ZATCA has published the third edition of the Transfer Pricing guidelines in KSA

11 April 2022 - The Zakat, Tax, and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) has published the third edition of the Transfer Pricing (TP) guidelines. 

The first edition of the TP guidelines were issued in March 2019 following the release of the TP bylaws in February 2019. Subsequently, ZATCA released the second edition of the TP guidelines in May 2020 with several updates. Additional details regarding the second edition of the guidelines are available in our previous alert which is available on the following link.

November 2021, ZATCA released the third edition of their Transfer Pricing guidelines with several updates that are consistent with the Organization for Economic Co-operation and Development (OECD) TP Guidance on Financial Transactions issued in February 2020. The third edition of the guidelines is available on the following link. 

Our comments and observations on the updated version of the KSA TP guidelines are outlined below.

Key comments

A summary of the updates to third edition of the TP guidelines has been outlined below:

Loan Transactions

ZATCA has included the criteria and steps that should be followed for the delineation of the intra-group loan transactions and determination of the arm’s length outcomes. This includes:

  • An examination of the contractual terms of the transaction;
  • Analysis of the functions performed, the assets used, and the risks assumed by the parties involved in the transaction;
  • An analysis of the economic circumstances of the parties involved; and
  • An analysis of the business strategy of the Related Persons and/or the group involved.

An accurate delineation of the loan transaction shall be carried out with specific attention to:·        

  • Debt equity ratio;
  • Repayment clauses;
  • Seniority of loans;
  • Ability to pay interest based on cash flows;
  • Comparable debt to equity ratios observed in the market;
  • Creditworthiness of borrower;
  • Depending on the outcome of the analysis, the initial loan transaction could be re-characterized as equity, either in full orpartially.


ZATCA has provided additional clarification on guarantees as highlighted below.

When a guarantee is extended on an intra-group basis and it leads to a greater borrowing capacity for the borrower than without the guarantee, an analysis should be undertaken on whether or not the guarantee leads to a more favorable interest rate for the borrower.

If it is determined that a guarantee fee should be charged, the application of the fee should be limited to the portion of the funds that has been defined as a loan and not any portion delineated as a capital contribution.

A cost-benefit analysis should be used to determine whether or not the borrower economically benefits under the above conditions and additionally, a two side perspective (from both the borrower and guarantor) should also be taken into account.

Cash management, optimization, and cost pooling

ZATCA has outlined that it is important to analyze and accurately define a cash pool structure. Cash pooling can be distinguished between physical cash pooling or zero balance cash pooling versus notional cash pooling.

An important underlying principle is that no cash pool participant would participate in a cash pooling arrangement when no benefit of this participation can be expected. In this respect, the options a ‘participant’ has realistically open to them, should be taken into account.

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