On 20 March 2023 (corresponding to 28/08/1444AH) (No 8-2-23), the Board of Directors of the Zakat, Tax and Customs Authority (ZATCA) approved the amendments to the Kingdom of Saudi Arabia Transfer Pricing Bylaws (KSA TP Bylaws) as proposed in the Public Consultation Document issued on 22 July 2022. 

While the revised KSA TP Bylaws have not yet been published, based on the announcement, we understand that the following key amendments to the KSA TP Bylaws have been approved:

The KSA TP Bylaws would be applicable to taxpayers who are subject to the Zakat levy (i.e. 100% Zakat paying taxpayers) for fiscal years beginning on or after 1 January 2024.

Taxpayers and Zakat Payers will be able to apply for Advance Pricing Agreements (APA) for fiscal years beginning on or after 1 January 2024.

The TP Local File (LF) and Master File (MF) requirement as laid down in the KSA TP Bylaws will be applicable to 100% Zakat paying taxpayers, based on the following thresholds: 

Phase 1 - FY2024 to FY2027

Investment funds would not be subjected to the LF and MF requirements in Phase 1

Phase 2 - FY2027 onwards

Key takeaways

The recent amendments to the KSA TP Bylaws represent a major milestone in the TP landscape of KSA as they aim to expand the scope of TP provisions to cover a wider range of business entities, including both corporate income-tax and Zakat payers. Additionally, the amendments introduce APAs to help taxpayers and Zakat payers achieve upfront certainty on their TP arrangements.

While the thresholds for LF and MF requirements for Zakat payers are initially set high, all Zakat payers must ensure that their controlled transactions comply with the arm's length principle, regardless of the transaction value. Therefore, even if they are not required to prepare and maintain LF and MF, Zakat payers should review their inter-company arrangements as soon as possible.

Although Investment Funds are exempt from the TP Bylaws for a three-year period after the amendment's introduction, they may still need to ensure compliance with the arm's length principle for transactions with related parties.

The introduction of APAs is a positive and significant development, as it provides taxpayers and Zakat payers with an alternative and binding arrangement with ZATCA and other tax authorities. This arrangement can offer more certainty on their TP positions for a defined period.

Once the revised KSA TP Bylaws have been published by ZATCA, a more detailed news alert will follow.