Egypt implements new transfer pricing guidelines - EY
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7 November 2018
Global Tax Alert
News from Transfer Pricing
Egypt implements
new transfer
pricing guidelines
Executive summary
NEW! EY Tax News Update: On 21 October 2018, Egypt’s Ministry of Finance issued Ministerial Decree
Global Edition No. 547 of 2018 (Decree No. 547), providing the authority for new transfer
EY’s new Tax News Update: Global pricing guidelines to be published. On 23 October 2018, the Egyptian Tax
Edition is a free, personalized email Authority (ETA) published the new guidelines on its website.
subscription service that allows
you to receive EY Global Tax Alerts, The guidelines introduce new tax compliance requirements. For the year ending
newsletters, events, and thought 31 December 2018:
leadership published across all areas • A taxpayer engaged in cross-border transactions with related parties is
of tax. Access more information expected to prepare local transfer pricing documentation and submit it to the
about the tool and registration here. ETA within two months following the filing of the 2018 corporate tax return
(i.e., 30 June 2019 if the return is filed by the statutory deadline).
Also available is our EY Global Tax • An Egyptian parent company of a multinational group with consolidated group
Alert Library on ey.com. revenue of at least EGP3b (€148m) will have to file a country-by-country
(CbC) report (CbCR) in Egypt by 31 December 2019. The new rules may also
affect the group’s filing and notification requirements in other countries.
• An Egyptian parent company will also need to prepare a transfer pricing
master file that the parent company and group members will use to support
transfer pricing compliance requirements around the world.2 Global Tax Alert Transfer Pricing
If a taxpayer does not submit adequate transfer pricing align with the shared international consensus on international
documentation, the guidelines indicate that the ETA is likely to tax rules. The OECD and G20 countries adopted a 15-point
treat the taxpayer as a high tax risk, increasing the likelihood Action Plan to address BEPS in 2013. Final Reports, issued
of audit and a transfer pricing adjustment. As this could in 2015, represent a package of measures that governments
also shift the burden of proof to the taxpayer to disprove should implement to address features of tax regimes that
the ETA’s assessment position, taxpayers with cross-border facilitate BEPS. The package includes a set of minimum
related party transactions should review the new guidelines standards.
and ensure they can produce adequate transfer pricing
One of the minimum standards is Action 13, which introduces
documentation for the current fiscal year by 30 June 2019.
a requirement for the large multinational groups to file a
CbC report setting out financial information for each tax
Detailed discussion jurisdiction where the group has a resident entity. The general
principle is that the CbC report should be submitted to the
Background tax jurisdiction of the ultimate parent entity, and then made
When the Income Tax Law was enacted in 2005, Article 30 available to other tax jurisdictions through tax information
gave the ETA the authority to adjust a taxpayer’s profits if its exchange instruments.
transactions with related parties were not made on an arm’s-
The Action 13 final report also recommends that countries
length basis. The ETA published its first version of transfer
adopt supporting transfer pricing rules, based on multinational
pricing guidelines in 2010.
groups preparing a transfer pricing master file, which contains
On 22 May 2018, the Egyptian Government issued Ministerial information that is relevant to all group members, and a local
Decree No. 221 of 2018, which amended the Income Tax file, which covers and analyzes the related party transactions
Law Executive Regulations to align Egypt’s rules more closely of the local group member.
with the international consensus on transfer pricing reflected
Egypt’s new transfer pricing guidelines follow the principles
in the OECD1 Transfer Pricing Guidelines. See EY Global Tax
established in the Action 13 final report.
Alert, Egypt amends income tax law related to transfer pricing
rules and electronic filing of tax returns, dated 11 June 2018 In an important departure from the Action 13 final report,
for previous coverage. the new guidelines significantly reduce the threshold for
preparing a CbC report. The Egyptian parent company of a
On 20 September 2018, the ETA issued a revised version of
multinational group with consolidated group revenue of at
the 2010 transfer pricing guidelines for public consultation.
least EGP3b will have to file a CbC report. The first report
Decree No. 547 stipulates that the transfer pricing is due by 31 December 2019. The guidelines also indicate
guidelines will be the main reference when the ETA applies that taxpayers engaged in transactions with related parties
Article 30 of the Income Tax Law and tests the application should provide the transfer pricing master file and local file
of the arm’s-length principle related to the commercial to the ETA.
and financial transactions between related parties. The
guidelines apply to all related party transactions, including Master file
the exchange of goods and services, allocation of shared The master file should be prepared at the ultimate parent
expenses, royalties and interest. level of the group and should contain the organizational
On 23 October 2018, the ETA published the new guidelines structure, business activities, financial activity, intangibles,
on its website. The guidelines consists of two parts, Principles financial and tax positions for the group as a whole. The
and Implementation and Advance Pricing Agreements. master file should be made available to the ETA based on the
parent entity’s tax return filling date in its home jurisdiction.
