Saudi TP Intangibles: Ownership, DEMPE and Royalties

Start with the rights and the value-creating activities

Transfer pricing for an intangible asset requires more than a royalty agreement and a registration certificate. Identify what is being used or transferred, who contributes to its value and which party controls the economically significant risks. A payment labelled a royalty does not answer those questions.

Chapter 9 of ZATCA’s Arabic Transfer Pricing Guideline, third edition 2024, applies the amended Bylaws’ functional and comparability framework to intangibles. It distinguishes transactions transferring assets or rights from transactions using intangibles in the supply of goods or services. The appropriate analysis depends on the actual transaction.

An accounting asset register does not determine TP scope

Section 9.1 includes patents, know-how, trade secrets, trademarks, trade names and relevant contractual or licensing rights among its examples. The analysis does not turn solely on whether expenditure was capitalised or an asset appears on the balance sheet.

The guideline also distinguishes matters such as group synergies and market advantages from separately identified intangibles. That does not make their economic effect irrelevant to comparability. It means that an advantage should not automatically be turned into a separately chargeable intellectual-property right.

Dariba recommendation: describe the specific right, its territory, exclusivity, duration and permitted use. A generic reference to group intellectual property can conceal important differences between a trademark licence, technical know-how and a transfer of an entire technology platform.

Map development, enhancement, maintenance, protection and exploitation

The activities commonly abbreviated as DEMPE help identify the contributions behind intangible returns. Sections 9.2.1–9.2.6 require a functional analysis, the relevant contracts and confirmation of whether actual conduct matches the stated allocation of responsibilities.

Identify who makes development decisions, approves budgets, controls significant risks and has the capacity to bear them. The location of an administrative signature is not conclusive evidence of substantive control. Equally, employing engineers does not automatically establish entitlement to all resulting profits if their role is a genuinely controlled routine service.

Dariba recommendation: support the analysis with actual decision records, project governance, relevant personnel responsibilities and evidence of how unsuccessful projects and unexpected costs are handled.

Legal ownership and outsourcing must be considered together

The legal owner need not physically perform every activity. Section 9.2.4 recognises outsourcing, while requiring the relevant control over functions and consideration of the contributions and risks of other parties. Legal ownership alone does not substitute for that analysis.

Official example: Annex 12, Example 1, of the 2024 Arabic guideline describes a legal owner controlling the relevant activities and risks while another company performs routine research and development. The service company receives an arm’s-length reward; the example uses a 5% net cost-plus mark-up on its stated facts.

That 5% is not an official safe harbour for every Saudi research centre. The example’s control, routine-service and risk assumptions explain its outcome. A developer making significant independent decisions or contributing unique technology needs a different factual assessment.

A funding contribution does not automatically earn all residual returns

Section 9.2.4 distinguishes funding from the wider functions and risk control associated with the intangible. A funder controlling relevant financial risk may warrant a risk-adjusted financing return. Its contribution should not automatically be treated as equivalent to developing and controlling the underlying technology.

Official example: Annex 13, Example 2, separates a legal owner contributing finance from the company conducting and controlling the intangible activities. Its analysis rewards the financing contribution according to the actual risks and leaves the remaining relevant return to the party making the other contributions.

Dariba analysis: neither the legal owner’s status nor the developer’s label decides the full return allocation. Establish the parties’ real contributions and alternatives before pricing the funding, development services or licence.

Select a method that can price the actual rights

Section 9.2.7 discusses comparable licence information and profit split, with attention to whether public royalty data is sufficiently detailed for reliable comparability. A database percentage is not a conclusion without considering the rights, market, exclusivity, remaining life and profit potential.

The guideline cautions against using one-sided methods to value an intangible directly, or assuming development expenditure establishes its value. A routine service reward and the value of the resulting intellectual property are different questions.

Dariba recommendation: explain why the method addresses the actual transaction and why the available information is reliable. Where a valuation is required, document the assumptions and uncertainty instead of presenting a precise number unsupported by the underlying evidence.

Acquisition accounting does not fix the price of a later transfer

Section 9.3 and Annex 14, Example 3, consider an acquisition followed by a related-party transfer of technology and a research-services arrangement. The independent share purchase provides useful information, but the accounting allocation of that purchase price does not itself establish the transfer price of the specific rights moved later.

Identify value transferred and value retained, including the continuing activities and workforce. The guideline’s example cautions against treating value as disappearing merely because an internal restructuring reclassifies the business.

Dariba recommendation: retain the acquisition rationale, forecasts and valuation evidence. Explain changes between acquisition and transfer dates. A later licence or research agreement should be evaluated alongside the rights transferred, without counting the same value twice.

Connect the pricing conclusion to the other legal questions

An intangible payment can also require CIT deductibility, withholding, VAT or other analysis according to its actual character and applicable rules. Establishing an arm’s-length price does not settle those questions. A technology licence and a service using technology may have different legal consequences.

Article 14 disclosure should reflect the actual dealings, including relevant non-cash transfers and restructuring information. Keep the functional analysis, agreements and financial evidence consistent with the transaction reported.

Read the restructuring guide where the arrangement changes functions, risks or rights. A defensible royalty percentage cannot compensate for an incomplete account of what moved and who now creates the value.