Transfer Pricing in Saudi Arabia

The legal framework

The statutory anchor is Article 63(c) of the Income Tax Law (Royal Decree M/1 of 1425H), which lets the Zakat, Tax and Customs Authority (ZATCA) reallocate revenue and expenses between related parties, or parties under common control, so the result matches what independent parties would have reached. Article 63(a) adds a disregard and recharacterisation power where form departs from substance, and Article 64 fixes relatedness by a 50% test on income or capital rights, voting rights or value.

The operating instrument is the Transfer Pricing Bylaws, issued by Board Resolution 6-1-19 of 31 January 2019 and amended by Board Resolution 8-2-23 of 20 March 2023; the consolidated text runs to 27 articles across 13 chapters. Article 3 requires every person in a controlled transaction to deal on terms comparable to those between independent persons, and Article 3(C) extends the test to a permanent establishment's tax base in the Kingdom. Article 4 is the enforcement hinge: paragraph (A) obliges the taxpayer to adjust its own tax base in the return; paragraph (B) lets ZATCA adjust, reallocate or disregard.

Article 2 applies the Bylaws to domestic controlled transactions as well as cross-border ones, so intra-Kingdom flows between a relieved entity and a taxable affiliate are in scope. And the 2023 amendment brought pure zakat payers into the regime for financial years beginning on or after 1 January 2024; until then they were caught only by country-by-country reporting.

One divergence defeats the habit of importing an OECD-shaped policy wholesale: ZATCA does not treat the OECD Guidelines as binding. Its guidance calls the Bylaws and ZATCA's own material the only source for transfer pricing matters, and reserves the right to disregard an OECD-prescribed policy it considers inappropriate. On permanent establishments the Kingdom applies a limited force of attraction approach under Article 5(10), not the Authorised OECD Approach, and most treaties carry pre-2010 Article 7.

Methods, comparables and benchmarking

Article 7 lists the five familiar methods and Article 7(B) states that they are not ranked. Article 6 requires the method giving the most reliable measure of an arm's length result, judged on method fit after a functional analysis, data availability and comparability. Article 8 requires ZATCA to examine the case using the taxpayer's chosen method where that method complies with the Bylaws — a protection worth invoking early in an audit.

Benchmarking is where Saudi files are won and lost. Article 13(C) allows foreign comparables only where domestic ones are unavailable; the taxpayer must then show on request that they meet the comparability requirements and account for the effect of geographic and other differences on price and profitability. In a market with thin local data this is a standing exposure; the answer is a documented search narrative, not a silent jump to a pan-European set. Secret comparables are barred symmetrically under Article 13(A) and (B): neither side may rely on data the other cannot see.

ZATCA takes a firmer line on the range than the OECD text. The interquartile range is the accepted measure and any point inside it is arm's length, but a result below the lower quartile should be moved to the median, and one above the upper quartile may be moved into the range though not below the median, unless the taxpayer substantiates otherwise. The tested party is normally the least complex party, and benchmarks should be fully refreshed every three years.

Chapter 7 of the guidelines handles financial transactions along Chapter X lines, alongside the Article 9 Income Tax Bylaws cap on deductible loan charges; Chapter 8 covers intangibles. There is no domestic guidance on intra-group services, cost contribution arrangements, commodities or hard-to-value intangibles, and no safe harbours.

Documentation: what ZATCA expects

Chapter 8 of the Bylaws builds four layers. Article 15 requires every taxable person in a controlled transaction to keep general documentation. No template is prescribed, but it must show the transactions are at arm's length through a functional and an economic analysis. A taxpayer exempt from master and local file still holds general documentation: the exemption is from format, not from proof.

Articles 16 and 17 create the master file and local file. These are maintain-and-produce documents, not annual filings: Article 15(C) requires them to be readily accessible and Article 15(D) requires production within the period ZATCA specifies, never less than 30 calendar days.

Thresholds differ by taxpayer type — the most-missed rule in the regime. For income tax and mixed payers, controlled transactions not exceeding SAR 6,000,000 in 12 months make the taxpayer a 'small enterprise' under Article 1(A)(29) and exempt it; Article 19(A) exempts four categories in all, adding natural persons other than institutions, wholly State-owned companies exempt from zakat collection, and investment funds. For zakat payers the figure is SAR 48,000,000, with ZATCA's June 2024 Arabic guidance setting a banded phase-in: SAR 100 million and above triggers the full package now, while the SAR 48–100 million band — which expressly captures financing funds — is optional in phase one and becomes mandatory three years after phase one begins. Article 19(B) lets ZATCA override any exemption on no less than 30 days' notice in five listed situations, including transactions with special economic zone or relieved entities.

Article 14 requires the Disclosure Form of Controlled Transactions with the annual return, due within 120 days of the fiscal year end — independently of any exception to the return filing date. Article 14(C) adds an affidavit from a Kingdom-licensed auditor certifying that the group's transfer pricing policy is consistently applied. A country-by-country report is due within 12 months of the reporting year end where prior-year consolidated group revenue exceeded SAR 3,200,000,000, with notification within 120 days.

Audits, penalties and the enforcement climate

There is no penalty article anywhere in Articles 1 to 27 of the Bylaws; ZATCA's guidelines point to the Income Tax Law fines, and those bite. Article 76(a) imposes 1% of gross revenue capped at SAR 20,000 for return and record breaches, and Article 76(b) substitutes a graduated late-filing fine of 5%, 10%, 20% or 25% of unpaid tax by length of delay. Article 77(a) adds 1% of unpaid tax for every 30 days from the due date, and Article 77(b) a 25% fine on the tax difference where untrue information or fraud with intent to evade is established. Article 78 also exposes the certifying chartered accountant personally, which sharpens the Article 14(C) affidavit.

