Transfer Pricing for Saudi Arabian Companies in India
Saudi Arabia and India share one of the most significant bilateral economic relationships in Asia, with bilateral trade reaching USD 41.87 billion in FY25. India is Saudi Arabia's second-largest trading partner, and Saudi Arabia has committed to investing USD 100 billion in India across energy, petrochemicals, infrastructure, technology, fintech, and pharmaceuticals. Major Saudi investors including ARAMCO, SABIC, SALIC, and the ZAMIL Group maintain substantial Indian operations.
When a Saudi parent company transacts with its Indian subsidiary, whether through management fees, technical service charges, raw material supply, petrochemical sales, intercompany lending, or brand licensing, every transaction falls under India's transfer pricing regulations codified under Sections 92 to 92F of the Income Tax Act, 1961. The arm's length principle requires that prices charged between associated enterprises reflect what independent parties would negotiate in comparable open-market conditions.
Saudi Arabia has its own evolving transfer pricing framework governed by the Income Tax Law (Royal Decree No. M/1) and the Transfer Pricing Bylaws issued in 2019 (Ministerial Resolution No. 1757). A landmark development occurred in 2024 when ZATCA (Zakat, Tax and Customs Authority) extended transfer pricing rules to zakat payers, not just income-tax payers, significantly broadening the scope. For fiscal years beginning on or after January 1, 2024, even wholly Saudi-owned firms with controlled transactions fall under the TP regime.
This dual-jurisdiction compliance creates unique challenges for Saudi companies investing in India, particularly given the differences between the zakat-based Saudi tax system and India's income-tax-based framework. BeaconFiling provides integrated transfer pricing services that address both regulatory systems.
How Saudi Arabia's DTAA Affects Transfer Pricing
The India-Saudi Arabia Double Taxation Avoidance Agreement, in force since November 1, 2006, establishes a favorable framework for cross-border transactions. The treaty has distinctive features compared to India's other DTAAs:
- Dividends: 5% withholding tax on the gross amount, one of the lowest rates in India's treaty network and well below the domestic rate of 20%
- Interest: 10% withholding, with exemptions for government institutions and government-backed lending
- Royalties: 10% on payments for intellectual property, technology licensing, and industrial know-how
- Fees for Technical Services: The India-Saudi Arabia DTAA notably does not contain a separate FTS article, meaning technical service fees are taxed either as business profits (if no PE exists in India) or under the domestic law rate. This absence creates both planning opportunities and compliance risks
The absence of an FTS article is the most significant treaty feature for transfer pricing purposes. If a Saudi company provides technical, managerial, or consultancy services to its Indian subsidiary and has no Permanent Establishment in India, the fees may not be taxable in India at all under the treaty. However, Indian tax authorities may attempt to reclassify such payments as royalties (taxable at 10%) or argue that a PE exists. The arm's length pricing of these service fees remains critical regardless of their treaty classification.
To claim treaty benefits, Saudi entities must provide a Tax Residency Certificate (TRC) issued by ZATCA and submit Form 10F to the Indian payer. Given Saudi Arabia's unique tax system where Saudi-owned entities pay zakat rather than income tax, obtaining TRCs can involve additional procedural requirements compared to traditional income-tax jurisdictions.
Document Requirements from Saudi Arabia
Saudi Arabia is not a signatory to the Hague Apostille Convention. All documents originating from Saudi Arabia must undergo embassy attestation through the Indian Embassy in Riyadh or the Indian Consulate in Jeddah, which is more time-consuming and costly than apostille authentication.
