What the proposed Chapter VII revisions mean for multinational groups in Saudi Arabia
The OECD is refining how multinational groups should apply transfer pricing principles to intra-group services. Based on the public consultation draft released on 1 June 2026, the proposed Chapter VII revisions place substantially greater emphasis on accurate service delineation, clear identification of benefits and contemporaneous operational evidence. For businesses operating in Saudi Arabia, understanding these proposed changes is important for maintaining compliance and managing transfer pricing risk.
What the proposed changes mean for Saudi taxpayers
Saudi Arabia applies the arm's length principle to controlled transactions, supported by ZATCA transfer pricing guidance and compliance requirements. While the arm's length principle and the core benefit test themselves have not changed, the OECD's proposed framework makes their application more explicit and evidence-driven.
For intra-group service arrangements, including management, IT, finance, human resources and marketing support, multinational groups will need to demonstrate more than service agreements and invoices. The revised guidance places greater emphasis on:
- Accurate delineation of the service delivered
- Clear identification of which entity benefits and how
- Contemporaneous operational evidence supporting the benefit, allocation basis and arm's length pricing
Key changes from the 2022 guidance
The proposed 2026 revisions refine rather than replace the existing principles:
- Benefit test clarity: the guidance retains the core test — whether an independent enterprise would be willing to pay for the activity — but adds more detailed guidance on expected benefit, timing, directness and recipient-level assessment.
- Shareholder vs stewardship activities: the draft provides a clearer distinction between shareholder activities, which are generally not chargeable, and potentially chargeable stewardship activities.
- Pricing methods: there is no automatic presumption in favour of cost-plus methods. The selected method should reflect the actual functions performed, risks assumed and assets used.
- Documentation standards: there is greater emphasis on contemporaneous operational evidence, including timesheets, system records, invoices and correspondence supporting the delivery of services.
Three practical steps for compliance
1. Apply the benefit test
For each intra-group service, ask: does the recipient entity benefit? Is the benefit sufficiently direct rather than merely incidental? Does the entity reasonably expect to receive that benefit?
A parent's statutory audit undertaken for shareholder compliance purposes would generally fail this test because the benefit relates to the parent in its capacity as shareholder. Conversely, centralised IT infrastructure supporting subsidiary operations would generally satisfy the test because the subsidiaries receive a clear and direct benefit.
2. Separate pass-through costs from value-added services
Where an entity arranges or pays third-party costs on behalf of another group company, the underlying cost may, depending on the facts and circumstances, be recharged without a markup. This should be distinguished from genuine services that create value.
For example, a helpdesk providing operational IT support may require arm's length remuneration depending on the functions performed, whereas recharging a vendor invoice where the entity merely acts as an intermediary may not attract a markup.
3. Gather and retain operational evidence
Transfer pricing documentation, including agreements, cost pools and allocation keys, remains necessary but may not be sufficient on its own. Multinational groups should maintain contemporaneous evidence demonstrating that services were actually delivered, including:
- Service deliverables
- Timesheets and work records
- IT system tickets and records
- Source invoices and correspondence
- Service request approvals and meeting records
What remains unchanged
The OECD's simplified approach for low value-adding intra-group services continues to apply where the relevant conditions are met and the approach is accepted in the applicable jurisdiction.
Qualifying services should be supportive in nature, should not form part of the group's core business, should not involve unique and valuable intangibles and should not involve the assumption or control of significant risk.
The 5% simplified markup continues to be available for qualifying services but should not be treated as an automatic benchmark for other intra-group services. The simplified approach also continues to require clearly defined service categories, identification of beneficiaries, appropriate cost pools and allocation keys, supporting agreements and relevant calculations.
Preparing for the future
The proposed 2026 Chapter VII revisions signal a move towards more rigorous, evidence-driven transfer pricing analysis. Saudi entities involved in intra-group service arrangements should review:
- The actual services received, beyond what is stated in intercompany agreements
- How those services benefit the Saudi entity specifically
- Whether current allocation bases appropriately reflect the expected benefits
- Whether current pricing methods align with the accurately delineated transaction and the relevant functions, assets and risks
- The operational evidence available to substantiate the charge
Conclusion
The OECD's proposed refinements to Chapter VII reinforce what transfer pricing has always required: arm's length pricing supported by facts and evidence.
For multinational groups with Saudi operations, now is the time to assess whether current service arrangements, benefit tests, allocation bases, pricing methods and supporting documentation would withstand scrutiny under the more rigorous, evidence-driven framework proposed by the OECD. Early action can help reduce transfer pricing risk and demonstrate a robust approach to compliance.
How BDO Saudi Arabia can help
BDO Saudi Arabia can support businesses in assessing and strengthening their intra-group service arrangements through a comprehensive health check, including benefit and beneficiary analysis, cost allocation, benchmarking and pricing.
We can also review intercompany agreements and their alignment with actual operational arrangements, as well as provide support during ZATCA audits and transfer pricing controversies.