Saudi TP Related Persons and Effective Control

The TP relationship can extend beyond legal ownership

The amended TP Bylaws Article 1 defines related persons, common control and effective control. The legal share register is important, but governance, profit rights, funding and business arrangements can also matter. The definition is not limited to overseas parents or majority shareholders.

ZATCA’s Arabic Transfer Pricing Guideline, third edition 2024, sections 3.1–3.2, explains these routes. Assess the relevant person and transaction under the actual definitions. An accounting disclosure list or a group’s commercial description of an “independent distributor” does not automatically establish the TP conclusion.

Review ownership, voting and profit rights together

Article 1’s related-person and common-control provisions include the stated 50% or greater ownership and control routes, direct or indirect and in the prescribed related-person combinations. The natural-person rules also address the stated family and partnership relationships. Equality at 50% is not excluded merely because the business normally uses “majority” to mean more than half.

The guideline, section 3.2.1, Illustration 2, describes 40% held directly and 24% indirectly through a 60% interest in an intermediary holding 40%. The total is 64%. This is the official ownership illustration, not a general instruction to add overlapping economic interests twice or treat every associate as automatically controlled.

Governance can establish control without half the capital

The effective-control definition addresses management agreements, trustee or manager powers, board voting and appointment or dismissal rights. Section 3.2.2.1 explains how a person with less than 50% of shares can still have the relevant authority over business decisions.

Dariba recommends reviewing shareholder agreements, reserved matters, delegated authority and actual decision-making alongside ownership. A minority percentage is not a complete defence where another provision establishes control. Conversely, an ordinary commercial approval right should be analysed under the actual wording and facts rather than described as a conclusive control finding without review.

The lending test has a particular denominator

Article 1’s funding-control route, subject to the specified financial-institution exclusion, addresses the relevant outstanding lending relative to the stated short-term debt, long-term debt and capital excluding retained earnings. Section 3.2.2.2, Example 1, uses SAR 60 million due to an industrial lender, SAR 85 million of debt and SAR 40 million of equity including SAR 15 million of retained earnings.

The relevant denominator is SAR 110 million: SAR 85 million + SAR 40 million − SAR 15 million. SAR 60 million divided by SAR 110 million is approximately 54.55%, displayed in the guide as 55%. The example supports the stated presumption on its facts. It is not a calculation using total assets or debt alone.

Guarantees have a different threshold

The guarantee route, with its financial-institution qualification, uses 25% or more of the other person’s total loan value. Section 3.2.2.2, Example 2, describes SAR 25 million guaranteed against SAR 85 million of loans. That covers approximately 29.41%, above 25%; the guide rounds its illustration to approximately 29%.

Do not copy the lending test’s 50% denominator into the guarantee rule. Also do not infer that any bank financing creates a related-party relationship: the provisions expressly distinguish the relevant financial institutions. Their exclusion from this funding route does not settle whether some other ownership or governance relationship exists.

Business dependence and arrangements can also matter

The effective-control definition addresses the stated concentration of transactions and other arrangements, including specified exclusive agency, distribution, access to rights and ability to direct decisions. Section 3.2.2.3 explains business control. These provisions require their actual facts and thresholds; the definition is not exhausted by the two funding examples.

Dariba’s practical recommendation is to flag concentrated customer/supplier relationships, exclusive arrangements, important licensed rights and contractual decision powers for review. A large independent customer is not automatically related solely because it is commercially important, but a narrow shareholding-only check can miss a relationship established by another actual provision.

Apply the relevant exceptions without enlarging them

Article 1 distinguishes the stated government-ownership or common-board circumstances; common state ownership alone should not be converted into an automatic related-person conclusion contrary to that exception. The taxpayer’s actual status and other control arrangements still require review.

Article 19(c)‘s unified Zakat-group treatment is a different question from whether the parties are related. It concerns the prescribed treatment of dealings within a qualifying filed group, not a rewrite of the relationship definition. Maintain the relationship map even where a particular transaction benefits from an actual documentation or group exception.

Update the relationship register when facts change

Keep legal and economic ownership, voting and profit rights, board powers, loans, guarantees, regulated financial status, concentrated dealings and relevant agreements in one register. Review changes during the relevant year and connect the result to the actual controlled-transaction inventory.

The disclosure guide and documentation guide explain the resulting reporting questions. Identifying a relationship is the beginning of the pricing analysis; the official examples do not independently certify a particular rate, margin, guarantee fee or deduction merely because the parties are now recognised as related.