Transfer Pricing Regulations in Egypt and India

Transfer Pricing (TP) regulations in both Egypt and India are aligned with the OECD’s BEPS Action 13 framework, ensuring a shared commitment to transparency, consistency, and the arm’s length principle. These regulations require multinational enterprises (MNEs) to adopt a three-tiered documentation model: Master File, Local File, and Country-by-Country Report (CBCR). However, despite this alignment, the compliance thresholds, submission timelines, penalty regimes, related parties’ considerations, and enforcement practices differ significantly between the two jurisdictions.

Understanding these differences is essential for multinational enterprises operating across both countries to manage risks, ensure compliance, and achieve tax certainty at the group level. Below is a detailed comparison of the regulatory frameworks in Egypt and India.

Organizational Framework and Compliance Thresholds

Egypt’s transfer pricing rules are primarily anchored in article 30 Income Tax Law No. 91 of 2005 and articles 12, 13 from Unified Tax Procedures Law No. 206 of 2020, and the provisions of the Egyptian Tax Authority’s Transfer Pricing Guidelines issued under Ministerial Decree No. 547 of 2018. While India’s transfer pricing framework is embedded in the Income-tax Act, 1961—principally through Sections 92 to 92F, and 286—and further elaborated by detailed rules including Rules 10D, 10E, 10DA, and 10DB.

In Egypt, the threshold for preparing Transfer Pricing (TP) documentation is set at EGP 15 million in annual related-party transactions. This means that companies involved in related-party transactions above this threshold must prepare both the Master File and Local File.

Additionally, CBCR (Country-by-Country Reporting) obligations apply to Egyptian parent companies whose consolidated revenue exceeds EGP 3 billion. For groups with consolidated revenues meeting the OECD EUR 750 million threshold, CBCR Notification is also required for each subsidiary operating in Egypt, ensuring compliance with global reporting standards.

In India, the submission thresholds for Transfer Pricing (TP) documents vary as follows:

• Local File: The threshold for submitting the Local File is INR 10 million for international related-party transactions or INR 200 million for domestic related-party transactions.
• Master File: The threshold for submitting the Master File is based on the group’s consolidated revenue, which must exceed INR 5 billion plus INR 500 million for international transactions, or if there are related-party transactions involving intangible assets exceeding INR 100 million.
• CBCR (Country-by-Country Reporting): CBCR obligations apply to multinational groups with consolidated revenues of INR 64 billion or more.

Related Party Transactions

In the Egyptian tax law, related parties are defined based on control or significant influence over each other. This includes parent-subsidiary relationships where one company holds more than 50% of the voting rights or has the power to control another company’s decisions. It also covers sister companies that share the same parent company, as well as situations where a party has significant influence over another company.

In contrast, the related party definition in Indian tax law is broader than in Egypt. In India, related party transactions are classified into the following criteria:

A. Equity or Debt

Enterprises are considered associated where there is a significant ownership or financial interest. This association arises if an enterprise directly or indirectly holds not less than 26% of the shares in another enterprise, or where a person directly or indirectly holds not less than 26% of the shares in one or more enterprises. Association may also exist where an enterprise provides a guarantee in relation to a loan between two companies, and such guarantee represents 10% or more of the loan amount. In addition, an enterprise is deemed associated with another where it is entitled to not less than 10% of the annual dividends of that enterprise.

B. Management

Association may also be established through managerial control. An enterprise is considered associated with another if it has the power to appoint more than half of the board of directors or members of the governing board of the other enterprise, or if it has the authority to appoint one or more executive directors or executive members of the governing board. Similarly, where the same person holds such appointment powers in two or more enterprises—whether by appointing the majority of the board or one or more executive directors—those enterprises are regarded as associated.

C. Activities

Enterprises are deemed associated based on the nature of their commercial activities where a high level of operational dependence exists. This includes situations where one enterprise provides intangibles—such as know-how, patents, copyrights, trademarks, or other intellectual property—and the other enterprise uses those intangibles in its business. Association also arises where one enterprise is engaged in the manufacture or processing of goods or articles and at least 90% of its raw materials or consumables are supplied by another enterprise. Further, enterprises are considered associated where one enterprise manufactures or processes goods and sells such goods to another enterprise, or to a person specified by that enterprise, and the latter determines the price and other material conditions of the sale.

D. Control

Control-based association exists where a person exercises control over one enterprise and the same person, or their relatives, exercises control over another enterprise. In such cases, the two enterprises are treated as associated enterprises. Similarly, where one enterprise is controlled by a Hindu Undivided Family (HUF) and a member of that HUF, or a relative of such member, controls another enterprise, both enterprises are deemed to be associated.

