Saudi Arabia TP Regulations

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Tax Authority

Saudi Arabian General Authority of Zakat and Tax (GAZT)

Relevant Transfer Pricing (TP) regulation

GAZT issued their transfer pricing bylaws (“TP bylaws”) in February 2019. Subsequently, GAZT in March 2019 released the First Edition of the Transfer Pricing Guidelines (“KSA TP Guidelines”) that provided clarity and application of the local Transfer Pricing legislation. Further, GAZT on 1 June 2020 released the second edition of the transfer pricing guidelines providing clarification in relation to documentation requirements and intangibles.

Saudi Arabia TP regulations are based on the Organisation for Economic Co-operation and Development’s (OECD) transfer pricing guidelines. The Guidelines are used for interpretation of the arm’s length principle together with local legislation.

Related Party Disclosure Form Requirement along with Corporate Income-tax Return

All the Taxpayer in Saudi Arabia having related party transactions is required to submit a disclosure form, containing information related to their controlled transactions, along with their annual income tax return. Taxpayers is required to submit the disclosure form within 120 days after the last day of the fiscal year. However, the 120-day period applies irrespective of any exceptions to the deadline for filing the tax return.

Chartered Accountant Certificate (“Affidavit”)

Along with the Disclosure Form, the Taxpayer must upload the Affidavit, signed by a licensed auditor in the jurisdiction, declaring that the Transfer Pricing policy of the MNE Group is consistently applied in relation to the Taxpayer in Saudi Arabia.

With respect to above, GAZT accepts both “limited” and “reasonable” assurance engagements (as endorsed by Standing Committee on Public Accounts) if the certificate is provided by a licensed auditor in Saudi Arabia.

Transfer Pricing Documentations

Saudi Arabia introduced the three-tiered approach as suggested by the OECD i.e. the Country-by-Country report (CBCR), the Master File and the Local File.

1. TP Documentation (Local File and Master File)

Taxpayers in Saudi Arabia is require to maintain contemporaneous transfer pricing documentation  which include both Local file and Master File (i.e., documentation in existence at the time the tax return is filed) to support the arm’s length nature of controlled transactions.

Threshold

Taxpayers with related party transactions having aggregate values exceeding 6 million riyal (~USD 1.6 million) during the fiscal year, is required to prepare and maintain a master file and a local file at the time of filing the tax return. This is applicable for fiscal years ending on or after 31 December 2018.

Filing Requirement

The taxpayer needs to maintain the TP documentation (Local and Master file) and indicate in its annual tax return whether such documentation has been maintained or not.

There is no statutory deadline for the submission of TP documentation. It will need to be submitted upon request by GAZT, within 30 days of such request.

Penalty for failure

No specific penalties have been indicated for non-compliance with the requirements. However, all penalties and fines under the Saudi Arabia Income tax law are applicable to all income tax matters including transfer Pricing matters.

Transfer Pricing Methods

Five methods, as prescribed by the OECD, have been accepted for the purpose of determining arm’s length price.

  • Comparable uncontrolled profit (CUP) method
  • Resale-price method (RPM)
  • Cost-plus method (CPM)
  • Transaction net margin method (TNMM)
  • Transaction profit split method (PSM)

However, taxpayers may apply another transfer pricing method where they are able to demonstrate that none of these methods provides a reliable measure of an arm’s length result. All taxpayers will have to adopt one of the approved methods or otherwise justify why these methods are not appropriate and another method should be applied.

Determination of Arm’s Length Price/ Margin

As per TP Bylaws, the arm’s length range is a range of acceptable results such as prices, margins or profit shares produced by applying the most appropriate transfer pricing method. However, there is no guidance in the TP Bylaws on how to determine the arm’s length range.

The GAZT have confirmed that where there is a range of results the interquartile range is an acceptable approach to determine an arm’s length range.

Language

For master file and local file, the recommended language is official language i.e. Arabic to the extent reasonably possible.

2. Country by Country (CbC) Report and CbC Notification

There is a CbC notification and CbC report submission requirement in Saudi Arabia for fiscal years ending on or after 31 December 2018.

Threshold

Saudi Arabia taxpayers that are members of a multinational Enterprise (MNE) group, having consolidated group revenue exceeding SAR 3.2 billion (approximately EUR750 million) during the year immediately preceding the current reporting year, will be required to submit a CbC report in Saudi Arabia.

Also, it will be required to notify the GAZT regarding the ultimate parent entity and the entity that submits the CbC report. CbC notification ideally formed part of the Disclosure form since its inception; however, as the online portal for this compliance was later set up, it is advisable to register and do the necessary filings through the Automatic Exchange of Information portal (AEOI) portal as well.

