Transfer Pricing Developments in the Middle East
This past year has seen some fundamental changes to national tax arrangements in numerous Middle Eastern countries. Previously, the Middle East had relied heavily on the Oil and Gas (O&G) sector to supply its national revenues. However, decreasing energy prices lowered total revenue by about 60% between 2012 and 2016. This forced a rethink of tax policy and many countries introduced VAT for the first time in 2018. More recent developments have seen MENA states sign up to international transfer pricing recommendations from the OECD, as they seek to counter the erosion of national revenue and minimise capital flight.
Transfer Pricing legislation
Transfer pricing deprives states of what they see as their fair share of taxes from global corporations. It goes without saying that national exchequers dislike losing out on revenues they feel entitled to. However, in the case of transfer pricing, we see countries compete for the presence of multinationals by decreasing corporation tax to make their jurisdiction more attractive.
Transfer Pricing legislation has been a feature in Europe and North America for around 50 years, but countries in the Middle East have ground to make up. Various nations in the region signed up to the OECD’s international guidelines – the BEPS Inclusive Framework (IF) - in recent months. These countries include including Bahrain, Saudi Arabia, Oman and the UAE. Indeed, Saudi Arabia introduced the transfer pricing legislation in December 2018, with the final roll-out happening back in February of 2019. We can expect to see clear policy emerging in other prominent states in the coming months.
The framework introduces 4 minimum standards for business to follow.
- Article 5 - covering harmful tax practices
- Article 6 - covering treaty abuses
- Article 13 - covering transfer pricing documentation and country by country reporting (CbCR)
- Article 14 - covering dispute resolution
This is a critical time for businesses operating in the Middle East, as they must adapt their operations to deal with the new guidelines, which naturally creates the opportunity for transfer pricing professionals who choose to work here.
Transfer Pricing in Saudi Arabia
Saudi Arabia’s General Authority for Zakat and Income Tax introduced some interesting reforms. Companies operating in the Kingdom are expected to comply with the 3-tiered documentation required by Article 13. Firms will have to supply a master file, a local file and a CbC report as part of the new transfer pricing legislation. Crucially, the local file is expected to contain additional information to that required by the OECD, such as industry analysis.
In addition to documentation, companies are required to produce a transfer pricing disclosure, providing details on enclosed transactions and transfer pricing policy. These extra requirements are in line with OECD recommendations, although they are not specifically stipulated in the guidelines.
Developments within Transfer Pricing
These are major developments for MENA nations, with tax income expected to grow exponentially. The new transfer pricing regulations will affect all multinationals operating in the KSA and that is expected to extend to all Middle East countries as and when they introduce legislation. There are now major new requirements for all taxpayers with controlled transactions, irrespective of the value. It must be noted that this process will cause the biggest concern to the O&G firms which dominate the Middle Eastern economy. These firms must also deal with revenue issues such as price limiting on commodities, which will have a huge bearing on transfer pricing considerations. O&G firms operating must also face up to divergent national approaches to transfer pricing. By incorporating transfer pricing into wider considerations and risk management, O&G firms can maintain a well-managed tax profile and mitigate for any unexpected changes, which provides security and value to shareholders. A transfer pricing professional will become very valuable in this instance.
With Bahrain and the UAE expected to introduce CBCR regulations in 2019, these are undoubtedly exciting times for transfer pricing specialists looking to improve their career prospects - and a move to the Middle East will be sure to provide such opportunities.
Find out more about the many opportunities the Middle East offers to transfer pricing professionals by reading our latest blog on transfer pricing jobs and career development in the Middle East.
Kingpin has many opportunities for Transfer Pricing professional. If a move to Middle East is something that interests you, feel free to get in touch with our team who will be happy to help. Alternatively, have a look at our current vacancies for opportunities around the world.