# Transfer Pricing and Related Party Transactions in Saudi Arabia *When your company deals with a sister company or with its own owner, is the price fair or a way to shift profit? The arm's length principle and the documentation you have to keep.* > **In short:** Transfer pricing and related party transactions explained: the arm's length principle, why ZATCA regulates it, and the documentation and disclosure required. - **URL:** https://www.snad.io/en/blog/as3ar-tahwiliya-atraf-that-alaqa - **Arabic original:** https://www.snad.io/blog/as3ar-tahwiliya-atraf-that-alaqa - **Category:** Explainers — ZATCA & Tax - **Tags:** Transfer Pricing, Related Parties, Arm's Length Price, Tax Documentation, Disclosure, Zakat, Tax and Customs Authority, ZATCA - **Published:** 2026-06-17 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) Transfer pricing is the price applied to transactions between companies that are related to each other: members of one group, sister companies, or a company and its owner. Those transactions must follow the arm's length principle, meaning they are priced as if they had taken place between two independent parties in the open market. The purpose is to prevent profit shifting and erosion of the taxable base. The Zakat, Tax and Customs Authority (ZATCA) has issued rules governing how these transactions are documented and disclosed. This guide explains the concept and what compliance looks like in Saudi Arabia. ## What transfer pricing is Transfer pricing is **the price applied to transactions between companies that are related to each other** (members of one group, sister companies, or a company and its owner). Here is the risk. When one company sells to its sister company at an unrealistic price, **profit can be moved** from one entity to another to reduce a tax or Zakat bill. That is why tax authorities regulate these prices: to make sure they reflect real value rather than an accounting arrangement between connected parties. ## Who counts as a related party Related parties are entities or individuals connected by **control, ownership or family ties** that influence the terms they trade on. Examples: - A parent company and its subsidiaries. - Two companies owned by the same person. - A business and its owner or the owner's relatives. - Companies under common management. The relationship itself is not a violation. It simply calls for extra care in proving that the transaction was carried out on fair terms. ## The arm's length principle The golden rule is the **arm's length principle**: a transaction between related parties must be priced **exactly as if it had taken place between two fully independent parties** in the open market. In practice, you sell to your sister company at the same price you sell to an unrelated customer. This principle is the benchmark tax authorities use to judge whether your related party transactions are fair, and every documentation requirement is built on top of it. ## Why ZATCA cares about this ZATCA pays close attention to transfer pricing because it is a **potential gateway for eroding the taxable base**: - Shifting profit to an entity with a lighter tax burden. - Inflating expenses paid to a related party. - Pricing internal services or loans unrealistically. For that reason it has issued transfer pricing rules that require taxpayers to demonstrate that their related party transactions were carried out at arm's length, so that collection stays fair. ## Documentation and disclosure requirements The rules generally require affected taxpayers to: - **Disclose** related party transactions in the return. - **Prepare documentation files** (a master file and a local file) explaining the transactions and how they were priced, for large groups. - **Retain the evidence** proving the prices comply with the arm's length principle. Requirements vary with the size of the business and the nature of its transactions, so review ZATCA's current rules and consult a specialist where needed. ## An example that shows the problem Company A sells goods to its sister company B at SAR 60, while selling the same goods to independent customers at SAR 100: - The SAR 40 difference per unit is **profit shifted** from A to B. - If B sits in a lighter tax position, the group's overall burden falls artificially. Under the arm's length principle the transaction must be priced at SAR 100 (the market price). Otherwise the authority may adjust the base and claim the difference. ## How to stay compliant and avoid the risk To stay on the right side of the rules: - **Identify every related party** and every transaction you have with them, clearly. - **Price those transactions at market value**, the value you trade at with independent parties. - **Document each transaction** with evidence that justifies its price. - **Disclose accurately** whatever the rules require. - **Consult a specialist** for large or complex transactions. Transparency and documentation up front cost far less than an adjustment and penalties later. ## How Snad helps you document it Transfer pricing compliance starts with **a clear, documented transaction record**. Snad keeps every invoice and transaction in a single source, so you can flag related party transactions and pull them out easily. It also lets you compare the prices you charge those parties against the prices you charge independent customers, using the same data. You prove that you meet the arm's length standard and prepare your disclosures with evidence already in hand, instead of scrambling through records once an audit begins. ## Frequently asked questions ### What is transfer pricing? It is the price applied to transactions between companies that are related to each other, such as members of one group, sister companies, or a company and its owner. Tax authorities regulate it to prevent profit shifting and artificial reduction of the tax burden. ### What is the arm's length principle? It means a transaction between related parties is priced exactly as if it had taken place between two fully independent parties in the open market, at the same price you would charge an unrelated customer. It is the benchmark the authority uses to judge whether related party transactions are fair. ### Who counts as a related party? Entities or individuals connected by control, ownership or family ties that influence the terms they trade on, such as a parent company and its subsidiaries, two companies owned by the same person, or a business and its owner or the owner's relatives. ### Why does ZATCA care about transfer pricing? Because it is a potential gateway for eroding the taxable base, whether by shifting profit to an entity with a lighter burden, inflating expenses paid to a related party, or pricing internal services unrealistically. That is why it issued rules requiring proof of arm's length pricing. ### What documentation is required for transfer pricing? It usually covers disclosing related party transactions in the return, preparing documentation files (master and local) for large groups, and retaining evidence that the prices comply with the arm's length principle. The requirements vary with the size of the business. ### Is dealing with a related party a violation? No. Dealing with a related party is not a violation in itself, but it calls for extra care in proving that the transaction was carried out at an arm's length market price, documenting that and disclosing it in line with the rules. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.