Filing Requirement

The CbC Repot shall be filed not later than 12 months after the last day of the reporting year of the MNE group. In cases of more than one constituent entities operating in Saudi Arabia, a designated entity can file CbCR notification on behalf of all other entities by notifying about the same to the tax authority.

CBC notification with the GAZT regarding the ultimate parent entity and the entity that submits the CbC report is required to file within 120 days of the end of the reporting year.

Penalty for failure

No specific penalties have been indicated for non-compliance with the requirements. However, all penalties and fines under the Saudi Arabia Income tax law are applicable to all income tax matters including transfer Pricing matters.

 

 

 

 

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Qatar TP Regulations

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For any assistance on Transfer Pricing and further information
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Bangladesh TP Regulations

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For any assistance on Transfer Pricing and further information
on the above please contact us on info@hexatp.com
or you can Book an Appointment with us!

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Indian TP Regulations

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For any assistance on Transfer Pricing and further information
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Australia TP Regulations

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Ghana TP Regulations

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For any assistance on Transfer Pricing and further information
on the above please contact us on info@hexatp.com
or you can Book an Appointment with us!

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Kenya TP Regulations

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For any assistance on Transfer Pricing and further information
on the above please contact us on info@hexatp.com
or you can Book an Appointment with us!

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Indian Transfer Pricing Compliance Timelines for Assessment Year 2021-22

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Due to the hardships being faced by the taxpayer on account of COVID -19, the Central Board of Direct Taxes has revised the timelines of Transfer Pricing (TP) compliances for Assessment Year 2021-22, vide circulars No. 16 and 17 of 2021.

In the light of the above, given below is a summary of Transfer Pricing compliance dates for ease of reference.

S. No. Nature of Compliance Section Rule Form No. Applicability Original Due Date Revised Due Date Due to COVID
1 Issuance of Accountant’s Report 92E 10E 3CEB Refer Note 1 31-Oct-21[1] 31-Jan-22[2]
2 Transfer Pricing Documentation 92D 10D NA Refer Note 2 To be maintained on a contemporaneous basis for each assessment year before the filing of Form 3CEB[3]
3 Master File
3.a Part A 92D(4) 10DA 3CEAA Refer Note 3 30-Nov-21[4] 28-Feb-22[5]
3.b Part B   30-Nov-214 28-Feb-225
3.c Designation 3CEAB   31-Oct-214 29-Jan-225
4 Country-by-Country Report
4.a Intimation 286(1) 10DB 3CEAC Refer Note 4   In case the due date for filing falls on 30-Nov-21, then same may be furnished by 31-Dec-21[6]
4.b County-by-Country Report 286(2) 10DB 3CEAD      
4.c Designation 286(4) 10DB 3CEAE      

Note:

  1. To be filed by every taxpayer (including non residents) who has entered into in international transaction or specified domestic transaction with its Associated Enterprise
  2. Every taxpayer (including non residents) who has entered into an international transaction is required to maintain Transfer Pricing documentation.

In case the aggregate value of the international transaction is less than INR 1 crore, then the taxpayer is required only to maintain the details of international transactions undertaken along with the details of the benchmarking, justifying the arm’s length nature of the international transaction.

  1. Form 3CEAA (Part A)- To be filed by every Constituent Entity[7] of an International Group[8], even if it has not undertaken an international transaction during the year;

Form 3CEAA (Part B)- To be filed by every Constituent Entity of an International group if the following conditions are satisfied:-

  • The consolidated revenue of the International Group during the an Accounting Year[9] exceeds INR 500 crores; and
  • The aggregate value of international transactions during the Accounting Year, as per the books of account, exceeds INR 50 crore; or
  • In respect of purchase, sale, transfer, lease or use of intangible property during the Accounting Year, as per the books of accounts, exceeds INR 10 crore

Form 3CEAB (Designation)- In case there are more than one Constituent Entities of an International Group who are required to file form 3CEAA, then any one Constituent Entity can be designated to file Form 3CEAA by filing Form 3CEAB

  1. Form 3CEAC (Intimation)- To be filed by resident Constituent Entity which part of an International Group whose parent company is a non-resident and the group’s consolidated revenue during the preceding accounting year exceeds INR 6,400 crore. The said intimation has to be filed within 10 months from the end of the relevant Accounting Year.

Form 3CEAD (CbCR Report)- To be filed by resident parent company/ alternate reporting entity of an International Group, in case the consolidated revenue during the preceding accounting year exceeds INR 6,400 crore. To be filed 12 months from the end relevant Accounting Year.

From 3CEAE (Designation)- In case there are more than one constituent entities of a group who are required to file form 3CEAC, then any one entity of the constituent entity can be designated to file Form 3CEAC by filing Form 3CEAE.