Transfer pricing documentation requirements include:
- Master File: Under ZATCA's phased approach, Saudi groups with related-party transactions exceeding SAR 100 million must prepare a Master File. For Indian compliance, a Master File is required under Section 92D regardless of the Saudi threshold
- Local File: Saudi groups with related-party transactions above SAR 48 million (approximately USD 12.7 million) must prepare a Local File under ZATCA rules. India requires a Local File for all international transactions without a minimum threshold
- Country-by-Country Report: Required for multinational groups with consolidated revenue exceeding SAR 3.2 billion (approximately EUR 750 million), aligned with OECD BEPS Action 13
- Form 3CEB: Annual Indian transfer pricing report certified by a chartered accountant, disclosing all international transactions and arm's length pricing determinations
- Intercompany agreements: Service contracts, technology licenses, supply agreements, and loan documentation, all attested through the embassy attestation process
- ZATCA transfer pricing disclosure: Annual transfer pricing disclosure form filed with the Saudi tax return, which must be consistent with Indian documentation
Arabic-language documents must be translated into English by a certified translator and attested by the Indian Embassy before submission to Indian tax authorities. The embassy attestation process typically adds 2-3 weeks compared to the apostille process available to Hague Convention signatories.
Step-by-Step Transfer Pricing Process
The transfer pricing compliance process for Saudi companies with Indian operations requires careful coordination between ZATCA and CBDT requirements:
Step 1: Map All Controlled Transactions
Identify every international transaction between the Saudi entity and the Indian subsidiary. For Saudi companies in India, common transactions include petroleum and petrochemical supply, infrastructure project management fees, technology and engineering services, brand licensing, shared services (IT, HR, finance), and intercompany loans for project financing. Saudi Arabia's extension of TP rules to zakat payers from 2024 means that even Saudi-Saudi transactions involving Indian intermediaries may require documentation.
Step 2: Conduct Functional Analysis
Document the functions performed, assets employed, and risks assumed by each entity. For Saudi petrochemical companies, the Indian entity may serve as a distributor, a manufacturing partner, or a project execution arm. For Saudi investment companies, the Indian entity may be a portfolio holding company or an operating subsidiary. Each structure has different transfer pricing implications and benchmarking requirements.
Step 3: Select Transfer Pricing Methodology
Both India and Saudi Arabia recognize all five OECD-approved methods: CUP, RPM, CPM, TNMM, and PSM. Saudi Arabia's Transfer Pricing Bylaws explicitly align with OECD guidelines. For commodity transactions (crude oil, petrochemicals), the CUP method using published commodity prices (Platts, Argus) is typically most appropriate. For services and intangibles, TNMM is the most commonly applied method.
Step 4: Benchmarking and Arm's Length Analysis
Conduct benchmarking using Indian databases (Prowess, CMIE) for the Indian Local File and appropriate regional databases for the Saudi documentation. The arm's length range is determined using the interquartile range. India requires annual benchmarking updates, and ZATCA's early 2025 APA guidelines suggest growing scrutiny of benchmarking quality in Saudi Arabia as well.
Step 5: Prepare Documentation
Compile Master File, Local File, and supporting documentation for both jurisdictions. Ensure consistency between the Indian and Saudi filings, particularly in the characterization of transactions and profit allocation methodology.
Step 6: File Regulatory Returns
File Form 3CEB in India by the November 30 deadline and the ZATCA transfer pricing disclosure with the Saudi tax return. Coordinate timing to ensure that positions taken in both jurisdictions are aligned.
Step 7: APA Consideration
For high-value, recurring transactions, consider applying for an Advance Pricing Agreement. ZATCA issued APA guidelines in early 2025 for transactions exceeding SAR 100 million or those with sufficient complexity. India offers unilateral, bilateral, and multilateral APAs. A bilateral APA between India and Saudi Arabia provides maximum certainty.
Timeline and Costs for Saudi Companies
The transfer pricing compliance timeline for Saudi companies is typically longer than for companies from Apostille Convention countries due to embassy attestation requirements.
