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Saudi Arabia Begins Requesting Local, Master File

by Lorys Charalambous, Tax-News.com, Cyprus

20 September 2019


The General Authority of Zakat and Tax (GAZT) in Saudi Arabia published final transfer pricing by-laws, including transfer pricing documentation requirements proposed under the OECD's 2013 Base Erosion and Profit Shifting (BEPS) Action 13 Plan, on February 15, 2019. GAZT has now begun formally requesting the submission of specific transfer pricing documentation, in relation to the fiscal year ending December 31, 2018.

According to recent reports, multinationals have begun receiving requests from the authorities, as early as July 2019, that they furnish Master and Local Files under these bylaws.

The by-laws prescribe that taxpayers should create and maintain evidence of the arm's length basis of their transactions with related parties by way of transfer pricing documentation. This documentation may be requested and reviewed by the GAZT within a tax check or tax audit.

All related party transactions, regardless of the place of residence, nationality, or domicile of the taxpayer, are within the scope of the by-laws.

Multinational taxpayers are required to create and submit a disclosure form regarding Controlled Transactions (a CTDF) and a certification of the CTDF by a licensed auditor, alongside their tax return. Subject to thresholds, they may also be required to prepare a country-by-country (CBC) report, a Master File, and a Local File.

The CTDF

The taxpayer is to make adjustments to their inter-company prices to ensure arm's length results, and report these positions in the declaration form, which should be filed alongside annual tax declarations. The annual corporate tax return must be submitted within 120 days following the end of the fiscal year. There is no minimum threshold for the CTDF; these requirements apply to all taxpayers with controlled transactions irrespective of their value.

CbC report

The CbC report requires the disclosure of some basic items of financial data in each country where the taxpayer is organized. The file should include the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees, and tangible assets, broken down by jurisdiction. It must be prepared where the consolidated group revenue of the taxpayer group exceeds SAR3.2bn (USD853.3m).

A CbC report is required to be filed in Saudi Arabia by a Saudi-headquartered group within 12 months of the year-end to which the report relates. The first report should be prepared for years ending on December 31, 2018, and all subsequent reporting years.

In addition through the CbC notification, taxpayers must provide information regarding the Ultimate Parent Entity and the entity that will submit the CbC Report if different. This notification is required to be submitted within 120 days of the year-end to which the CbC report relates, as part of the annual CTDF.

Master File and Local File

The Master File provides an overview of the taxpayer's global activities, whilst the local file includes a detailed transfer pricing study, a group organization chart, and the taxpayer's financial statements. Both the local and the master file are to be kept by the taxpayer and should be provided to the authorities on request.

These files should be prepared when the corporate tax return is filed and must be submitted to the tax agency within 30 business days of a request.

Taxpayers are exempt from the obligation to complete a Master File and Local File where the arm's length value of their controlled transactions does not exceed SAR6m in a 12-month period.

Guidance on how to submit these reports was included in the May 2019 edition of the Taxpayers Service Catalogue, released in English.

TAGS: tax | business | Saudi Arabia | law | employees | audit | transfer pricing | penalties | Tax | BEPS

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