Advance Pricing Agreement (APA) Procedures in Saudi Arabia

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Advance Pricing Agreements (APAs) are crucial for multinational businesses seeking tax certainty in their transfer pricing arrangements. The Saudi tax authority has published APA Guidelines detailing the implementation procedures for smooth facilitation of the APA mechanism. 

In a previous article, we have covered the key aspects of APAs, including eligibility, types, benefits, and critical assumptions involved. Here, we discuss the APA implementation procedures covering pre-filing meetings, submission processes, evaluation, and compliance.

Pre-file Meeting and Application Submission 

Taxpayers have the option to request a pre-file meeting with the APA team before formally submitting their application. This meeting clarifies procedural aspects and addresses initial concerns. The APA application must be submitted electronically via the ERAD portal at least 12 months before the first financial year specified in the agreement, though exceptions may be allowed. Applications should include details of covered transactions, applicable tax years, transfer pricing methodology (TPM), and its impact on the taxpayer’s tax position.

While some countries allow rollback of the APA agreement (i.e., application of APAs to financial years prior to those specified in the agreement), this is not the case in Saudi Arabia. 

Introductory Meeting and Evaluation 

Within 60 days of submission, an introductory meeting is scheduled to discuss the taxpayer’s business operations, organizational structure, and proposed TPM. The tax authority assesses the application’s completeness and may request further information. The evaluation phase involves a thorough review, including site visits and stakeholder interviews (if required), to verify the taxpayer’s financial data and industry-specific factors.

Negotiation and Agreement Finalization 

After evaluating the taxpayer’s proposed TPM, the tax authority engages in negotiations to reach an agreement. The APA document includes details of related parties, covered transactions, applicable tax years, critical assumptions, compliance requirements, and confidentiality clauses. Upon mutual agreement, the taxpayer and the tax authority sign the APA, which remains effective for a maximum of three years.

The tax authority may reject an APA application if the proposed TPM does not align with the arm’s length principle, lacks sufficient data, or indicates tax avoidance. Taxpayers can respond to a rejection within 30 days. Additionally, a taxpayer may withdraw an APA request at any stage, nullifying any obligations between the parties.

Compliance and Reporting Obligations 

Once an APA is in place, taxpayers must comply with annual reporting requirements, including the submission of an Annual Compliance Report (ACR). The tax authority retains the right to conduct transfer pricing audits for transactions not covered by the APA. 

It is pertinent to not that the APA agreement is based on a combination of certain facts and assumptions. If any of these change, the APA may cease to operate. Further, any failure to adhere to the agreed terms may lead to tax adjustments or potential penalties.

Conclusion 

Making an APA application and executing the agreement with the tax authorities is a detailed process and is best handled by a collaboration between the taxpayer and transfer pricing consultants. Taxpayers must take advantage of the APA mechanism to mitigate tax litigation in the future. 

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