VSTN CONSULTANCY

Key Transfer Pricing Compliance Considerations for KSA Taxpayers

Beyond Thresholds: Rethinking Transfer Pricing Compliance in KSA

General TP documentation is applicable for all taxpayers with covered transactions. However, there is a common misconception that TP documentation needs to be prepared only when sought by the tax authorities or when the company exceeds the specified thresholds.

Since DFCT is used by the tax authorities to conduct high level transfer pricing assessment, it would be prudent for the taxpayers to prepare and maintain appropriate documentation to substantiate the arm’s length pricing of related party transactions which can act as a critical back-up for filing DFCT.

The General TP documentation can also help companies to determine whether any transfer pricing adjustment is needed before filing tax return.

Taxpayers should evaluate the applicability of Master File and Country-by-Country reporting requirements based on group structure and thresholds.

When an entity is designated as a Regional Headquarters (RHQ), it is mandatory to comply with the TP Bylaws of KSA and ensure that all related party transactions are undertaken at arm’s length price.

A detailed functional analysis is essential to demonstrate that the RHQ is undertaking only the licensed and permitted activities in line with regulatory requirements.

Given that tax authorities may call for information at any time, the maintenance of contemporaneous TP documentation is key to mitigating audit risks and potential litigation.

In light of the introduction of the Advance Pricing Agreement (APA) programme and the issuance of related guidelines, companies may evaluate APA as an effective tool to enhance transfer pricing certainty.

How VSTN can help

• A tailored approach considering the industry and operations of the taxpayers of the KSA
• Timely analysis on applicability of the Bylaws including amendments and updates
• Evaluation of existing transfer pricing policies and intercompany agreement to identify the risks and frame mitigation strategies
• Periodic monitoring and evaluation of the controlled transactions to advise on the arm’s length requirements
• End to end assistance in Annual TP Compliance
• Upfront advise on future transactions including evaluation of Advance Pricing Agreement (APA) and Rulings as an option
• Specific Support to RHQ like, Detailed documentation with FAR analysis, Analysis of Cost-Plus Vs Profit Split, Framing the risk mitigation strategies for RHQ in addition to the annual compliance
• Evaluation of Pillar 2 implications in case RHQs and Special Economic Zones for inbound MNCs which have IIR implemented