The Saudi entity of a multinational group can make a reasonable pricing decision and still struggle in a ZATCA review if the documentation behind it does not exist.

Any Saudi entity with related-party transactions above the applicable thresholds falls under these rules. Examples are management fees charged by a foreign parent, intercompany services, goods transferred between related entities and intercompany financing. The rules intersect with corporate income tax exposure on foreign ownership and with withholding tax on the underlying cross-border payments.

The three-tier documentation structure

ZATCA's framework, aligned with OECD guidance, expects three documents. The first is a master file covering the group's global operations and transfer pricing policies. The second is a local file specific to the Saudi entity's actual transactions. The third is country-by-country reporting for larger groups above the relevant revenue threshold. Many Saudi subsidiaries have a group master file prepared elsewhere but no local file for their Saudi transactions.

Where group structures run into trouble

A holding company charging a management fee to a manufacturing subsidiary needs that fee benchmarked against what unrelated parties would charge. So does a trading arm dealing in goods with a related party outside Saudi Arabia. Without a benchmarking study behind the number, ZATCA can challenge the pricing and adjust the assessment upward. That affects the Zakat or tax base and can raise withholding tax questions on the same transaction.

Benchmarking as the analytical foundation

Documentation without a benchmarking study behind it is largely an assertion. A benchmarking study compares your related-party pricing with comparable transactions between independent parties, and that is what supports the documentation. It is a distinct piece of work, covered under transfer pricing benchmarking, and the two are usually commissioned together to produce a defensible file.

What preparing a local file involves

We start from your actual intercompany agreements and transaction data and not a generic template, and build the local file around what your Saudi entity does with its related parties. Where a benchmarking study is needed to support the pricing, we coordinate that analysis. The final file then reads as one consistent document, with the policy and the numbers in agreement.