Introduction
On 15 February 2019 the Kingdom of Saudi Arabia (KSA), a “G20 member”, issued the final version of the TP bylaws, which is broadly in line with the OECD Guidelines. Also, respective FAQs (in both English and Arabic) were published as additional guidance. Given that the year ending 31 December 2018 is the first to be covered by the TP bylaws, taxpayers have started their preparatory phase for complying with TP documentation requirements as set forth in the introduced articles of the official TP bylaws.
Latest changes and updates
Zakat, Tax & Customs Authority (ZATCA) assigned a corresponding account manager to each group of taxpayers to which he/she started sending notices via email from the taxpayer’s manager at ZATCA. Taxpayers and MNE’s operation in the region should therefore constantly check the email registered in the GAZT ERAD system in order to be able to respond to these requests for further documentation that should be submitted to the tax authorities in 30 days’ time (but not before 30 days).
Moreover, GAZT updated the taxpayers’ services catalogue in order to highlight the procedure for providing TP documentation, which includes uploading the required documents through the GAZT portal after logging in using the taxpayer’s credentials and granting 30 business days to provide the TP documentation that has been requested.
It is unclear at present whether or not the GAZT will grant any additional extension to the taxpayers to provide such TP documentation. This should become more accurate during the next TP documentation review.
Common audit triggers from the Disclosure Form
From our perspective, we believe that key audit “triggers” for GAZT within a specific disclosure form that may result in a request from the ZATCA for submission of a local file seem to be as follows:
- Poorly prepared disclosure forms,
- CbCR disclosure showing low profits and taxes in Saudi Arabia compared to profits and taxes in other jurisdictions,
- Losses reported in the disclosure form – as a large number of MNEs are seeing losses in KSA, this can be challenged by the ZATCA, assuming that such MNEs may be seeing profits elsewhere within the same group,
- Related party transactions with foreign entities located in zero/tax haven jurisdictions,
- Affidavits not submitted as part of a TP disclosure form.
Therefore, it is better for taxpayers who still do not apply any TP policy in compliance with the bylaws and do not maintain inter-company agreements to govern their controlled transactions, to start preparing such documents, in addition to keeping MF and LFs as proper TP documentation, which would reduce the risk of a TP assessment.