Strategizing International Tax Best Practices – by Keith Brockman

Saudi Arabia’s tax treaty with Tunisia, effective from 1 January 2014, generally follows the OECD model treaty.  Additionally, Saudi Arabia is pursuing treaties with Algeria, Kyrgyzstan and Barbados.

Saudi Arabia also introduced reforms to the Foreign Investment Act  in March 2013, providing penalties for Saudi Arabia General Investment Authority (SAGIA) registered foreign investors who fail to comply with its new Code of Conduct for Foreign Investors.  The Code provides for approx. 60 forms of breaches, including penalties that include fines and cancellation of the legal entity’s license, thus strict compliance with the Code should be adhered to and monitored.

The Qatar Financial Centre’s (QFC) new transfer pricing manual features guidance on transfer pricing regulations and rules.  Thin capitalization, capital / debt structuring, transfer pricing documentation and necessity of a comprehensive transfer pricing study to withstand lengthy queries are components in this new manual.  The arm’s length standard of the OECD is to be relied on by the QFC Tax Department for transfer pricing determinations.  Additionally, rulings and/or APAs can be requested.  Intercompany transactions are being closely reviewed by the QFC Tax Department, thus such changes should be reviewed.

KPMG has provided additional details for further reference:

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/mesa-tax-update/Pages/saudi-arabia-tax-revenues.aspx

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/mesa-tax-update/Pages/qatar-new-manual.aspx

As the Middle Eastern tax authorities gain transfer pricing expertise, legislative actions and experience in the application of transfer pricing methodologies, it is important to note alignment of such practices with OECD.  To the extent double tax treaties are not yet negotiated, double taxation issues should be considered.

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