Intercompany pricing needs documented evidence that it matches what an unrelated party would agree to.

This applies to Saudi entities transacting with related parties, whether a foreign parent, a sister company or another entity under common ownership, and it covers goods, services, financing and intangibles. It connects directly to the arm's length documentation requirements that cash pooling and other intercompany arrangements also depend on to withstand scrutiny.

Why documentation matters

ZATCA's transfer pricing regulations require covered entities to maintain contemporaneous documentation that justifies related-party pricing. Cross-border and related-party transactions are an area of increasing regulatory attention.

Building a defensible benchmark

A benchmarking study identifies comparable transactions between unrelated parties and shows that your related-party pricing falls within an appropriate range of those comparables. Comparable data must be reliable, and the methodology must suit the transaction type (management services, royalties, financing or goods), not one generic approach applied to everything. The same rigor applies in our financial modeling work.

Common gaps in group policies

Many Saudi subsidiaries of multinational groups operate on transfer pricing policies set centrally by the parent, with no local documentation showing the policy is defensible under Saudi requirements. A global policy does not automatically satisfy the local rules of every country.

A hypothetical example

A Saudi subsidiary pays a management fee to its foreign parent based on a percentage set years ago, with no documented benchmarking. A transfer pricing review finds that the fee sits outside the range that comparable arm's length arrangements support. That creates tax exposure, because an inflated fee inappropriately reduces the Saudi entity's taxable base, and it leaves a documentation gap that would be difficult to defend in a review.

Ongoing maintenance

Transfer pricing documentation needs updating as transaction volumes, business models or comparable market data change. It should not be produced once and assumed to stay valid. We recommend periodic review, because a benchmarking study is not a permanent reference.

Documenting the rationale

A benchmarking file should explain why a particular methodology and comparable set were chosen, and not only state the resulting range. A reviewer who questions the conclusion needs to see the reasoning behind it to accept the analysis.

Aligning documentation with the business

A benchmarking study is credible only if it reflects how the business operates. An idealized description that diverges from actual practice will not hold up when a reviewer tests the documentation against real transactions. The same audit-readiness principle is covered in our audit support work.