A rapidly evolving landscape
In recent years, the Middle East and North Africa (MENA) region has undergone a profound transformation in its transfer pricing (TP) environment. Historically perceived as relatively low risk from a TP perspective, many jurisdictions have now introduced comprehensive regulatory frameworks aligned with the standards of the OECD.
Countries such as Saudi Arabia, the UAE, Egypt, Qatar, and Morocco have significantly strengthened their TP legislation, audit capabilities, and enforcement mechanisms.
The region is no longer a low-risk TP environment. Regulatory convergence with OECD standards, fiscal diversification agendas, and improved audit sophistication have created a far more assertive enforcement climate.
The below diagram depicts key MENA jurisdictions by TP enforcement level.
For multinational enterprises (MNEs), this shift demands a move from reactive compliance to proactive TP governance.
The changing audit climate
Tax authorities across MENA have maintained independence while increasing scrutiny of cross-border related-party transactions. Jurisdictions such as Saudi Arabia and Egypt – where TP legislation has been in place longer – stand out for elevated levels of audit activity.
Some of the most common audit triggers include the following.
Key TP pain points in MENA
Despite growing sophistication, many MNEs still struggle with core TP compliance and litigation challenges.
Issue | Description | Probable action by tax authorities |
Documentation burden and tight deadlines | TP documentation, historically deprioritised in MENA due to lighter enforcement, is now expected to be fully OECD-aligned – sometimes even retrospectively. | Substantial penalties for non-compliance due to failure to meet OECD standards in TP documentation. |
Outbound payments under heavy scrutiny | Payments for management fees, royalties, regional HQ services, and intercompany financing are frequently litigated issues. | Assessing whether outbound payments erode the local tax base; difficulty in proving the need test, benefit test, and adequate documentary evidence. |
Persistent losses and low-margin entities | Loss-making distributors, manufacturers, and service providers face increased scrutiny. | Commercial explanations for losses (e.g., market competition, economic downturns) may be rejected without strong economic analysis and documentation. |
Substance versus contractual arrangements | Discrepancy between contractual terms and operational reality. | Risk of recharacterising transactions, reallocating profits, and disregarding contractual allocations if substance does not match form. |
Intercompany financing challenges | Complexities around intercompany financing, including hybrid instruments, credit rating analysis, and interest benchmarking. | Risk of recharacterising debt as equity, denying interest deductions, or applying arbitrary arm’s-length interest rates. |
Is MENA moving towards block assessments?
Unlike some jurisdictions globally, there is no widespread MENA-wide ‘block TP audit’ model covering multiple years simultaneously. Most countries conduct annual compliance reviews, although audit intensity varies.
However, authorities are increasingly investing in:
Risk-based audit frameworks;
Digital reporting systems;
Data analytics; and
Cross-border information exchange.
These developments may serve as precursors to more integrated or multi-year audit frameworks in the future.
Emerging TP risk trends in MENA
Several structural trends are shaping the next phase of TP enforcement in MENA:
Increased cross-border data exchange between tax authorities;
Growing use of AI and data analytics in audits;
Heightened focus on substance over legal form;
Greater scrutiny of free zone structures; and
Deeper examination of digital business models and intangible transactions.
The trajectory is clear: enforcement sophistication is accelerating.
Audit process and risk parameters in MENA
Details | UAE | Saudi Arabia | Egypt | Qatar | Jordan |
Introduction of TP provision | TP introduced under Federal Decree-Law No. 47 of 2022 | TP introduced by Transfer Pricing Bylaws issued by the Zakat, Tax and Customs Authority (ZATCA) in 2019 | The Income Tax Law No. 91 of 2005 introduced TP rules (Article 30) | TP provisions were officially introduced through Income Tax Law No. 24 of 2018 | TP provisions were introduced through Income Tax Law No. 34 of 2014 |
Risk parameter | The UAE Federal Tax Authority (FTA) conducts TP audits using a risk-based approach. Key risk areas include financial transactions, intangible assets, and intra-group services. | ZATCA uses a risk-based approach for TP audits, focusing on high-value transactions, consistent losses, and transactions with related parties in low-tax jurisdictions. | The Egyptian tax authority (ETA) uses a risk-based approach for TP audits, focusing on high-volume related-party transactions exceeding EGP 15 million, intangible assets, business restructuring, and service fees. | Qatar's General Tax Authority (GTA) uses a risk-based approach for TP audits. Key risk parameters include high-profit, low-substance entities. | Jordan's Income and Sales Tax Department (ISTD) uses risk-based parameters to audit TP, focusing on related-party transactions exceeding JOD 500,000, consistent losses, and high-value intangible transactions. |
Timelines to submit TP documentation to tax authorities | The TP documentation will need to be provided to the FTA within 30 days of a request. | The TP documentation will need to be provided to the ZATCA within 30 days of a request. | Taxpayers are required to submit the local file proactively to the ETA within two months of filing the income tax, if related-party transactions exceeded EGP 15 million. | The GTA can request specific TP documentation (local file/master file) within 30 days of a request for audit purposes. | TP documentation (master file and local file) is required to be submitted to the ISTD within 12 months after the end of the fiscal year. |
Escalation matrix | Objection to the FTA → Tax Disputes Resolution Committee → UAE courts → mutual agreement procedures under tax treaties (where applicable) | Objection before the ZATCA → General Secretariat of Tax Committees → appellate courts | Objection to the ETA → Internal Review Committee → Appeal Committee → administrative courts | Objection before the GTA → Tax Appeal Committee → courts | Objection before the ISTD → Tax Appeals Committee → courts |
TP best practices: building audit resilience
The following actions are recommended to mitigate audit risk:
Establish a clear TP policy – a comprehensive TP policy aligned with the arm’s-length principle should be adopted.
Define pricing methodologies – allocate roles and responsibilities to ensure consistency across jurisdictions.
Maintain contemporaneous documentation – robust, up-to-date, and contemporaneous documentation is crucial. This serves as the first line of defence in audits.
Strengthen intercompany agreements – all intercompany transactions must be supported by legally binding, signed agreements that reflect actual conduct. Regular reviews by tax, finance, legal, and compliance teams are essential.
Conduct regular benchmarking studies – periodic benchmarking updates ensure that pricing remains aligned with market conditions and defensible under scrutiny.
Manage high-risk transactions – special attention should be given to royalties and intercompany financing. Charges must be supported by benefit analyses, defensible allocation keys, and arm’s-length pricing models.
Conclusion: a new era of TP governance in MENA
The MENA region has decisively transitioned from a perceived low-risk jurisdiction to a sophisticated and assertive TP enforcement environment.
For MNEs, the message is clear: TP can no longer be treated as a compliance afterthought. It must become a strategic governance function – anchored in economic substance, supported by robust documentation, and aligned with evolving regulatory expectations.
Those that adapt early will not only mitigate risk but also gain operational certainty in one of the world’s most dynamic and rapidly reforming regions.
