Released back in May, the rules explained that Oman will follow internationally recognised standards for defining arm’s-length prices and for the definition of related parties.

However, little information was published on the practical application of these rules.

A lack of detail about documentation requirements, transfer pricing methodologies and penalties have left many feeling uncertain about the new rules.

“The new rules are very brief,” said Meenakshi Sundaram, of Ernst & Young in Oman. “We expect some more detailed regulations to be issued at some point before the end of the year, but in the meantime we are left guessing.”

The rules are expected to be made effective from January 1 2010.

Under the new rules, transfer pricing provisions may be applied retroactively. Oman's secretariat general will have authority to issue income adjustments where it can prove that the main purpose of any transaction, whether it took place before or after the effective date of this law, was to avoid compliance totally or partially.

Sundaram anticipates that a penalty of 1% per month will be applied to all transfer pricing adjustments that are “considerably greater” than a company’s completed tax return.

Despite the lack on information on the new rules, Sundaram believes that they will be welcomed by taxpayers.

“Taxpayers should be happy with the new rules because they improve clarity and they will make the country more attractive to foreign investors because they are similar to other countries arrangements,” said Sundaram.

It is expected that if these transfer pricing rules prove successful in Oman, which is a member of the Gulf Cooperation Council, other states in the region will implement similar standards.