarified its application to Zakat payers and reinforced deadlines.

5. Link to Broader TP Documentation

• CbCR operates alongside other TP requirements:
  • Master File and Local File: Required for entities with related-party transactions exceeding SAR 6 million.
  • Disclosure Form: Mandatory for all entities with controlled transactions, submitted alongside tax/Zakat returns.