ZATCA Transfer Pricing Audits and Adjustments

An audit tests the actual transaction and its evidence

A defensible transfer-pricing position connects the business facts, selected method, independent evidence and reported amounts. A lengthy report does not protect a transaction described inaccurately, and an unusual result does not by itself establish profit shifting.

Article 24 of the amended Saudi Transfer Pricing Bylaws provides for review under the applicable tax and Zakat framework. Articles 3–13 set the pricing and comparability framework; Articles 14–19 address disclosure and supporting information. This guide explains the substantive review issues. It does not replace the procedural rules governing a particular assessment or objection.

Treat warning signs as questions rather than official risk scores

Recurring losses, large related-party charges, restructuring or unexplained differences between accounts and disclosures deserve investigation. Their significance depends on the business. Independent businesses also suffer losses, incur exceptional expenditure and take commercial risks.

Dariba recommendation: investigate whether the entity actually bears the risk associated with its losses, whether services were delivered and whether the method addresses the relevant transaction. Record commercial explanations and supporting evidence.

These are practical review priorities, not published ZATCA risk ratings or evidence that a specified ratio automatically triggers an audit. A locally profitable entity can still have incorrectly priced transactions; a loss-making entity can have a supportable position.

Respond to the actual document request and deadline

Articles 15–17 require information within the period specified by ZATCA, which must be at least 30 days from the request. This is not always a fixed 30-day period starting when a business happens to read the notice. Identify the request date, scope and stipulated deadline immediately.

Article 19(b) preserves five specific documentary request grounds despite the stated file exceptions: relevant Saudi special-zone counterparties; exempt or expressly excluded return-filing counterparties; the specified artificiality, tax/Zakat-purpose or form/substance concerns; Chapter Nine adjustment/corresponding-adjustment requests; and Saudi international obligations. Arabic guideline section 5.3, p. 72, sets out these grounds. A request on one of them is not itself a finding that an adjustment is due.

The documentation guide identifies the four Article 19(a) file categories and the separate unified-Zakat-group treatment. Establish the actual exception and request basis; a small-company label alone does not determine either.

Dariba recommendation: preserve the notice, allocate responsibility for each requested item and keep a record of submissions and any agreed clarification. If a difficulty arises, raise it promptly; an unanswered request is not an extension.

Adequate evidence matters without preventing a review

Article 15 requires sufficient supporting information about controlled transactions and their economic analysis. The Arabic Transfer Pricing Guideline, sections 5.1-5.2, pp. 70-71, explains that ordinary documentation may not contain everything needed for an audit. ZATCA may ask for additional information; keeping group evidence abroad does not, by itself, discharge the Saudi taxpayer’s responsibility to supply it.

Section 13.1, p. 126, places the burden of proof on the taxpayer where the documentation requirements have not been met and states that ZATCA assesses whether the information provided is sufficient. It does not establish that possessing two files, a database report or an accountant certificate gives immunity from adjustment. The report must support the actual transaction and arm’s-length conclusion.

Dariba recommendation: keep a response matrix connecting each question to the agreement, actual performance, financial entry, method and evidence. Identify a genuine missing document explicitly and pursue it promptly. A large submission that does not answer the question can leave the underlying issue unresolved.

Reconcile the report to transactions and financial records

Reviewers need to understand who provided what, the contractual terms, actual conduct and the flow of value. A service invoice should connect to evidence of delivery and the recipient’s benefit. A financing balance should connect to funds advanced, repayments and the actual credit exposure.

Article 14 disclosure and the Article 14(c) accountant certificate have defined functions. The certificate concerns implementation of the group TP policy in Saudi Arabia; it does not independently certify that every price is arm’s length or prevent a review.

Dariba recommendation: reconcile the local analysis, transaction ledgers, segmented results and annual disclosure. Explain genuine classification differences rather than concealing them through an unexplained balancing amount.

Challenge a benchmark through comparability and method reliability

Articles 5–9 require the most appropriate method and reliable comparisons. Article 13 addresses the information used for comparables, including its availability. A review should examine functions, assets, risks, contractual conditions, economic circumstances and material adjustments.

Neither a foreign location nor a recent database date alone establishes comparability. Equally, a benchmark should not be retained indefinitely without assessing changes in the business and evidence. Explain the period used, data limitations and the effect of exceptional items.

Article 8 does not require several methods merely to establish compliance with an appropriately applied method. Defend the actual selection and calculation rather than assuming another spreadsheet necessarily strengthens the position.

An adjustment point must follow the applicable analysis

Articles 11–12 govern the arm’s-length range and ZATCA’s adjustment framework. Article 11(b) permits the guideline to specify the appropriate point. Arabic Guideline sections 4.3.6 and 4.4.1 set out the interquartile and median-based approach; an adjustment to the lower bound is not a general taxpayer election.

Section 4.4.1 expects a below-lower-quartile result to be corrected to the median, with an exceptional departure demonstrated and supported by the taxpayer. An above-upper-quartile result may be corrected within the range, not below its median. Proposed movement within the range needs its own factual support. A reviewer should distinguish those cases from an already in-range outcome under a reliable original policy.

Dariba recommendation: show the accepted observations, screening decisions, weighting, lower/upper quartiles and median, then identify the provision supporting any departure. See the benchmarking guide for the guideline’s data-period, loss-company and information requirements. Challenging a proposed adjustment requires both comparability analysis and attention to this stated administrative approach.

Official illustration: ZATCA’s Arabic Transfer Pricing Guideline, third edition 2024, Annex 5, uses SAR 100,000 sales, SAR 2,000 operating profit and a selected 5% target. On those assumptions, target operating profit is SAR 5,000 and the adjustment is SAR 3,000. The chosen point follows that illustration’s facts; it is not a standard return for Saudi distributors.

Any resulting CIT, Zakat or withholding consequence then needs its own legal analysis. A TP adjustment is not automatically evidence of deliberate tax evasion.

Corresponding relief requires a separate supported request

Articles 20–22 address Saudi corresponding-adjustment requests following relevant foreign adjustments. The taxpayer must provide the necessary information, and ZATCA examines whether the adjustment is consistent with the arm’s-length principle. The provisions include specified grounds for refusal; matching relief is not automatic.

Where Saudi Arabia makes a primary adjustment, a reduction abroad depends on the other jurisdiction’s rules and any applicable treaty procedure. Do not assume every treaty has identical terms or that a request guarantees agreement.

Dariba recommendation: preserve both authorities’ decisions and calculate the actual overlap in taxed profit. Identify the applicable treaty, affected periods and procedural deadlines separately. A current treaty review is necessary before relying on a country-specific route or time limit.

Manage disputes and future certainty as distinct decisions

An audit response, formal objection and treaty request serve different purposes. A business should identify the controlling procedure for the notice received and protect its rights within that procedure. An informal discussion should not be assumed to suspend a statutory deadline.

Article 23 permits qualifying advance pricing agreements for future covered transactions. ZATCA’s Advance Pricing Agreements Guideline, sections 20–21, retains annual reporting and compliance review. An APA application alone provides no agreed protection, and a concluded agreement does not shield unrelated transactions or unrepresented facts.

Read the dedicated APA guide before treating this as the solution to an existing assessment. The current programme’s prospective scope and lead time can make ordinary documentation and dispute management the immediate priority.