Timeline Breakdown
| Activity | Duration |
|---|---|
| Transaction mapping and classification | 2-3 weeks |
| Functional analysis and FAR profiling | 3-4 weeks |
| Benchmarking study (dual-jurisdiction) | 4-5 weeks |
| Documentation preparation (Master File + Local Files) | 4-5 weeks |
| Embassy attestation of agreements | 2-3 weeks |
| Form 3CEB certification and filing | 1-2 weeks |
| Total end-to-end | 8-12 weeks |
Cost Breakdown
| Component | Estimated Cost |
|---|---|
| Annual TP study and benchmarking (India) | INR 1,00,000 - 5,00,000 |
| Master File preparation | INR 75,000 - 2,00,000 |
| Form 3CEB certification (CA fees) | INR 25,000 - 75,000 |
| Embassy attestation charges | INR 5,000 - 15,000 per document |
| Advance Pricing Agreement application | INR 10,00,000 - 20,00,000 (government fee) |
| TP audit defense | INR 3,00,000 - 15,00,000 per year |
The USD 100 billion Saudi investment commitment to India, combined with the mega West Coast Refinery project (USD 44 billion), means transfer pricing compliance for Saudi-Indian transactions will only grow in complexity and value. India Entry Strategy consulting from BeaconFiling helps Saudi firms structure their intercompany arrangements to withstand scrutiny from both ZATCA and Indian tax authorities.
Common Challenges for Saudi Companies
Absence of FTS Article in the DTAA
The India-Saudi Arabia DTAA's lack of a separate Fees for Technical Services article creates both opportunities and risks. While technical service fees paid by an Indian subsidiary to a Saudi parent may escape Indian taxation if no PE exists, Indian tax authorities often attempt to recharacterize such payments as royalties (taxable at 10%) or argue that the Saudi entity's involvement in India constitutes a PE. Defensive transfer pricing documentation must clearly establish the nature of services rendered and the absence of PE triggers.
Zakat vs. Income Tax System Mismatch
Saudi Arabia's unique tax system, where Saudi-owned entities pay zakat (2.5% on net worth) rather than income tax (20% on profits for foreign-owned entities), creates conceptual mismatches with India's arm's length framework. India's TP regulations assume that both parties to an intercompany transaction operate in income-tax jurisdictions. When the Saudi parent pays zakat instead of income tax, the incentive to shift profits to Saudi Arabia is different from typical tax-motivated transfer pricing, and Indian authorities may not fully appreciate this distinction.
Commodity Pricing Complexity
Saudi companies in the petroleum and petrochemical sectors face unique challenges in pricing intercompany commodity transactions. While published benchmarks (Platts, Argus) provide reference points, the actual pricing must account for quality differentials, delivery terms, volume commitments, and hedging arrangements. Indian tax authorities compare intercompany prices against these benchmarks and any material deviation requires robust justification.
Embassy Attestation Delays
Unlike companies from Apostille Convention countries, Saudi companies must go through embassy attestation for all corporate documents. During peak periods, the Indian Embassy in Riyadh or Consulate in Jeddah may have backlogs of 2-4 weeks. Planning document attestation well in advance of filing deadlines is essential to avoid late filing penalties.
Vision 2030 Restructuring Impact
Saudi Arabia's Vision 2030 diversification program is driving significant corporate restructuring among Saudi groups. When a Saudi company reorganizes its Indian operations, such as merging subsidiaries, transferring IP, or changing the supply chain, the transfer pricing implications of these business restructurings must be carefully analyzed. India taxes business restructurings that result in intangible asset transfers, and the profit potential transferred must be compensated at arm's length.
Why Choose BeaconFiling
BeaconFiling provides specialized transfer pricing services for Saudi companies investing in India:
- Dual-system expertise: Deep understanding of both India's income tax-based TP framework and Saudi Arabia's evolving ZATCA transfer pricing regime including zakat payer obligations
- DTAA strategy: Navigate the unique absence of an FTS article and optimize the 5% dividend withholding rate under the India-Saudi Arabia DTAA
- Commodity pricing: Specialized benchmarking for petroleum, petrochemical, and industrial commodity transactions using Platts and Argus databases
- Form 3CEB certification: Timely filing by qualified chartered accountants with commodity and energy sector expertise
- Embassy attestation coordination: Manage the attestation process with the Indian Embassy in Riyadh to avoid documentation delays
- Integrated compliance: Combined with annual compliance, GST, corporate tax, and FEMA services
Contact BeaconFiling today for a free consultation on transfer pricing compliance for your Saudi company in India.