Worldwide transfer pricing reference guide 2014

Egypt
Taxing authority and tax law
Tax authority: Egyptian Tax Authority (ETA)
Tax law: Income Tax Law No. 91 of 2005 (ITL)
Relevant regulations and rulings
In order to raise taxpayer awareness on transfer pricing principles and how to apply Article 30 of the ITL and Articles 38, 39 and 40
of its executive regulation, the ETA, with the assistance of the OECD, issued its transfer pricing guidelines in 2010. The ETA decided to
issue its transfer pricing guidelines in a series of parts, with the first part focusing on the main concepts and issues. Accordingly, the
first part provides taxpayers with guidance on the arm’s length principle, comparability analysis, transfer pricing methods and
documentation requirements.
The upcoming parts of the transfer pricing guidelines will address other issues, such as the application of the arm’s length principle to
transactions involving intangible property, intra-group services, cost contribution arrangements (CCAs) and APAs.
Taxpayers can submit their transfer pricing documentation in English. However, an Arabic version is generally requested during the
inspection process.
According to Article 30 of the ITL, “If the associated persons set conditions in their commercial or financial dealings different from
the conditions taking place between non-associated persons, which are liable to reduce the tax base or transfer its burden from a
taxable person to another tax-exempted or non-taxable person, the Administration may determine the taxable profit on basis of the
arm’s length pricing.”
The head of the Administration may conclude advance agreements with associated persons on one or more methods for determining the
arm’s length price.
According to the transfer pricing guidelines, a related party is defined as any person who has a relationship with a taxpayer that may lead
to an effect on that taxpayer’s taxable profit. Based on the transfer pricing guidelines, related parties include:
• A spouse, ancestors and descendants (family members)
• Capital associations and a person that holds at least 50% of the value of shares or voting rights, whether directly or indirectly
• Partnerships, the joint partners and silent partners of those partnerships
• Any two or more companies where a third party holds 50% or more of the value of shares or of the voting rights in each company
OECD guidelines treatment
Pursuant to the executive regulations of the ITL, in case none of the three methods referred to in the law are applicable, any one of the
methods mentioned in the OECD Guidelines, or any other acceptable method suitable for the taxpayer may be followed.
Priorities/pricing methods
The executive regulations of the ITL establish in Article 39 and 40, the methods of calculating the arm’s length price. According to
Article 39, the fair market price (FMP) shall be determined based on CUP, Cost Plus, or the Resale Price methods. According to Article
40, the preferred method for determining the neutral price shall be the CUP method. In case the data necessary for applying this method
is unavailable; any of the two other methods prescribed in Article 39 may be applied.
In case of inability to apply any of the three methods mentioned, any other method described by the OECD Guidelines or any other
method appropriate for the taxpayer may be followed. Profit based methods noted in the OECD Guidelines, such as the TNMM are
acceptable methods, provided the tax payer can demonstrate that it is the most appropriate method for the analysis and why the other
methods are not appropriate.
Transfer pricing penalties
According to the ITL, if the tax amount included in the tax return, by the taxpayers, is less than the finally estimated tax amount, they
shall be liable for a penalty based on the following:
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