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What is the concept of transfer pricing?

The General Authority of Zakat, Tax and Customs 'ZATCA" issued a proposal amendment to Transfer Pricing Bylaws On Monday, 07/04/2022, which aims apply all the obligations of the Transfer Pricing bylaws to Zakat payers, to Unify the treatment of taxpayers of the Income Tax Law & Zakat payers.


To review the amendment project (here)


What dose transfer Pricing mean ?

Transfer pricing is an accounting and taxation concept refers to the prices of goods and services that are exchanged between related enterprises or companies.

The multinational companies MNE use transfer prices to adjust the reported profit level of each subsidiary. Ideally, the parent company aims to recognize the most taxable income in those tax jurisdictions where company income taxes are lowest. It can achieve this by lowering the transfer prices of components going into the subsidiaries located in those tax jurisdictions having the lowest tax rates.

It was firstly regulated in 1994 by The United States , to allow tax authorities to adjust prices for cross-border intragroup transactions which not charged at Arm’s Length. Arm’s Length is a concept means that transactions prices between related enterprises or companies should be as if these parties are external or unrelated ones.


Transfer Pricing Bylaws issued by ZATCA defines Related Persons as follows:

A- two or more natural persons if they are:

(i)- relatives through marriage or are otherwise relatives to the fourth degree; or

(ii)- partners in a partnership.

b- a natural person is considered related to a juridical person in any of the following circumstances:

(i)- if the natural person is a partner in a Partnership or Capital Company and he controls fifty percent (50%) or more of the voting rights, income, capital of the Partnership, either alone or together with a Related Person or Persons

(ii)- as for agencies administering property held in a trust, fund or any such similar arrangement, a natural person is considered related thereto if he benefits or is capable of benefiting from them, either alone or with a related Person or Persons.

(i)- if the Person alone or jointly with a Related Person thereto directly or indirectly participates or is able to participate in the management, control or capital of a juridical person.

c- two or more juridical persons are considered Related Persons in any of the following cases:

(i)- they are Persons under Common Control.

(ii)- when the Person who controls or has the ability to control the business decisions of a juridical person has, alone or together with a Related Person, Effective Control over the other juridical person.

(iii)- when the Person who has Effective Control over a juridical person and the Person who has Effective Control of the other juridical person are Related Persons.


The transfer pricing Disclosure must includes but not limited to ,the following information related to such controlled transactions :

1. Information about Related Person or Persons party, including the name , the country or countries in which such Person or Persons reside and are established.

2. Information about the type and nature of the relationship amongst the Related Persons party to the Controlled Transaction.

3. Information about any business restructuring for the MNE Group or the Taxable Person.

4. A description of the nature of the business activity or activities of the Related Persons and of the Controlled Transactions.

5. Transactional information, including aggregate amounts of consideration, nature of receipt or income or nature of payment or expenditure.

6. Transfer Pricing method applied.

7. A statement certifying whether or not the Taxable Person, has entered into any Controlled Transaction, or any Transaction without consideration or non-monetary consideration.

8. Whether the Person maintains Transfer Pricing documentation, including the Master File and Local File.

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