Navigating the intricate landscape of transfer pricing is a crucial task for multinationals aiming to optimise tax efficiency and maintain regulatory compliance.
As Middle Eastern economies stride toward diversification and seek to attract international investment, transfer pricing (TP) issues have become both more central and more complex. For global organisations working in the region, understanding the distinct features of local TP requirements—and the practical steps needed to manage them—has never been more crucial.
Transfer pricing regulation is still maturing in much of the Middle East, but the pace of change is accelerating. Prompted by global tax shifts and domestic policy goals, countries such as the UAE, Saudi Arabia, Qatar, and Egypt are rolling out comprehensive TP regulations that largely mirror OECD benchmarks, including the arm’s length principle, recognised TP methods, and core compliance documentation like the Master File, Local File, and Country-by-Country Reporting (CbCR).
While a regional pattern is emerging, there remain local complexities that demand close consideration:
Benchmarking Methodologies: Certain jurisdictions (notably Egypt and Saudi Arabia) are stringent in their expectations around comparable, often insisting on regional benchmarks and excluding persistent loss-makers.
Additional Filings and Certification: Countries such as the UAE, Saudi Arabia, and Jordan often go a step further by requiring supplementary disclosures and, at times, auditor-certified attestations to affirm local adherence to group TP policies.
Strict Deadlines and Filing Protocols: Egypt mandates that TP documentation accompanies tax returns, while other countries expect near-immediate production of records if requested by authorities.
A series of recent and upcoming changes are further reshaping the transfer pricing terrain:
Advance Pricing Agreements (APAs): Saudi Arabia’s new APA programme lets businesses formalise TP arrangements with the tax authority prospectively. While currently limited and not retroactive, this creates a path towards greater certainty for future transactions.
Regional Headquarters Mandate: Companies aiming to secure Saudi government contracts must establish a Saudi-based RHQ, subject to audited compliance and strict activity thresholds. Reliable TP policies and evidence are vital here, as non-compliance can jeopardise both licensing and fiscal incentives.
Free Zones and Economic Zones: Attractive fiscal benefits in UAE Free Zones and Saudi Special Economic Zones also bring heightened TP scrutiny. Authorities are keen to ensure that income allocation across these zones stands up to scrutiny and is not engineered purely for tax advantage.
Pillar Two and Global Minimum Tax: The regional scene is adapting to international frameworks, with several countries (like Qatar, Bahrain, and the UAE) moving toward adoption of minimum tax rules in the coming years—continue to monitor developments here, as alignment between TP outcomes and minimum tax calculations will be essential.
In jurisdictions such as Saudi Arabia and Egypt, where TP rules have had more time to take root, audit scrutiny has noticeably intensified. Based on our extensive experience, key triggers include:
Chronic Loss Positions: Consistent local losses, particularly if coupled with large cross-border payments, are red flags for reviewers.
Mobile Workforce Models: 'Fly-in, fly-out' staffing patterns are under closer inspection, as authorities assess whether sufficient economic substance exists to support the revenue allocation model—and to test for risks of inadvertent permanent establishment creation.
“True-Down” Adjustments: Where local entities record deliberate margin adjustments, tax authorities expect robust documentation and clear rationale delineating local risk and value addition.
Gaps in Documentation: Failing to maintain current, thorough TP files can undermine even technically robust positions; readiness is key, and documentation must be watertight.
Navigating evolving TP obligations calls for more than a routine compliance checklist. At Swift Audit and Advisory, we support our clients by:
Delivering Localised Expertise: Our team leverages direct, up-to-date market knowledge to shape benchmarking and TP policies that align with regulator expectations and business realities.
Ensuring Audit-Ready Documentation: We prepare and maintain documentation that is not just compliant, but ready to withstand detailed audit enquiry.
Strategic Entity and Policy Design: Whether establishing RHQs or structuring Free Zone arrangements, we design tax strategies that balance opportunity with compliance and risk management.
Forward-Thinking Advisory: As new standards—like Pillar Two—enter the regional landscape, we help clients anticipate, adapt, and align future tax planning to emerging global rules.