Saudi Arabia: Amending Transfer Pricing Instructions to apply to Zakat Payers

• July 4, 2022 saw the Saudi Tax Authority, Zakat, Tax & Customs Authority, issue a document for public consultation regarding proposed amendments to the Transfer Price bylaws to be applied to Zakat payers. The document was valid for public consultation until July 30, 2022. Zakat, Tax & Customs Authority has issued results relating to the public comments received on the public consultation platform.
• It is expected that the final bylaws will be released within 2 months thereafter, however the proposed amendments do not specify the effective date of their application.
   

In general, the changes were made to the definitions & nomenclature in the Transfer Price bylaws. Zakat, Tax & Customs Authority made many amendments to the wording of this article including changes, additions & deletions, so as to expand the application of bylaws both with regard to tax and Zakat.

Key amendments suggested by the Zakat, Tax & Customs Authority

• Considering the amendments proposed by the Zakat, Tax & Customs Authority, the Transfer Pricing provisions scope will be expanded to Zakat payers; accordingly, all transactions should comply with the arm’s length principle in this regard.
• In other words, according to the proposed amendments, Zakat payers should be able to demonstrate and document the arm’s length nature of their controlled transactions as well as maintain a rigid Transfer Pricing policy in order to avoid Zakat, Tax & Customs Authority adjustments to the Zakat base of the group entities.
• Considering that, the Zakat, Tax & Customs Authority may amend profits of certain entities in the absence of the relevant analysis and supporting documents illustrating the arm’s length nature upon request of such documentation.
• Moreover, Zakat payers should adhere to Transfer Pricing compliance requirements with regard to the threshold amounting to SAR 6 million. Local and master files should be prepared and maintained.
• This would represent a significant change, as Zakat payers are not subject to transaction pricing provisions except for the obligation to submit a country-specific report. Therefore, Zakat payers will have to ensure that the neutral price principle is applied with regard to their transactions with associated companies and to fulfil the obligations & requirements of annual documents.
   

Implications

Zakat payers should be ready to comply with the proposed requirements when the amendment comes into effect and to be well-prepared regarding the proposed changes through documentation of the controlled transaction as well as reinforcement of robust Transfer Pricing policies.

Read the WTS Global Transfer Pricing Newsletter here.