KSA – APA Guidelines Issued By Zakat

The Zakat, Tax, and Customs Authority (ZATCA) has introduced the Advance Pricing Agreement (APA) Guidelines in February 2025 to provide tax certainty and minimize transfer pricing (TP) disputes for taxpayers engaging in controlled transactions. APA Guidelines represent a major advancement in promoting tax transparency and compliance for multinational enterprises in Saudi Arabia.

Some of the key highlights:

1. ZATCA currently allows only unilateral APAs
2. APA request must be initiated at least 12 months before the start of the first fiscal year covered by the agreement
3. Covered transactions should exceed SAR 100 million annually, unless exempted for complex transactions
4. APA duration is three years with, no roll back provision.
5. Once an APA is in place, taxpayers must submit an ACR within 120 days after the end of the financial year.

The APA framework in most of the aspects aligns with international best practices. By enabling businesses to pre-establish transfer pricing methods, the APA framework encourages a collaborative relationship between taxpayers and ZATCA.

Know More…

New Income Tax Bill – 2025- Transfer Pricing Updates

The much-awaited New Income Tax Bill 2025 was presented by the Hon’ble Finance Minister on February 13, 2025, in Parliament. The provisions of this bill will come into effect from April 1, 2026. The Hon’ble Finance Minister, in her 2024 budget speech, had hinted that a comprehensive review of the existing Income Tax Act would be pursued to revamp the provisions with a New Income Tax Act that would be much more concise, simple, and easy to understand.

Key changes in connection with Transferpricing are provided in the VSTN Alert, which is summarised below:

• New Section References – The Transfer Pricing provisions now fall under Sections 161 to 174 (earlier 92 to 92F).
• Multi-Year ALP Determination – Taxpayers now have the option to apply the Arm’s Length Price (ALP) for one year over two consecutive years. This approach is designed to reduce the compliance burden.
• Definition of Associated Enterprises – The new Income Tax Bill has enhanced the scope of the definition of Associated Enterprises under Sections 162(1) and 162(2). These sections are now mutually exclusive expanding the scope of what constitutes an AE.
• Clarity on +/-3% Range – The law now explicitly applies the +/-3% range for ALP determination, even when only a single comparable is available. Also it appears there is no distinction for wholesalers at 1% tolerance limit.
• ALP for multiple prices/margins – References to Mean or percentile are absent. Instead, the ALP determination methodology will be prescribed separately by the authorities.
• Advance Pricing Agreements – Existing agreements under current Income tax act may need re-evaluation due to changes in AE definitions.

Know More…

Union Budget 2025-26 : Transfer Pricing Perspective

The finance minister presented the Indian Union budget 2025-26 on 01 February 2025. The transfer pricing updates are provided in the VSTN Alert, which is summarised below:

1. Introduction of option to taxpayer for multi-year arm’s length determination. The finance minister in the budget speech introduced this option to taxpayers wherein the arm’s length price determined for one year is applied for consecutive two years with regard to similar international transactions & facts and circumstances. While the Finance Bill, 2025 proposes to amend the Income tax Act to enable taxpayer exercise of such option, the detailed rules on implementation of the multi-year approach are expected to be issued vide the Income-tax Rules by the CBDT.While this approach is introduced in light of the global best practice, the multi-year approach in its current proposed form would differ in substance from the global approach of ‘block period’ – which is similar to concept of ‘term testing’ (testing the results of taxpayers for 3 years combined as one tax period).Currently, the regulations surrounding maintenance of contemporaneous documentation has not been modified and hence even where the taxpayers wishes to elect for this option, annual compliances such as filing of accountant’s report and transfer pricing documentation along with benchmarking for the respective year would have to be complied with, also ensuring penalty protection.
2. Safe Harbour Rules: The budget speech stated that safeharbour rules would witness expansion in the scope of rules and revision of existing arm’s length price for existing covered transactions. Detailed rules is expected to be issued by the CBDT in due course.
3. Faceless scheme: The Budget proposes to remove the deadline for notifying faceless schemes for Transfer pricing assessment / audit, thereby allowing the Central Government to issue directions beyond March 31, 2025, as needed.

The budget speech stated that the new income-tax bill would be introduced in the week following the budget session. The income-tax bill is expected to simplify the taxation rules, with about half the volume of the existing Income-tax Act.

Know More…