KPMG Al Fozan & Partners, is organizing seminars in major cities across the Kingdom, focusing on relevant tax and zakat regulations, transfer pricing bylaws as Saudi Arabia's financial landscape is changing rapidly following the introduction of 5 percent VAT on January 1 last year and issuance of Transfer Pricing Bylaws earlier this year. "We are seeing the General Authority of Zakat and Tax (GAZT) becoming more cognizant of the importance of tax collection, as the Kingdom endeavors to diversify its revenue base and move away from being an oil-dependent economy," said Wadih Abu Nasr, Head of Tax at KPMG Al Fozan & Partners. For this, KPMG Al Fozan & Partners is hosting its annual tax and zakat update seminars in Riyadh, Jeddah and A-Khobar on March 24-28, 2019. The seminars focus on relevant tax and zakat regulations, transfer pricing bylaws and value-added tax (VAT) implications. The objective is to update clients on the newly introduced Transfer pricing regulations as well as an update on the most recent tax and zakat regulations, and VAT. The seminars highlight the challenges faced by companies regarding recent law updates and address some of their main concerns relating to these regulations as well as shed the light on the main post implementation issues of VAT An interactive session, including a demo of the latest tax technology, will be part of the seminar during which KPMG's team of specialized tax professionals will respond to queries of the delegates. "Our seminars will provide an opportunity for decision-makers to gain insights on the latest tax issues that could impact their businesses as well as help them create a full and in-depth understanding of new regulations to remain compliant with the law and make the best use of technology to streamline their tax compliance process," Wadih Abu Nasr said in answer to a series of questions. Transfer pricing refers to the pricing of transactions between related persons. These controlled transactions include, but are not limited to, transactions related to goods, services, loans and Intangibles. Excerpts from the discussions follow: • Why do companies look at transfer pricing? Multinational groups over the last decades have centralized some of their functions (e.g. a manufacturing plant that covers various geographical markets). These legal structures have led to that fact that nowadays the majority of cross-border trade transactions are conducted between related parties. Groups needs to agree on their transfer pricing for these transactions, as they largely determine income and expense (and hence taxable profits) of related parties in different countries. • What do these TP regulations convey to businesses? TP regulations generally oblige persons engaged in related party transactions, to demonstrate that the relationship between the parties had no commercial impact on the terms and conditions agreed. From a Transfer Pricing perspective, the most important question is always "Would independent parties have agreed on such a transaction?" • Are all taxpayers supposed to apply TP regulations? The KSA TP regulations comprise multiple obligations. However, not all of them are applicable to every business in KSA. While taxpayers (including mixed companies) are within the full scope of the TP regulations, Zakat paying companies are only required to a limited reporting obligation (so called "Country-by-Country reporting"). However, it would come as a surprise if at some point in time, GAZT would decide to expand the TP regulation also to Zakat paying entities. • How important are Saudi Arabia's Transfer Pricing Bylaws for global investors and multinational companies? TP is a global phenomenon. More than 100 countries in the world have (more or less complex) TP regulations embedded in their local tax law. Global Investors and Multinational companies are therefore normally well aware and have established a Transfer Pricing policy that they apply on their related party transactions. • How will the new transfer pricing regulations impact on foreign businesses in KSA? The answer to this question is twofold. On the one hand, we have the already established foreign business in KSA. They need to make sure that they meet their reporting obligations towards GAZT. On the other hand, there a plenty of businesses that are planning to establish in KSA. These businesses need to ensure that their TP policy is in line with the KSA regulations. • What would be the major changes for MNCs working in KSA once the TP Bylaws kicks in? The TP regulations are not only a compliance exercise. The GAZT will use the provided information to (i) select which companies to audit and (ii) conduct more detailed audits on the ground. • To what extent are transfers pricing penalties enforced? The TP regulations have been issued in February 2019. The GAZT has not introduced a specific penalty regime for TP. In their view, TP is just a procedural change, meaning that all penalty provisions can also be applied to TP cases. • How companies can identify TP risks and ensure they can comply with the upcoming requirements? Any company conducting business in KSA should perform an impact assessment to determine how the TP regulations are impacting their business. The KSA TP regulations have a very broad definition of what determines a related party. Companies need to verify if any of their transactions would fall into this definition and becomes reportable. If the company has significant business relations with related parties (inside or outside KSA), their TP exposure obviously rises. • Are the TP Bylaws in Saudi on par with global standards? The KSA TP regulations are aligned with the OECD Guidelines, which are the Global Standard. However, as mentioned earlier, the definition of when parties should be considered as related for TP purposes is very broad and not fully compliant with the spirit of OECD Guidelines. • In your opinion and based on your experience, what are the challenges Saudi Arabia is currently facing when it comes to global TP standards and tax regulations? KSA, as a G20 member, had to embrace the global rules of TP at some point in time. The timing of the new regulations (together with the tight deadlines) will be a challenge for all concerned businesses. From a GAZT perspective, it still needs to be seen how the collected information will be used. For the Country-by-Country reporting (first deadline 31 December 2019) GAZT still needs to create the proper infrastructure in order to collect and share the information with the global community. The OECD is responsible that all participating countries meet the necessary standards in terms of data security. The OECD typically does a thorough review of the systems before a country is granted access to the exchange network.
