KSA releases second edition of Transfer Pricing guidelines

The General Authority of Zakat and Tax (GAZT) in the Kingdom of Saudi Arabia (KSA) has published the second edition of the Transfer Pricing guidelines.


The first edition of the Transfer Pricing guidelines were released in March 2019 after the release of the Transfer Pricing bylaws in February 2019. Click here to access our archived alert. Recently in May 2020, GAZT released the second edition of the Transfer Pricing guidelines with several updates. The second edition can be accessed through this link.

Summary of updates to the Transfer Pricing guidelines

(a)   Beneficial ownership and De facto owner of intangibles

The definition of ‘Beneficial ownership’ and ‘De facto owner of intangibles’ have been added to the guidelines. 

Beneficial ownership
De facto owner of intangibles

Means a natural person(s) who ultimately own(s) or control(s) the funds of the clients or on whose behalf a transaction or activity is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.

Means the Person that is in control of the Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) functions, making the significant decisions and able to manage and bear the respective risks, and thus can be regarded as the “economic owner” of the intangibles. It is possible that the legal owner and de facto owner are not the same Person.


(b)   Effective control

Effective control is defined in the Transfer Pricing bylaws as the ability of a Person to control the business decisions of another Person. The various levels of effective control, included in the scope of the Transfer Pricing bylaws, can be categorized as follows:

  1. Control via governance;
  2. Control via funding; and
  3. Control via business.

It has been clarified that control through one or more of the above listed factors creates a rebuttable presumption that effective control exists. However, taxpayers have a right to evaluate and demonstrate that no effective control exists on dealings with persons falling under the above criteria.

The guidelines further explain that if there is no other indication of a controlling relationship (e.g. no or limited direct or indirect ownership, no decisive influence on terms and conditions or pricing of transactions), even though there is a presumption of control through business decisions, the totality of the facts and circumstances would indicate that there is no effective control.

(c)   Selection of comparables

Information on uncontrolled transactions within a similar industry and in a geographical market comparable to KSA should be obtained as part of the search process.

Additionally, GAZT has explained that companies owned by Natural Persons may also be included as comparables, if it is reasonable to assume that Natural Persons will not impact the profitability of the company.

(d)   Submission of TP Documentation

The thirty days (30) days period for submitting TP documentation when requested by GAZT is calendar days instead of working days.

(e)   Country-by-country reporting (CbCR) obligations

If in a given year, a multinational enterprise (MNE) group does not file CbCR in the filing jurisdiction because the MNE Group’s consolidated revenue does not meet the Statutory Consolidated Revenue Threshold (SCRT) in the filing jurisdiction, then the KSA constituent entity of that MNE group will not be required to file CbCR in KSA for that year. Nevertheless, KSA constituent entities must notify GAZT and provide the necessary information that shows that in accordance with the laws of the reporting entity’s jurisdiction, the only reason that no CbCR was filed in a certain year is because the MNE Group has not met the SCRT of that jurisdiction. 

(f)   CbCR notification requirements

The Article 3 notification is required to be filed by every taxpayer in KSA (that is part of a MNE Group with a consolidated group revenue exceeding the threshold of SAR 3.2 Billion) through GAZT’s Automatic Exchange of Information(AEOI) portal.

Hence, KSA based constituent entities are required to file dual CbCR notifications in a financial year i.e. one filed along with the Transfer Pricing disclosure form as part of income tax return and second through the AEOI portal.GAZT has also added useful and comprehensive step-by-step
practical guidance for registration, notification and submission of CbCR on the
AEOI portal.

(g)   Transfer Pricing disclosure Form

The timeline for filing the Transfer Pricing disclosure form is within 120 days after the last day of the fiscal year. This timeline is applicable in all relevant cases including partnerships where the tax return is required to be filed within 60 days after the last day of the fiscal year.

It has been clarified that business restructuring means any restructuring that directly or indirectly has an impact on the KSA taxpayer.

(h)   Chartered Accountant Certificate (Affidavit)

GAZT has clarified that it will accept both “limited” and “reasonable” assurance
opinion for the affidavit as long as it is provided by a licensed auditor in

(i)   Masterfile requirements

The identity of the legal and De Facto Owner of the Intangibles is required to be disclosed in the Masterfile.

Key takeaways

GAZT has provided taxpayers with extensive practical guidance to assist taxpayers in complying with transfer pricing obligations in KSA. 

The updated Transfer Pricing guidelines provide taxpayers with clarity on dealings and transactions with parties falling under the effective control criteria. Where taxpayers are taking a position to exclude certain transactions meeting the effective control criteria from their Transfer Pricing obligations, it is recommended to maintain supporting documents to demonstrate that no effective control exists as burden of proof lies with the taxpayer.

GAZT has provided input on the form of opinion for issuance of affidavit from a licensed auditor through which the auditor certifies that the Transfer Pricing policy of the MNE is consistently applied by and in relation to the taxpayer. It is recommended that taxpayers maintain Transfer Pricing documentation contemporaneously at the time of filing their tax return to support arm’s length nature of their controlled transactions.

The Article 3 notification will create additional compliance requirements for taxpayers as dual CbCR notifications will now be required. Those taxpayers who have registered on GAZT’s AEOI portal before will only be required to submit an annual CbCR notification, which is a simple exercise.

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