Transfer pricing: dealing with related companies at arm's length

Transfer pricing covers transactions between related parties — a parent and its subsidiary, or companies under common ownership. The rule is simple: they must be priced as if the parties were independent (the arm's length principle).

Who it affects

Mainly businesses subject to income tax in the Kingdom, including companies with foreign ownership, that deal with related parties — for example intra-group services, loans, royalties or sales of goods.

Documents

• A disclosure form with the annual return when related-party transactions exceed the threshold set in the bylaws.
• A master file and local file for larger groups above a higher threshold.
• Larger multinational groups may also have country-by-country reporting obligations.

Practical steps

1. 1List all related-party transactions and their value.
2. 2Put written agreements in place for each type.
3. 3Support prices with comparables or a recognised method.
4. 4Check the current thresholds in ZATCA's transfer pricing guidelines each year.

Poorly supported prices can lead ZATCA to adjust profits and charge additional tax.