Following to the tremendous changes occurred within Kingdom of Saudi Arabia “a G20 member” tax regime by issuing the final version of the TP bylaws on 15 th of February, 2019 which is broadly in line with OECD guidelines given that the year ended 31 December 2018 is the first to be covered by the newly issued TP bylaws, in addition to respective FAQ’s (in both English and Arabic) that were released as an additional guidance, Taxpayers started their preparatory phase to be in comply with TP documentation requirements as set forth within the introduced official TP bylaws articles.
Latest changes and updates:
The General Authority of Zakat & Tax “GAZT” assigned a corresponding account manager for each group of tax payers where he/she started sending notices through an email from the taxpayer’s manager at GAZT thus taxpayers and MNE’s operation in the region should constantly check the email registered in the GAZT ERAD system to be able to respond to these requests for further documentation that should be submitted to the tax authorities within minimum 30 days (i.e. not before 30 days).
Moreover, GAZT updated the taxpayers’ services catalogue in order to point out furnishing of TP documentation process which includes uploading the required documents through GAZT portal after logging using the taxpayer’s credentials granting 30 business days to provide the requested TP documentation.
At the present stage, it is unclear whether the GAZT shall grant any additional extension to the taxpayers to provide such TP documentation or not which should become more accurate within the next possible TP documentation review.
Common audit triggers from the Disclosure Form:
From our perspective, we believe that key audit “triggers” for GAZT within particular disclosure form may lead to a request by the GAZT for a local file submission seems 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 MNE’s are realizing losses in KSA, this can be challenged by the GAZT assuming that such MNE’s may be recognizing profits elsewhere within the same group,
- Related party transactions with foreign entities located in zero/tax haven jurisdictions,
- Affidavits not submitted as part of TP disclosure form.
Accordingly, it is better for Taxpayers who still do not apply TP policy that in compliance with the bylaws and not maintaining intercompany agreements to govern their controlled transaction, to start preparing such documents in addition to maintain Masterfile and local file, as a proper TP documentation would reduce the risk of a TP assessment.