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Middle East Transfer Pricing Survey 2020:
Navigating uncertainty and adapting to a new normal
The TP landscape has changed and evolved significantly in the last 12 months. With an increasing number of Middle East countries introducing TP legislation, TP is becoming complex and critical for businesses in the region. This growing complexity for groups operating in the Middle East (both headquartered in the region and elsewhere) has made tax authority disputes on TP (‘TP controversies’) a reality in many multinational groups’ day-to-day business.
The combination of extensive new compliance requirements, a refresh of business models becoming a necessity in the era of Covid-19 and the beginning of TP controversies means that today TP in the Middle East is no longer a tax related afterthought, but instead, is a fundamental pillar of tax and business strategy for most groups.
In the last year, we have seen the following key developments in the region:
- Kingdom of Saudi Arabia - The release of the second version of the TP guidelines, refining and building upon the first version in 2019, as well as the introduction of Mutual Agreement Procedures (further aligning KSA with Base Erosion and Profit Shifting (“BEPS”) minimum standards);
- United Arab Emirates - The introduction of Country by Country reporting (“CbCR”) rules, as well as Economic Substance regulations;
- Qatar - The introduction of full TP rules, including the requirement to submit a TP Master File and Local File;
- Jordan - Joining the Global Forum on Tax Transparency and the Inclusive Framework on BEPS;
- Bahrain - The introduction of Economic Substance regulations; and
- Oman - Signing the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.
On a global level, we also saw the G20/OECD Inclusive Framework continue its work addressing tax challenges in the digitalised economy and more recently the finalisation of the OECD paper on Financial Transactions.
What does this all mean for multinationals in the region? We decided to ask the multinationals themselves. We asked over 50 questions to tax and TP professionals with responsibilities in the region on a variety of topics from BEPS related issues, TP controversy and litigation, country specific topics to managing the TP function, the role technology plays and the impact of Covid-19. We have analysed and provided our thoughts on the responses within this report.
Key findings:
- 92% of businesses feel that transfer pricing as a concept is either important or very important to their group.
- 77% of businesses believe there is more certainty in the international tax and transfer pricing environment.
- 77% of respondents have either made or are in the process of making changes to their transfer pricing policies as a result of BEPS. Additionally, 75% of respondents have either made or are in the process of making changes to their legal structure, ownership of intangibles and funding positions as a result of BEPS.
- 41% of businesses are unsure whether there would be a potential impact of “BEPS 2.0” Pillar I and 47% for Pillar II on their groups.
- 81% of respondents prepare transfer pricing documentation but the approach varies significantly.
- 57% stated that their processes were relatively manual in producing TP documentation, whilst 56% stated that their processes were relatively manual when implementing transfer pricing policies.
- 53% of respondents expect there to be some changes to their transfer pricing policies or the introduction of new transactions due to COVID-19.
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