Intercompany treasury transactions are among the most sensitive related party transactions and are closely scrutinized by tax authorities worldwide because they have a direct impact on interest deductibility, profit allocation, and cross-border cash flows.
Although Saudi Arabia, the UAE and other Middle Eastern jurisdictions have largely aligned their transfer pricing framework to global standards, the practical application of the arm’s length principle to intragroup pricing remains inconsistent across the region. This is partly because transfer pricing regimes are still relatively new in the region and many family-owned groups, holding companies, and MNEs have historically taken an informal approach to the management of intragroup funding.
At the same time, tax authorities across the Middle East have increased their scrutiny of intragroup financing arrangements, and the audits and assessments tend to focus on a defined set of high-risk areas where regional groups are routinely falling short. These include excessive leverage, interest-free loans, inaccurate determination of credit worthiness, explicit guarantees without fees, and informal cash pooling arrangements.
This report covers the regulatory guidance around arm’s length pricing under OECD Chapter X, intragroup financing in the UAE and Saudi Arabia, and how to build intercompany financing structures that are both commercially coherent and defensible before tax authorities.
