Determining the Taxable Income Differential between Foreign- and Domestic Companies in Saudi Arabia

Abstract

The goal of this study is to see if there is a difference in tax paid based on revenue differentials between domestic oil companies in Saudi Arabia and foreign-owned oil companies operating in the country as a result of transfer pricing policies. Transfer pricing (TP) is the process of determining the income of all parties concerned in international business transactions. There will be 13 domestic companies and 8 foreign companies in the sample. Borvornboonrutai (2001) used a variety of linear regression formulae to better understand the variables connected with transfer pricing and the level of taxes paid by domestically-owned enterprises vs international companies operating in Thailand. The findings of the studies clearly reveal that the amount of taxes paid by the oil companies analysed in this study differs depending on their origin. Companies that were Saudi Arabian-owned paid lower taxes in relation to their revenues than companies that were held by foreigners. The actual tax rate difference was around 4.5 percent, and statistical studies verified that the difference was statistically significant.