Taxing authority and tax law

Tax authority: Egyptian Tax Authority

Tax law: Income Tax Law No. 91 of 2005

Relevant regulations and rulings

According to Article no. 30 of the income tax law “If the associate persons set conditions in their commercial or financial dealings different from the conditions taking place between non-associate 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 neutral price.”

The head of the Administration may conclude agreements with associate persons on one or more methods for determining the neutral price in the Administration’s dealings.

OECD guidelines treatment

Pursuant to the executive regulations of the income tax law, in case none of the three methods referred to in the law are possible to apply, any one of the methods mentioned in the form of the OECD, or any other method suitable for the taxpayer may be followed.

Priorities/pricing methods

According to Article no. 39 of the executive regulations of the Income Tax Law, the fair market price prescribed in Article no. 30 of the law shall be determined according to the following methods:

• Comparative uncontrolled price method
• Cost plus method
• Re-sale price method

According to Article no. 40 of the executive regulations the preferred method for determining the neutral price shall be the comparative uncontrolled price method. In case the data necessary for applying this method are unavailable, any of the two other methods prescribed in the previous article may apply.

Transfer pricing penalties

According to the income tax law, if the tax amount the taxpayers include in the tax return is less than the amount of the finally estimated tax, they shall be liable for a penalty based on the following:

• 5% of the tax payable on the non-included amount, if such amount is between 10% and 20% of the legally-payable tax
• 15% of the tax payable on the non-included amount, if such amount is between 20% and 50% of the legally-payable tax
• 80% of the tax payable on the non-included amount, if such amount is more than 50% of the legally-payable tax

Penalty relief

The tax authority has not issued any instructions or guidelines regarding penalty relief.

Documentation requirements

Taxpayers are advised to follow a four-step process through which they develop the reasoning and documentation needed to support the evaluation of their transfer prices.

TP documentation requirements correspond to the four-step approach as follows:

(1) Identifying the intra-group transactions and understanding the nature of such transactions, providing documentation related to:

• The group of associated enterprises as a whole
• The nature of the industry/market in which the taxpayer operates
• The taxpayer’s business policies and strategies
• The controlled transactions under review
• The comparables

(2) Selecting the most appropriate transfer pricing method(s), providing documentation:

• Identifying the pricing method(s) used
• Presenting the analysis conducted to evaluate the reliability of data used

(3) Applying the selected pricing method, providing documentation:

• That is generally produced regardless of the pricing method used
• Related to the pricing method applied

(4) Determining the arm’s-length amount and introducing a review process to reflect any future changes, by documenting:

• The established arm’s-length amount
• The actions undertaken to monitor changes
• The evaluation of the impact of such changes (if any) on the validity of the arm’s-length amount
• The adjustments made to account for such an impact in order to obtain a reliable arm’s-length amount

Documentation deadlines

To date, the tax authority has not issued any instructions related to TP documentation deadlines.

Statute of limitations on transfer pricing assessments

According to the income tax law, the statute of limitations is five years.

Return disclosures/related-party disclosures

According to the corporate tax return format, taxpayers are obliged to declare the following:

• Name of the related party/parties along with the group structure
• The nature of the relationship
• Type of the related parties’ transactions, if any
• The value of the transactions
• The method used to determine the FMP and the reasons for selecting this method
• The country of origin for tangible and intangible goods
• The country of the supplier

Audit risk/transfer pricing scrutiny

No TP assessment has taken place as of this date. To the best of our knowledge the tax authority will demand that the taxpayer file a TP study starting in financial year 2010 along with the corporate tax return.

APA opportunity

The head of the Administration may conclude agreements with associate persons using one or more methods for determining the neutral price in the Administration’s dealings.

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