In recent years, Saudi Arabia has made significant strides in aligning its transfer pricing (TP) framework with international standards, reflecting its commitment to transparency, tax base protection, and fair cross-border taxation. These changes are especially critical for multinational enterprises (MNEs) operating in the Kingdom.
This article outlines the latest regulatory developments and strategic considerations for ensuring compliance with the Zakat, Tax and Customs Authority (ZATCA)’s transfer pricing requirements.
Transfer Pricing Framework in Saudi Arabia
Transfer pricing regulations in Saudi Arabia are governed by the Transfer Pricing Bylaws issued by ZATCA (formerly GAZT) and apply to all related party transactions, including goods, services, financing, and intangibles.
Key components include:
- Arm’s Length Principle: All intercompany transactions must be priced as if they were conducted between unrelated parties.
- Transfer Pricing Documentation:
- Master File – Overview of the global business, intangibles, financial arrangements.
- Local File – Specific details of intercompany transactions involving the Saudi entity.
- Disclosure Form – Submitted with the tax return for taxpayers with revenues ≥ SAR 6 million.
- Country-by-Country Report (CbCR) – Required for groups with consolidated revenue ≥ SAR 3.2 billion.
Recent Developments
- Extension of TP Rules to Zakat Payers
Previously limited to income taxpayers, Zakat-paying entities (e.g., GCC-owned businesses) are now also subject to certain TP provisions, particularly around related party disclosure and arm’s length pricing for deductibility purposes.
- Increased TP Audits and Penalties
ZATCA has increased its audit focus on transfer pricing compliance. Key triggers include:
- Inconsistencies between the Disclosure Form and Local File
- Profit shifting or recurring losses
- Inadequate benchmarking studies
Failure to comply can result in adjustments, penalties, or disallowance of deductions.
- Use of OECD Guidelines
ZATCA explicitly incorporates the OECD Transfer Pricing Guidelines (2017) into its framework, especially in areas like:
- Transactional profit methods
- Comparability analysis
- TP treatment of financial transactions
- Digitalization and Automation
With the rise of e-invoicing and digitized reporting, ZATCA is integrating TP data points into its broader tax risk analytics. This enhances detection of inconsistencies across tax and customs filings.
Compliance Strategies for 2025 and Beyond
To remain compliant and avoid costly disputes, MNEs should adopt a proactive, documented, and risk-informed TP strategy:
- Perform a Risk Assessment
Identify high-risk intercompany transactions, such as:
- Cross-border management fees
- Intercompany financing
- Payments for intellectual property
- Prepare Robust TP Documentation
- Ensure alignment between Master File, Local File, and CbCR.
- Perform local benchmarking using Saudi comparables where possible.
- Clearly explain TP policies and value creation rationale.
- Automate Disclosure & Data Consistency
- Use tax technology or ERP-integrated templates to maintain consistency between:
- Disclosure Forms
- Financial statements
- ZATCA submissions
- Align with Customs Valuation
- Ensure TP prices align with values declared for customs duties, as ZATCA monitors both.
- Monitor Regional Developments
- The GCC Unified Agreement on VAT and Transfer Pricing continues to evolve. Businesses should align Saudi TP policies with regional tax and customs strategies.
Conclusion
Transfer pricing in Saudi Arabia is no longer just a back-office tax exercise. It’s now a strategic compliance issue with direct impact on audit exposure, deductibility, and profit repatriation. As ZATCA’s enforcement grows more sophisticated, companies must go beyond minimum documentation and establish real-time, data-driven TP compliance frameworks.
At Mavins Saudi Arabia, we help clients structure, document, and defend their transfer pricing policies in alignment with both Saudi and global standards.