The Zakat, Tax and Customs Authority (ZATCA) has officially issued its Advance Pricing Agreement (APA) Guidelines, marking a significant step toward enhancing tax certainty and compliance in Saudi Arabia. This initiative aligns with global tax practices and provides multinational enterprises (MNEs) and businesses operating in the Kingdom with a structured framework for transfer pricing arrangements.
Key Updates in the New APA Guidelines:
The latest APA Guidelines introduce several critical changes compared to previous guidance, further strengthening tax compliance and predictability for taxpayers.
1. Formal Integration into the Transfer Pricing Framework:
- APAs are now explicitly included within the Transfer Pricing (TP) Bylaws under Article 23, reinforcing their role in tax certainty and dispute prevention.
2. Financial Threshold for Eligibility
- Taxpayers must have a minimum SAR 100 million in annual intercompany transactions to apply for an APA.
- Certain complex transactions may be exempted from this threshold at the discretion of ZATCA.
3. Standard APA Duration and Renewal
- The initial APA period is three years, with an option to renew for an additional three years if key conditions remain unchanged.
4. Mandatory Compliance and Reporting
- Annual Compliance Reporting (ACR) is now required within 120 days after the end of each financial year to ensure continued adherence to APA terms.
5. Importance of Critical Assumptions
- APAs must include predefined critical assumptions, which, if altered, may trigger a revision or cancellation of the agreement.
6. Introduction of Unilateral APAs
- Currently, only unilateral APAs (agreements between ZATCA and the taxpayer) are available.
- Bilateral and multilateral APAs (involving other tax authorities) are not yet introduced but may be considered in the future.
7. Enhanced Submission and Processing Requirements
- Pre-filing meetings are now mandatory before submitting an APA request.
- APA applications must be submitted via the ERAD electronic portal.
- ZATCA has defined a 12-month processing timeline, ensuring quicker resolution of APA requests.
The introduction of these formal APA guidelines provides companies with greater certainty in their transfer pricing arrangements, reducing the risk of disputes and audits. Businesses with significant intercompany transactions should assess their eligibility for an APA and consider engaging with ZATCA proactively to benefit from this initiative.
Our Transfer Pricing (TP) team at Grant Thornton Saudi Arabia can support you in navigating these new APA guidelines, including:
- Assessing APA eligibility for your business.
- Preparing pre-filing and formal APA submissions.
- Ensuring compliance with annual reporting requirements.
- Advising on critical assumptions and risk mitigation strategies.
For further details or a tailored consultation, please contact our team.
