Egypt has transfer pricing (TP) regulations since the issuance of income tax law 91/2005 also the transfer pricing guidelines issued in 2010 which have been amended by new transfer pricing guidelines in 2018.
The new guidelines will be the base for Egyptian Tax Authority (ETA) to rely when assessing the arm’s length of financial or controlled commercial transactions which occur between associated enterprises (any person related to a taxpayer in a way that affects the determination of the tax base). These transactions can include, but not limited to:
- Exchange of commodities or services
- Group cost allocation
- Other financial or commercial activities
It is worth to be mentioned that it is not allowed not to follow the new transfer pricing guidelines unless it was requested by the taxpayer and accepted by the head of the ETA.
Andersen in Egypt has a highly qualified team to assist in the preparation of the three-tiered transfer pricing documentation needed by the Egyptian Tax Authority as the TP guidelines. Below is a brief about each document:
1. Master File Compliance
- The master file should provide an overview of the Global Associated Enterprises (GAEs) group business, including information on the nature of its global business operations, its transfer pricing policies, and its global allocation of income and economic activity.
- This information is meant to provide a high-level overview to give the relevant global economic, legal, and financial context on the GAE’s transfer pricing practices. Such information should be included in a master file if its exclusion would impact the reliability of the transfer pricing outcomes.
- The Master File is required to be submitted to the Egyptian Tax Authority (“ETA”) before or by the due date of filing the parent entity’s tax return. (for e.g. If ultimate parent entity is based in Egypt; whose the tax return filing due date is 30th April 2019 than the due date for filing of Master File shall be same i.e. 30th April 2019).
- The purpose of the local file is to provide detailed information relating to the controlled transactions of a local taxpayer and should include supplementary information to that which is included in the master file.
- Such information should include a detailed functional analysis, financial information regarding those specific transactions, the selection and application of the most appropriate transfer pricing method and a comparability analysis.
- Local files should be prepared on an entity-by-entity basis, and not on a group-basis (i.e. for two or more related taxpayers’ resident in Egypt for tax purposes).
- The Local File is required to be submitted to the ETA within two months following the due date of filing of the annual tax return (for e.g. due date of filing of Local File will be 30th June 2019, if the tax return filing date is 30th April 2019).
3.Country by Country Reporting (CbCR):
- The Country by Country Report (“CbCR”) requires jurisdiction-wide information regarding the GAE’s global allocation of income, taxes paid, and the location of key economic activity where the GAE group operates. As part of this CBCR, GAEs are also required to report their number of employees, stated capital, retained earnings and tangible assets in each tax jurisdiction.
- Finally, GAEs should identify each entity within the group doing business in a particular tax jurisdiction, and provide an indication of the business activities each entity engages in. It also requires a listing of all Constituent Entities for which financial information is reported, as well as their main business activities.
- For Egyptian tax and transfer pricing purposes, a CbCR will be required for Egyptian Parented GAEs if the GAE for which a taxpayer resident in Egypt is the parent company achieved an annual consolidated group revenue of equal to or exceeding EGP 3 billion. In such a case, a CbCR will be required only if the Egyptian Parented GAE has a foreign subsidiary/subsidiaries.
- Whereas, for taxpayers’ resident in Egypt, which are subsidiaries of foreign parented GAEs, a CbCR should be filed in the jurisdiction of tax residence of the ultimate parent entity subject to the OECD threshold (i.e. if the annual consolidated group revenue is equal to or exceeding Euro 750 million).
- As such, only Egyptian parented GAEs, i.e. Egyptian parent companies, will be required to file a CbCR with ETA.
- CbCRs will be shared between the relevant tax administrations through automatic exchange of information, pursuant to government-to-government mechanisms.
- The due date for submitting the CbCR is 12 months from the end of reporting fiscal year. (for e.g. due date of filing the CbCR will be 30th September 2019, for company having reporting year ending 31st December 2018.