Navigating the Transfer Pricing Maze

The Vision 2030 envisages KSA becoming a manufacturing and export hub for several industries. Many foreign companies are therefore likely to set up operations in KSA as its economy opens up. Such increased integration with regional and global economies would involve increasing cases of transfer pricing considerations. Managements and decision-makers would therefore need clarity on these transactions. Especially critical would be knowing how to avoid surprises due to a lack of adequate knowledge of transfer pricing regulations, their interpretations, and applications. Engaging an external expert for guidance would thus be a worthy investment.

Navigating the Transfer Pricing Maze
In an increasingly integrated global economy with transnational supply chains, multinational companies operating from various countries have to adhere to various laws and tax regulations. One such critical regulation is transfer pricing.

Adopting an effective approach to transfer pricing.It is important that the company analyzes the impact of transfer pricing rules on its operations, gather the required document, adopt the appropriate transfer pricing method, and hire an expert. This would best equip it to deal with the most extreme of scenarios if faced with tax authorities.

Understanding KSA transfer pricing regime.The introduction of transfer pricing by-laws in KSA is a key tax development and is likely to impact almost all taxpayers involved in controlled transactions in the kingdom. Therefore, taxpayers need to prepare documentation to meet GAZT deadlines and requirements.

“It is important to ensure that the right method of transfer pricing is applied; precedents of such methods being accepted would be thus be helpful. As consultants have vast experience on the prevailing methods, they can guide taxpayers on the appropriate methods, which would ease the process for all parties. “

Higher Compliance Requirements for Mixed Companies.Mixed and foreign companies have more compliance requirements than others, which require them to invest significant time and effort to deal with transfer pricing requirements. Here are the compliance requirements for mixed and foreign companies paying Zakat and having related party transactions.

Case study: Importance of transfer pricing awareness.A Switzerland-based telecom company opened a subsidiary in India to sell telecom products. However, ignorance of transfer pricing regulations led to trouble for the company.

“Most companies worldwide are involved in cross-border trade, wherein subsidiaries or branches are located in other countries/regions. It is therefore important that they be aware of trade transaction regulations. Ignorance of such important regulations (transfer pricing) could hamper the company’s operations.”

Key risks in transfer pricing: How companies can tackle them .Businesses involved in certain activities raise their risk profile. Several of these activities are indicators of the potential for incorrect transfer pricing adjustments, depending on the circumstances and facts in each case. Thus, these factors become extremely important in how companies tackle such situations.

The implementation of transfer pricing by-laws is a significant regulatory development in KSA, which is expected to increase the compliance requirements of companies operating in Saudi Arabia. Many foreign companies are likely to set up units in KSA. Such increased integration with regional and global economies would involve more cases of transfer pricing considerations. Thus, companies functioning in the kingdom need to identify the impact of transfer pricing by-laws on their operations and assess their tax obligations. A comprehensive transfer pricing policy with all requisite documentation in place would enable a company to be prepared if its accounts are shortlisted for audit. This would also increase its credibility with the tax authorities. Past precedents are a guide to companies on choosing an appropriate transfer pricing method. Consultants with experience across industries would be of immense help in navigating the transfer pricing maze and dealing with tax authorities in various scenarios as they would have done so in other regions.

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