Saudi law has no documentation-based penalty relief: a master and local file buys no reduction. The real protections are substantive — Article 12(A) bars adjustment where the tested indicator falls inside the arm's length range, and Article 8(B) requires ZATCA to work with the taxpayer's compliant chosen method. Both are arguments about the quality of the analysis, not the existence of the file.

Assessment windows are long: Article 65 gives five years from the return deadline and ten where no return was filed or the return is incomplete or incorrect with intent to evade. Zakat payers face parallel five- and ten-year windows under Article 106 of the 1445H Zakat Collection Regulations, unlimited where evasion is proved.

ZATCA uses the Disclosure Form to run a high-level risk assessment, asking the taxpayer first for foreign-held information and using exchange channels thereafter. No named transfer pricing decision has been published, but the appeal committees are not silent on the subject: Volume 4 of the GSTC compiled principles carries an appellate determination on a Saudi branch's cost-plus arrangement with its head office and affiliates, holding that no local file was required for years before the Bylaws took effect on 15/02/2019 and, on examining the study, that 10% and 15% cost-plus margins fell inside the arm's length range. Because the decisions are anonymised, that reasoning is citable by principle number rather than by case name.

Dispute resolution and advance certainty

The domestic route is short-fused. Object to ZATCA within 60 days of notification; ZATCA must decide within 90 days. Within 30 days of rejection, partial acceptance or lapse of the 90 days, the objector either requests ZATCA's internal settlement committee — final for settled items — or files with the dispute departments of the Committee for Resolution of Zakat, Tax and Customs Violations and Disputes, with a further 30 days to the appellate departments; the General Secretariat of Zakat, Tax and Customs Committees services those bodies but does not adjudicate. Miss the 60-day window and the assessment is unappealable anywhere.

Advance certainty arrived with Article 23, inserted in 2023 and operationalised by ZATCA's Advance Pricing Agreements Guidelines of February 2025. Only unilateral APAs are processed; bilateral and multilateral applications are not accepted until further notice, and profit attribution to a permanent establishment is excluded. Each covered transaction needs an annual value of at least SAR 100,000,000, though linked transactions may be aggregated and the Governor may waive the threshold for complex cases. Applications must be filed at least 12 months before the first covered year — late filing is auto-rejected by the portal. The term is typically three years, renewable for three more, with no rollback and no fee.

Treaty relief runs through Articles 20 to 22: where a partner state makes an arm's length adjustment, ZATCA must test it and, if satisfied, make a corresponding adjustment, engaging the foreign competent authority if not. Article 22 permits refusal for abusive arrangements or where a final judicial decision covers the same subject matter, and downward adjustments are available only where a treaty exists. MAP runs through the treaty network, a ZATCA e-service and live taxpayer guidance of 22 April 2021, whose section 3.3 records three years as the usual treaty limit but two years under the Syria treaty, with two-year limits also noted for France, Italy, Russia and the United Kingdom. Secondary adjustments are an open point: the Bylaws create none and the OECD profile records none, yet section 4.4.1 of the Arabic third edition states that a secondary adjustment must generally be made to align the commercial accounts with the arm's length principle.

Pillar Two, Amount B and what changes next

Neither of the two questions asked in every Saudi planning meeting has a clean domestic answer. On Pillar Two, no GloBE, IIR, UTPR or domestic minimum top-up tax instrument, draft or consultation could be located on ZATCA's site or the Istitlaa platform as at August 2026, though the Kingdom is an Inclusive Framework member and GCC neighbours have legislated a domestic minimum tax. Commentary is contradictory; treat the position as unresolved and re-check ZATCA and Ministry of Finance announcements.

On Amount B, ZATCA has said nothing — no adoption, no rejection, no mention in the June 2024 or 2025 guidelines. The OECD profile records it as under consideration, though the Kingdom will respect a covered jurisdiction's application. Baseline distributors therefore remain on ordinary most-appropriate-method analysis with a full benchmarking study.

The pipeline elsewhere is concrete. The third edition of the Arabic guidelines (June 2024) added an APA chapter and the zakat-payer threshold table; the English guidelines still carry a November 2021 date, are out of date on zakat payers, and yield to the Arabic text on any discrepancy. The May 2026 Regional Headquarters guideline confirms that a 30-year 0% tax regime does not remove an RHQ from the transfer pricing rules.

How practitioners should respond

The regime rewards preparation and punishes improvisation. Build the local file and the benchmarking study before year end, not after a request lands, because the 30-day window assumes the work is done. Rehearse the comparables search as an argument: why no domestic comparables exist, how the region was chosen, how geographic differences were addressed. If the tested result is drifting outside the interquartile range, adjust before the accounts close and paper the change in circumstances; afterwards the presumption runs against you.

Zakat-side groups need a separate diagnostic: the 2024 extension changed who is in scope, the thresholds are different figures on a different phase-in, and the English guidance reflects none of it. Work from the Arabic June 2024 edition — which also carries the secondary adjustment sentence the English text omits.

Then calendar the deadlines that have no cure: the Disclosure Form and CbCR notification at 120 days, the report at 12 months, the 60-day objection window, and the 12-month lead time for a unilateral APA. With no documentation defence and an unsettled secondary adjustment position, procedural discipline is most of the risk management.