Updates on Transfer Pricing Guidelines You Should Know About

The past months have shifted the business world dramatically, and central hubs of business have been leading the world through the maneuvers necessary to overcome extreme situations. Remote work saw an all-time high in terms of necessity and guidelines, while business service providers began re-tailoring their services to fit the new business model. Saudi Arabia has led the response to COVID-19 emergencies, and the Kingdom continues to update its policies in response to the ramifications of the pandemic as well as other global events. 

Recent news revealed updates on WPS (Wage Protection System) and customs fees, and more recently the Saudi Arabia GAZT (General Authority of Zakat and Tax) issued updated transfer pricing guidelines highlighting documentation requirements and intangibles. A now-year-old version of the guidelines was met positively in 2019. It emphasized enforcement and application of transaction principles between related parties or parties under common control as if those parties were independent. The guidelines are not legally binding but do represent GAZT’s implementation of transfer pricing bylaws, which are aligned with OECD’s transfer pricing guidelines. 

It is important for businesses to be aware of these guidelines and the recent update they underwent in order to maintain compliance. Taxpayers with related party transactions must file a disclosure form with their tax return, with applicable sanctions mentioned in the guidelines as well. For those taxpayers with transactions exceeding SAR6 million with related parties, a master file and a local file must be prepared and maintained at the time of filing the tax return. The guidelines additionally mention taxpayers that are part of a multinational enterprise group and have consolidated group revenue exceeding SAR3.2 million, and are required to present a country-by-country report. 

The newly GZAT-issued transfer pricing guidelines clarify and provide certainty to taxpayers on GZAT’s take on transfer pricing policies. Development of the requirements has taken place with the release of the new guidelines, with a focus on audit activity and documentation. The purpose of the update is to ensure compliance and fulfillment of obligations.


The Arm’s Length Principle

The arm’s length principle applies to transactions between related parties or parties under common control. This principle now applies for all cases, as opposed to prior when low-value transactions did not apply. As a result, must disclose all controlled transactions entered into with related persons in the tax return regardless of the amount, to avoid any challenge in case of an audit. 


Saudi Arabia identifies control more broadly than the OECD transfer pricing guidelines; in Saudi Arabia, the concept of Effective Control exists. This results in more scenarios where parties are defined as related, and therefore more cases fit into the transfer pricing bylaws category. The newly-issued edition of the transfer pricing guidelines dives deeper into the definition of effective control and clarifies it for taxpayers. 

Selection of comparables

The updated guidelines state that the selection of comparable uncontrolled transactions must be obtained within a similar industry and in a geographical market comparable to Saudi Arabia. If the taxpayer cannot support the appropriateness of the comparable transactions selected, GAZT may challenge this during an audit.

Companies owned by a natural person may be included in the comparability analysis as a comparable, assuming that the natural person will not materially impact the profitability of the company. This will have an impact on the taxpayer by having potentially additional companies considered as comparables.


The concept of “de-facto owner” is created to ensure that the economic owner receives the appropriate return irrespective of the legal owner. The new guidelines specify that the de-facto owner of an intangible is the person that is in control of the development, enhancement, maintenance, protection, and exploitation (DEMPE) functions. Thus the person must make significant decisions and be able to manage and bear the respective risks to be regarded as the “economic owner” of the intangibles. It is possible that the legal owner and de-facto owner are not the same people. This does not mean that the legal owner is entitled to the right to retain all returns and economic benefits derived from the exploitation of intangibles even though such returns may initially accrue to the legal owner due to legal ownership.

Transfer pricing documentation

All controlled transactions, including controlled transactions between a taxable person and a related person in Saudi Arabia, fall under the scope of the bylaws. Whereas prior some taxpayers could omit domestic transactions occurring in Saudi Arabia from transfer pricing documentation.

This can pose a particular issue due to the threshold of 6 million riyal for taxpayers to prepare a local file, as domestic transactions can cause the total amount of related party transactions to exceed the threshold and create unexpected compliance requirements for a local file. The disclosure form should be submitted 120-days after the last day of the financial year, irrespective of any exceptions to the deadline for filing the tax return.

Disclosure forms

Restructured businesses must have the ‘yes’ box ticked on disclosure forms when the restructuring has directly or indirectly affected the Saudi entity. These forms are accompanied by a Chartered Accountant Certificate declaring that the transfer pricing policy of the business or MNE group is consistently applied in relation to the taxpayer in Saudi Arabia. The new edition of the guidelines clarifies that GAZT accepts both ‘limited’ and ‘reasonable’ assurance engagements as long as the certificate is provided by a licensed auditor in the Kingdom. 

Country-by-country reporting

It has now been clarified that every Saudi Arabia taxpayer who is part of an MNE group with a consolidated group revenue exceeding the threshold of 3.2 billion riyals must register (enroll) at the GAZT automatic exchange of information portal and send an Article 3 notification to GAZT 120 days after the last day of the taxpayer’s reporting year. GAZT added useful and comprehensive step-by-step practical guidance for the registration and submission in GAZT’s country-by-country reporting portal in the second edition of transfer pricing guidelines.

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E-mail: [email protected]


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E-mail: [email protected]


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E-mail: [email protected]

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