 

[1] Section 92E read with sections 92F and 139 of the Income-tax Act, 1961 (the Act)

[2] Cir No. 17 issued by the CBDT on 9 Sep 2021

[3] Section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 (the Rules)

[4] Rule 10DA of the Rules

[5] Cir No. 17/2021 issued by the CBDT on 9 Sep 2021

[6] Cir No. 16/2021 issued by the CBDT on 29 Aug 2021

[7] Constituent Entity means,—

(i) any separate entity of an international group that is included in the consolidated financial statement of the said group for financial reporting purposes, or may be so included for the said purpose, if the equity share of any entity of the international group were to be listed on a stock exchange;

(ii) any such entity that is excluded from the consolidated financial statement of the international group solely on the basis of size or materiality; or

(iii) any permanent establishment of any separate business entity of the international group included in sub-clause (i) or sub-clause (ii), if such business unit prepares a separate financial statement for such permanent establishment for financial reporting, regulatory, tax reporting or internal management control purposes (Ref Section 286 of the Act)

[8] International Group means any group that includes,—

(i) two or more enterprises which are resident of different countries or territories; or

(ii) an enterprise, being a resident of one country or territory, which carries on any business through a permanent establishment in other countries or territories (Ref Section 286 of the Act)

[9] Accounting Year means,—

(i) a previous year, in a case where the parent entity is resident in India; or

(ii) an annual accounting period, with respect to which the parent entity of the International Group prepares its financial statements under any law for the time being in force or the applicable accounting standards of the country or territory of which such entity is resident, in any other case.

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For any assistance on Transfer Pricing and further information
on the above please contact us on info@hexatp.com
or you can Book an Appointment with us!

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Malaysian Transfer Pricing Audit Framework

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 The Inland Revenue Board Malaysia (“IRBM”) issued Transfer Pricing Audit Framework 2019, effective from 15 December 2019, which replaced the Transfer Pricing Audit Framework dated 1 April 2013.

 This Transfer Pricing Audit Framework is issued by IRBM to ensure that the transfer pricing audit is carried out in a fair, transparent and impartial manner. This outlines the rights and responsibilities of audit officers, taxpayers and tax agents in respect of a transfer pricing audit. Generally, this framework aims to: 

  • assist audit officer to perform his duties more efficiently and effectively; and 
  • assist taxpayer to fulfil his responsibilities.

What is a Transfer Pricing Audit?

A Transfer Pricing audit is a review of taxpayer’s business records and financial affairs to ascertain the application of the rules on controlled transactions. The examination is to ensure that transfer pricing rules are being applied in accordance with the methods and manners provided in the Act, Rules and the Transfer Pricing Guidelines 2012, as well as to comply with the IRBM’s administrative requirements on the types of records and documentations to be maintained. It also serves to ensure that the arm’s length principle is being adopted, and the fair share of tax is being reported, calculated and paid in accordance with the tax laws and regulations. IRBM carries out two (2) types of transfer pricing audits, namely

  • Transfer pricing desk audit-A desk audit is conducted at the IRBM’s office. It involves enforcement of compliance on transfer pricing issues or adjustments in income and taxes that can be resolved by correspondence. Taxpayer may be called for an interview at the IRBM’s office if further information is needed. 
  • Transfer pricing field audit– A field audit is carried out either at the taxpayer’s premises, the IRBM’s office or any places the taxpayer and IRBM have agreed upon.

Years of assessment covered

A tax audit is carried out comprehensively covering between three (3) to six (6) years of assessment depending on the transfer pricing issues which have been determined. However, the years of assessment covered to raise the assessment may be extended to seven (7) prior years of assessment depending on the audit issues found

Selection Of Cases 

 The primary basis for a transfer pricing audit case selection is based on the amount of controlled transactions made by the company with the significant transaction value before any other risk analysis is performed.

 The right and duties of the taxpayer and the manner of conducting the Transfer Pricing audit is also provided in detail in the Transfer Pricing Audit Framework.

 Concluding remarks

 The Malaysian Finance Act 2020 introduced, several legislative changes to the Malaysian Income Tax Act 1967 in respect of transfer pricing. Particularly, the time to submit the documentation has been reduced to 14 days and a penalty provision has been introduced. 

 Effective 1 January 2021, taxpayers who fail to furnish the Transfer Pricing Documentation upon the IRBM’s request will be subject to a fine ranging from RM 20,000 to RM 100,000 and / or imprisonment upto six months. The IRBM has also revised the Transfer Pricing Guidelines 2012 to reduce the time given to taxpayers to furnish their Transfer Pricing Documentation from 30 days to 14 days. Thus substantially reducing the time given to file the Transfer Pricing Documentation.

How can Hexa TP help

 As a result of the introduction of the penalty for failure to furnish Transfer Pricing Documentation  taxpayers should expect increased transfer pricing audit activity and intensified scrutiny on intercompany transactions.  Now with the revised guidelines the time to submit the Transfer Pricing Documentation has been further reduced to 14 days from 30 days. In this regard, corporates may have to ensure Transfer Pricing Documentation compliance with a robust transfer pricing policies and documentation to withstand audit and scrutiny.  

