Introduction:
In the realm of transfer pricing, it is crucial for multinational enterprises (MNEs) operating in Saudi Arabia to be prepared for potential investigations, audits, and adjustments by the tax authorities. In this article, we delve into the rules and procedures surrounding these processes, shedding light on important aspects that businesses should be aware of.
Investigations and Audits:
Article 23 of the Transfer Pricing (TP) Bylaws establishes that the General Authority of Zakat and Tax (GAZT) will conduct audits of Controlled Transactions in line with the audit rules and procedures outlined in the Income Tax Law and the Guidelines. Companies may be selected for audit based on their size, risk assessment criteria, or if they are foreign-owned or branches of foreign entities. While joint stock and limited liability companies must appoint auditors who are certified public accountants and members of the Saudi Organization for Certified Public Accountants (SOCPA), other entities like partnerships are not mandated to do so.
Burden of Proof and Documentation:
With the absence of specific transfer pricing guidelines, including provisions on transfer pricing methods, burden of proof rules are not clearly defined. Taxpayers are expected to produce sufficient transfer pricing documentation, including intercompany agreements, schedules, and invoices, to support the declared transactions on their tax returns. The Department of Zakat and Income Tax is responsible for demonstrating the use of non-market value.
Areas of Scrutiny and Risk Assessment:
While there is no specific guidance on areas of scrutiny or risk assessment, it is crucial for businesses to maintain accurate and comprehensive transfer pricing documentation to mitigate potential risks.
Timeline and Adjustments:
The timeline for transfer pricing audits is not specifically defined and can vary, with audits potentially taking several months to complete. In cases where transactions between related parties do not reflect arm’s length pricing, tax authorities have the power to make adjustments. Double tax treaties may provide opportunities for corresponding adjustments.
Adjustment and Appeals Procedures:
The GAZT can issue or amend tax assessments within five years from the end of the tax declaration filing deadline or at any time with the taxpayer’s written consent. In cases where a taxpayer fails to file a tax declaration or submits an incomplete or incorrect one with the intent of tax evasion, assessments can be made or amended within ten years from the filing deadline. Taxpayers have the right to request a refund of overpaid amounts within five years from the end of the overpaid taxable year.
Dispute Resolution and Appeal Process:
Saudi Arabia has established bodies for dispute resolution, replacing the previous Preliminary Appeal and Higher Appeal Committees. Taxpayers can file objections within 60 days after an assessment, and the tax administration should respond within 90 days. If the objection is rejected or not addressed within the required timeframe, the taxpayer can transfer the objection to the internal committee for settlement or file an objection with the General Secretariat of Tax Committees (GSTC). In case of rejection or no reply from the internal committee, the taxpayer has 30 days to file an objection with the GSTC.
Conclusion:
Staying abreast of transfer pricing investigation, audit, and adjustment procedures in Saudi Arabia is essential for businesses operating in the country. By understanding the rules, documentation requirements, and dispute resolution processes, companies can ensure compliance and effectively navigate potential challenges in the transfer pricing landscape.