Saudi TP for Securitisation and Special-Purpose Entities

Follow the asset transfer and the cash flows

Securitisation can involve transferring loans, receivables or other assets to a special-purpose entity that issues securities backed by their cash flows. Several transactions can sit within that structure: the asset transfer, funding, servicing and other arrangements. Their transfer-pricing consequences should be identified separately.

Section 8.5 of ZATCA’s Arabic Transfer Pricing Guideline, third edition 2024, addresses the structure, transfer discount and remuneration of the securitisation entity. The amended Bylaws’ actual-transaction and comparability framework applies. The use of a special-purpose entity does not itself establish a tax exemption or an arm’s-length result.

Identify the commercial objective and actual rights transferred

The guideline recognises purposes such as improving funding, credit ratings and liquidity, including relevant regulatory-capital considerations. Those potential benefits depend on the structure’s actual operation. A transfer-pricing conclusion does not establish that regulatory capital relief has been obtained.

Dariba recommendation: identify the assets, legal rights, expected cash flows, collection arrangements and relevant transfer date. Explain what remains with the originator and which obligations the special-purpose entity assumes.

A transaction labelled a sale should be considered alongside the actual recourse, guarantees and other terms. Understanding those relationships is necessary before selecting a comparable asset price or assessing the return retained by each party.

Distinguish securitisation from ordinary receivables financing

Section 8.4 discusses factoring and invoice discounting, while section 8.5 addresses securitisation. The distinctions matter because ownership of receivables, default exposure and the nature of financing or service obligations can differ.

An advance secured on invoices is not automatically the same transaction as a sale of those invoices followed by issuance of asset-backed securities. Similarly, an entity performing collections may be providing a service distinct from bearing the credit risk.

Dariba recommendation: prepare a clear explanation of the transaction sequence and each party’s rights. Identify any related-party dealing within it before applying a pricing method. A diagram may assist the internal review, but the contracts and actual cash flows must support the explanation.

The transfer discount affects both sides of the transaction

Section 8.5 identifies the discount applied to transferred assets as an important element affecting the securitisation entity’s remuneration and the asset seller’s profit. The discount should therefore be examined as a transfer price, rather than treated only as a funding entry.

Dariba illustration: transferring receivables with a SAR 10 million face amount for SAR 9.7 million gives a nominal discount of SAR 300,000. This is an original calculation, not an approved discount rate. It does not establish the purchaser’s net profit: expected losses, timing, funding and services may affect the economics.

Dariba recommendation: support the price using the relevant asset quality, expected collections, maturity and actual risk allocation. Face value less an arbitrary group percentage is not a comparability analysis.

Analyse funding and activities before determining the entity’s return

The guideline explains that the securitisation entity’s return depends on its funding and activities. It identifies an arm’s-length return on equity, taking account of the risk borne, together with remuneration for activities performed. The conclusion must follow the actual contribution rather than the legal name alone.

Dariba analysis: the total spread between asset collections and investor payments is not automatically the entity’s profit. Identify the funding costs, relevant risks and services before deciding which amounts constitute compensation for each contribution.

Conversely, describing an entity as a vehicle does not establish that all of its functions and capital should be ignored. The pricing explanation should connect its actual role and exposure to the resulting remuneration.

Separate servicing and other charges without double counting

An originator or another group member may continue collecting receivables or administering the arrangement. Those activities should be identified and priced according to their actual functions, assets and risks under the general Bylaws framework.

Dariba recommendation: distinguish the asset-transfer price, funding terms and actual services. Explain how a retained service fee interacts with the price of the transferred assets and avoid rewarding the same contribution twice.

An external investor price can provide useful information about part of the structure. It does not automatically price every related-party service or establish the correct internal allocation of the entire spread. Comparability still depends on the transaction and terms being tested.

Apply ordinary tax rules to the actual entity and payments

Section 8.5 states that profits from the securitisation entity’s activities fall under the regular tax rules. There is no basis in that section for assuming that an entity is exempt merely because its purpose is limited or it issues asset-backed instruments.

CIT or Zakat scope and any withholding, VAT or treaty question require their own applicable rules and actual facts. A transfer-pricing analysis does not determine that all discounts, interest, distributions and service payments have the same tax character.

Dariba recommendation: assess each material payment and reporting consequence before implementation. Keep any regulatory, accounting or treaty-dependent conclusion separate, identifying the actual authority relied on rather than inferring approval from the TP guideline.

Preserve a consistent record from transfer through settlement

Articles 14–17 require relevant disclosure and supporting information for controlled dealings. Retain the asset-transfer agreements, funding terms, service arrangements, pricing analysis and records tracing actual collections and payments. Explain material differences from the original assumptions.

Changes in asset quality, recourse, guarantees or the entity’s role can affect the analysis. Review those changes instead of automatically carrying forward an earlier discount or service fee.

Read the financing guide for related receivables and funding questions. A defensible structure should explain who transfers value, who supplies capital, who performs the work and who bears the relevant risks.