Zakat Tax and Customs Authority officially launches the Unilateral Advanced Pricing Agreements

As part of its evolving tax landscape, in recent years the Kingdom of Saudi Arabia (KSA), through the Zakat, Tax and Customs Authority (ZATCA) has been actively involved in introducing developments within its Transfer Pricing framework.

This way, in July 2022, ZATCA released a Public Consultation Document (PCD), proposing several amendments to the Transfer Pricing Bylaws in force at the time. These amendments were approved by the Board of Directors of ZATCA in March 2023.

Amongst other amendments, the recently approved Transfer Pricing Bylaws established the possibility for taxpayers to apply for Advanced Pricing Agreements (APA) for years starting on 1 January 2024.

On 19 May 2024, ZATCA has officially launched the Unilateral Advanced Pricing Agreements process, which is now available for taxpayers in KSA. This development represents yet another milestone in the development of the tax framework in KSA and will allow saudi taxpayers to reduce uncertainty and audit risks in relation to the valuation of their related party transactions.

It is worth noting that APAs will only be available for related parties where the volume of transactions exceeds a certain threshold (ie SAR100 million) (however this may be exempted by the relevant authorities under certain circumstances).

The application shall be submitted at least 12 months before the beginning of the first tax year which is expected to be covered by the APA. For the moment, taxpayers can obtain further guidance on the process by directly contacting ZATCA.

Conclusion

Saudi taxpayers can now initiate an APA under the recently released Unilateral APA process in KSA, with the aim of reaching an agreement with ZATCA with regards to the valuation of their related party transactions.

This alternative may be particularly useful for taxpayers which are involved in complex intragroup transactions, as a tool for risk mitigation in the framework of Transfer Pricing.