 We have a multi-faceted team of transfer pricing practitioners who are able to provide strategic advice and assistance in respect of the following:

  • Transfer Pricing Support– we are professionals with over 15 years individually and 50 years cumulative experience in Global Transfer pricing practices. We can help you & your client servicing teams to understand the nuances of transfer pricing compliance and benchmarking practices.
  • Transfer Pricing Planning – we are well positioned to support you in developing a sustainable planning and formulation of transfer pricing policies for your clients;
  • Transfer Pricing Documentation Preparation and Defence – we are capable to assist you with the requisite Transfer Pricing Documentation that is compliant and defensible; and
  • Transfer Pricing Audit Support – in times of audit, we are well placed to support you and your team.
  • We render assistance in reviewing any ‘Existing Transfer Pricing Policy’

 For any assistance and further information on the above Transfer Pricing Audit or penalty provisions please contact us on md@hexatp.com or bg@hexatp.com.

 

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For any assistance and further information on the above
penalty provisions please contact us on info@hexatp.com
or you can Book an Appointment with us!

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Malaysian Transfer Pricing Documentation requirements

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Malaysian Transfer Pricing Documentation requirements are consistent with the requirements underAction 13 of the OECD Base Erosion and Profit Shifting (“BEPS”) Plan.

Documentation requirements

The following are required to be prepared:

Master file: Provides an overview of the multinational group’s business, value drivers, intangibles, financing arrangements, and supply chain. The master file is only required if (i) the Group is headquartered in Malaysia and has consolidated revenue exceeding RM3 billion; and / or (ii) the Group is required to prepare a master file in any other location.


Local file: Local transfer pricing documentation which substantiates the arm’s length nature of intercompany transactions.


Country-by-country report (“CBCR”): The Income Tax (Country-by-Country Reporting) Rules 2016 apply to the following:

     – The total consolidated group revenue in the financial year preceding the first reporting financial year is at least RM3 Billion; and

     – any of the constituent entities – i) is an ultimate holding entity which is incorporated, registered or established or deemed to be incorporated, registered
or established under the Companies Act 2016 [Act 777], or under any written law and resident in Malaysia; ii) is incorporated, registered or established or deemed to be incorporated, registered or established under the Companies Act 2016 , or under any written law or under the laws of a territory outside Malaysia and
resident in Malaysia; iii) is a surrogate holding entity which is incorporated, registered or established or deemed to be incorporated, registered or established
under the Companies Act 2016 , or under any written law and resident in Malaysia; or iv) is a permanent establishment in Malaysia.

Local Transfer Pricing Documentation


Local transfer pricing documentation should be in place by the time of filing of the tax return (seven months after the Financial Year end). However, it does not need to be submitted along with the annual income tax return. The documentation must be made available to the IRB within 14 days upon request from the Malaysian Inland Revenue Board. It is required to keep the documentation in
the administration for a period of 7 years.

The Transfer pricing documentation should include records and documents describing:

– The structure of the organization.

– The nature of the business or industry and market conditions in which the company
operates.

– The description of the controlled transactions.

– The business strategies, assumptions and pricing policies of the corporates and their controlled transactions.

– Functions and risk analysis of the uncontrolled transaction.

– Selection and application of the transfer pricing method.

– Documents used in developing the transfer pricing analysis.

– Comparability analysis.

– Any other information, data or document considered relevant by the person to determine an arm’s-length price.

All relevant documentation must be provided in Bahasa Malaysia or English.

How can HexaTP help


As a result of the introduction of the penalty for failure to furnish TPD as well as the power to impose a surcharge on any transfer pricing adjustment made, taxpayers should expect increased transfer pricing audit activity and intensified scrutiny on intercompany transactions. In this regard, corporates may have to ensure TPD compliance with a robust transfer pricing policies and documentation to withstand audit and scrutiny.

We have a multi-faceted team of transfer pricing practitioners who are able to provide strategic advice and assistance in respect of the following:

Transfer Pricing Training: We are professionals with over 15 years individually and 50 years cumulative experience in Global Transfer pricing practices. We can help you train your client servicing teams to understand the nuances of transfer pricing compliance and
benchmarking practices.

Transfer Pricing Planning: We are well positioned to support you in developing a sustainable planning and formulation of transfer pricing policies for your clients;


–  TPD Preparation and Defence: We are capable to assist you with the requisite TPD that is compliant and defensible; and;

Transfer Pricing Audit Support: in times of audit, we are well placed to support you and your team.

 

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For any assistance on Transfer Pricing and further information
on the above please contact us on info@hexatp.com
or you can Book an Appointment with us!

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