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Egypt’s Transfer Pricing Laws: Balancing Fairness and Compliance

In recent years, the concept of “Transfer pricing” has gained prominence within the tax landscape of Egypt. This concept, introduced to achieve fiscal equilibrium and fairness, aims to ensure that businesses are not subjected to over taxation or under taxation, maintaining a balance that supports economic growth. However, the implementation of this concept has posed significant challenges, and the punitive measures outlined in the law for non-compliance have drawn substantial criticism from our side as tax experts.

The Controversy Over Filing Deadlines

The establishment of a specific time limit for local tax filing, scheduled for two months subsequent to the submission of tax returns, has sparked discussions within the community of tax experts over the past three years. Although this timeline was initiated to enhance responsibility and efficiency, it has given rise to concerns due to its inherent lack of fairness. One notable contradiction within Egypt’s present tax penalty framework is the absence of impartiality towards taxpayers who promptly fulfill their obligations.

Severe Penalties Under Scrutiny

Furthermore, the severe penalties (i.e., 3% of the total value of the related-party transactions) stipulated by law No. 206 of 2020 for failing to meet the deadline have sparked controversy. These measures, often seen as disproportionately harsh, range from fines to potential legal actions. Instances of non-application or misapplication of penalties have become common, leading to an outcry from both taxpayers and tax authorities.

Calls for Legislative Revisions

The struggle to enforce these penalties effectively has prompted calls for legislative revisions and a more pragmatic approach to their implementation. The rigidity of the current penalties’ framework fails to account for external factors, such as economic downturns or unforeseen disruptions, that might hinder businesses’ ability to meet deadlines.

Tax Appeal Committee’s Stance

Recently, the situation reached a point where a tax appeal committee refused to endorse the application of these penalties for FY 2020. This action highlights the growing acknowledgment that the penalties, in their current form, might not be serving their intended purpose effectively.

The Need for a Collaborative Approach

To address this impasse, it is imperative for tax authorities to engage in a dialogue with tax experts, business stakeholders, and legal practitioners. This collaboration can lead to the development of a more nuanced penalty system.

Conclusion: The Path Forward

In conclusion, the Transfer pricing concept in Egypt has exposed a series of challenges in its implementation, particularly concerning the application of penalties for non-compliance. A comprehensive reevaluation and potential revision of the penalties’ framework would be a prudent step to ensure a just and effective tax environment for all parties involved.

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Written By

Hamdy Yahia - Tax Partner

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