Foreign firms must be aware of Saudi’s transfer pricing bylaws: KPMG

Foreign companies planning to set up operation in Saudi Arabia are required to ensure their transfer pricing policies are in line with the Kingdom's recently-announced transfer pricing bylaws, KPMG Al Fozan & Partners said in a statement.

On the other hand, established foreign businesses in the Kingdom must meet the reporting obligations towards the General Authority of Zakat and Tax (GAZT) despite the tight deadlines.

"Transfer pricing is a global phenomenon with more than 100 countries in the world have (more or less complex) TP regulations embedded in their local tax law. Global investors and multinational companies are usually well aware of it and have established a transfer pricing policy that they apply on their related party transactions," said Wadih Abu Nasr, Head of Tax at KPMG Al Fozan & Partners.

However, the transfer pricing regulations are not only a compliance exercise since the GAZT will use the provided information to select which companies to audit and conduct more detailed audits on the ground, he revealed.

While all company conducting business in the Kingdom should perform an impact assessment to determine how the transfer pricing regulations are impacting their activities, the Saudi transfer pricing regulations have a very broad definition of what determines a related party.

"Companies need to verify if any of their transactions will fall into this definition and becomes reportable. If the company has significant business relations with related parties (inside or outside the Kingdom), their transfer pricing exposure obviously rises," Abu Nasr said.

As a G20 member, it was imperative for Saudi Arabia to embrace the global rules of transfer pricing, but the timing of the new regulations and tight deadlines are a challenge for all concerned businesses.

"From a GAZT perspective, it still needs to be seen how the collected information will be used. For the country-by-country reporting, GAZT still needs to create the proper infrastructure to collect and share the information with the global community," he added.

While transfer pricing regulations were issued in February 2019, the GAZT has not introduced a specific penalty regime for Transfer Pricing.

Transfer pricing refers to the pricing of transactions between related persons. These controlled transactions include but are not limited to transactions related to goods, services, loans and Intangibles.