20 February 2025 Saudi Arabia releases guidelines on advance pricing agreements
In February 2025, Saudi Arabia's Zakat, Tax and Customs Authority (ZATCA) published the Guidelines on Advance Pricing Agreements (APA Guidelines) on its official website. The APA Guidelines set forth the eligibility criteria, application process and operational framework when entering into advance pricing agreements (APAs) with the ZATCA. The ZATCA has confirmed that, for now, only unilateral APAs are being introduced. Taxpayers may now submit an application for an APA if they fulfill the requirements specified in Article 23 of the Transfer Pricing Bylaws (TP Bylaws). On 20 March 2023, the ZATCA Board of Directors issued a decision amending the TP Bylaws to include Article 23, introducing the APA provisions. Taxpayers and zakat payers can submit APA applications for periods commencing from 1 January 2024. In Saudi Arabia, APAs have been introduced to provide tax certainty to taxpayers and prevent potential future TP disputes through regular audits that are complicated, time-consuming, and have a high cost for taxpayers and the ZATCA. In concluding APAs, the tax authority and taxpayers are able to agree, in advance, on the appropriate TP method for their transactions with related persons or between a head office and its permanent establishment (PE), in accordance with Article 23 of the TP Bylaws. In February 2025, the ZATCA published the APA Guidelines to provide more information on the relevant concepts, application, implementation and enforcement of APAs while emphasizing the importance of transparency and cooperation between taxpayers and the ZATCA to facilitate a clear understanding of each party's position and interests. Eligibility: Taxpayers with annual transactions exceeding 100 million Saudi riyal (SAR100m) are eligible to request for an APA, subject to exemptions for complex transactions. In cases of multiple transactions that are closely linked, such transactions may be aggregated and treated as a single transaction to meet the threshold requirement. Information submission: Taxpayers are expected to provide complete and timely information throughout the APA process. Timeline for applying for APAs: An APA application must be submitted at least one year prior to the commencement of the first fiscal year stated in the agreement. Currently, only unilateral APA applications are being processed by the ZATCA. APA validity period: The APA must cover a specified number of zakat years and tax years. It is valid for three years, with the possibility of renewal for another three years under certain conditions. Currently, there is no provision in the APA Guidelines that allow for retroactive applications. Pre-filing: Taxpayers can request an optional pre-filing meeting on a named basis (i.e., the taxpayer's identity should already be disclosed) to discuss the APA application with the APA team, prior to submitting the formal application. According to the APA Guidelines, concluding an APA has certain benefits, including: (i) providing taxpayers with tax certainty for future years; (ii) reducing the length and cost of in-depth TP analyses during standard tax audits, thereby decreasing the chance of drawn-out and costly disputes; (iii) providing clarity on TP matters and the appropriate pricing approach for covered transactions, offering a reliable projection of zakat/tax implications for both domestic and international controlled transactions; (iv) clarifying taxpayers' rights and obligations by providing insights on expected costs, expenses and zakat/tax liabilities; and (v) facilitating recordkeeping as the required documentation to support compliance with the agreed TP method is specified in advance. Taxpayers should consider the benefits of concluding an APA and assess their eligibility to request an APA in accordance with the TP Bylaws. Eligible taxpayers should familiarize themselves with the processes involved, as detailed in the APA Guidelines, and act accordingly.
Document ID: 2025-0523 | ||||||