Documentation Requirements

Both Egypt and India require similar contents for the Local File, Master File, and Country-by-Country Reporting (CBCR) in their transfer pricing documentation align with OECD requirements. The Local File should include a detailed description of the local entity’s business activities, a functional analysis (FAR) assessing roles, assets, and risks, a breakdown of related-party transactions, the selection of the most appropriate transfer pricing method, and a benchmarking analysis with comparability adjustments. while, the Master File requires comprehensive information on the global group’s structure, business lines, intangible assets, financial arrangements, and consolidated financial statements. The CBCR provides aggregated information about the global group, including revenue, profits, taxes paid, number of employees, and tangible assets per jurisdiction.

The key difference between the two countries lies in the requirement for forms. In India, the tax law mandates specific forms for each type of transfer pricing documentation: Form 3CEB for the Local File, Forms 3CEAA/3CEAB for the Master File, and Form 3CEAD for CBCR. These forms must be filed alongside the documentation. In contrast, Egypt does not require any specific forms for these files; instead, the documentation is submitted as part of the corporate tax return and must align with the details provided in the Master File, Local File, and CBCR.

TP Documents Submission Deadlines

In Egypt, the Corporate Income Tax Return (CITR) is filed based on the taxpayer’s fiscal year. The Local File is due within two months of filing the CITR. If a revised return is submitted within 30 days, the deadline for the Local File will reset to two months from the new submission date. The Master File must be filed by the same date the ultimate parent submits its own Master File in its home jurisdiction, ensuring global alignment. CBCR filings are due within twelve months of the group’s fiscal year-end.

Filings are due within twelve months of the group’s fiscal year-end.

In India, the submission deadline for the Local File is set as one month before the tax return submission deadline. The Master File generally aligns with the parent company’s submission deadlines for its own Master File. CBCR filings are due within twelve months of the multinational group’s fiscal year-end.

Penalty Regimes

Egypt follows a percentage-based penalty system directly linked to the value of related-party transactions. If a taxpayer fails to disclose transactions in the tax return, a penalty of 1% of the transaction value is imposed. Failure to submit the Local File results in a 3% penalty, while failure to submit the Master File incurs another 3% penalty. A 2% penalty is imposed for failure to file the CBCR or required notifications. Notably, Egypt caps the total penalties at 3% of the total related-party transactions, even if multiple violations occur.

In India, penalties for transfer pricing violations are outlined in various sections of the Income-tax Act, 1961. Section 271BA imposes a fixed penalty of INR 100,000 for failure to furnish the required Accountant’s Report (Form 3CEB). Section 271AA imposes a penalty of 2% of the value of each international or specified domestic transaction if the taxpayer fails to maintain prescribed documentation or furnishes incorrect information. Section 271G similarly imposes a 2% penalty for failure to provide documents or information during an audit. Section 271AA(2) mandates a fixed penalty of INR 500,000 for failing to submit the Master File, while Section 271GB penalizes failure to file the Country-by-Country Report (CbCR), with penalties ranging from INR 5,000 per day to INR 50,000 per day for continued non-compliance.

Additionally, India imposes penalties for income misreporting and transfer pricing adjustments. Section 270A outlines penalties for under-reporting income, imposing a penalty of 50% of the tax on the under-reported income, and for misreporting income, a penalty of 200% of the tax on the misreported income. For transfer pricing adjustments, if the adjustment is due to concealment or misreporting, the penalty under Section 270A can range from 100% to 300% of the total tax on the adjustment amount. These penalties reflect India’s rigorous enforcement of transfer pricing compliance and emphasize the need for accurate documentation and reporting.

Conclusion

In conclusion, while both Egypt and India align with the OECD’s BEPS Action 13 framework, their transfer pricing regulations exhibit key differences in areas such as compliance thresholds, documentation requirements, penalty regimes, and submission deadlines. Both countries require similar documentation for the Local File, Master File, and Country-by-Country Reporting (CBCR), but India’s tax law mandates specific forms for each document, whereas Egypt does not. Additionally, Egypt’s penalty system is based on a percentage of related-party transactions, with a cap on penalties, while India’s penalties are more detailed and include fixed penalties and escalating daily penalties for non-compliance with CBCR. Understanding these differences is essential for multinational enterprises operating in both jurisdictions, as they need to navigate these regulatory nuances effectively to manage risks and ensure compliance.

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