Documentation follows BEPS Action 13
requirements Local file
In recent years, base erosion and profit shifting (BEPS) The local file should be prepared at the local entity level and
has been a key priority for governments around the globe. should contain the following documentation related to:
Egypt is one of 115 countries that has become an Associate • Identification of the controlled transactions and the nature
Member of the BEPS Inclusive Framework, committing to of such transactionsGlobal Tax Alert Transfer Pricing 3
• Nature of the industry/market in which the taxpayer Advance pricing agreements (APAs)
operates An APA is a procedural arrangement between a taxpayer
• Taxpayer’s business policies and strategies and a tax administration that determines the transfer pricing
• Controlled transactions under review methodology that should be used to establish the arm’s-
• Comparable companies length transfer price(s) of certain prospective controlled
transaction(s) between a taxpayer and its associated
• Selection of the most appropriate method enterprises.
• Identification of the pricing method(s) used
The APA program is designed to enable taxpayers and the
• Analysis conducted to evaluate the reliability of data used ETA to agree on the proper treatment of the transfer pricing
• Transfer pricing method applied of potential controlled transaction(s) in which the taxpayer
• Determination of the arm’s-length amount and introducing will engage for a specific period (typically more than one
a review process to reflect any future changes year) under certain terms and conditions. The APA program
is intended to provide a cooperative process to resolve
The local file is required to be submitted to the ETA within
potential transfer pricing disputes in advance.
two months following the filling of the annual corporate tax
return. An APA will be binding on the ETA and taxpayer.
Consequently, an APA will provide certainty regarding the
CbCR applied transfer pricing methodology, assuring the taxpayer
The CbCR requires aggregate jurisdiction-wide information of its rights and obligations, and reducing costs and time-
regarding a multinational group’s global allocation of income, consuming examinations of transfer pricing issues during
taxes paid, and certain indicators of the location of key the course of the audit and reducing record keeping burden.
economic activity where the group members operates. The Any taxpayer operating in Egypt who is subject to the
CbCR report also includes quantitative data in respect of provisions of the Income Tax Law may apply for an APA,
business operations in each jurisdiction, such as number of including permanent establishments of foreign companies.
employees, stated capital, retained earnings and tangible Requests should be submitted to the ETA Transfer Pricing
assets, along with an identification of each entity within the Department. Initially, the ETA will only accept applications
group doing business in each jurisdiction. for unilateral APAs. Bilateral and multilateral APA requests
The ETA and other tax administrations will primarily use will not be accepted until some point in the future.
the CbC report to perform high-level transfer pricing risk
assessment, and to evaluate other tax and BEPS related Implications
risks. The CbCR does not contain sufficient evidence to The new transfer pricing documentation requirements
determine whether transfer prices comply with the arm’s- introduce a significant new compliance obligation in Egypt.
length principle, and any transfer pricing conclusions would The requirements also apply to transactions that have
need to be based on analysis of the detailed content in the already been carried out in 2018.
transfer pricing master file and local file.
Taxpayers that are involved in cross-border transactions with
The due date for submitting the CbC report will normally related parties will need to review the new rules and take
be the end of the reporting fiscal year. However, for the necessary steps to ensure they are able to comply with the
first year, the deadline will be 12 months from the end of new requirements.
the reporting fiscal year. Consequently, the first CbCR filing
The new guidelines have a much lower threshold than
deadline in Egypt will be 31 December 2019, for the fiscal
the Action 13 threshold. Egyptian parent companies in
year ending 31 December 2018.
multinational groups with consolidated group revenue
The guidelines indicate that the ETA will issue practical exceeding EGP3b will also need to review their CbCR filing
guidance on the CbCR filling requirements (e.g., format, and notification requirements in Egypt and the countries
instructions, electronic filling) at a later date. in which other group members are resident.4 Global Tax Alert Transfer Pricing Endnote 1. Organisation for Economic Co-operation and Development. For additional information with respect to this Alert, please contact the following: Ernst & Young (Egypt), Cairo • Ahmed El Sayed ahmed.el-sayed@eg.ey.com • Hossam Nasr hossam.nasr@eg.ey.com • Ahmed Abo El Fotouh ahmed.aboelfotouh@eg.ey.com Ernst & Young Middle East (Dubai Branch) • Guy Taylor guy.taylor@ae.ey.com • Adil Rao adil.rao@ae.ey.com • Hesham Lotfy hesham.lotfy@ae.ey.com Ernst & Young LLP, Middle East Tax Desk, Houston • Gareth Lewis gareth.lewis1@ey.com
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Transfer Pricing Group © 2018 EYGM Limited. All Rights Reserved. EYG no. 011792-18Gbl 1508-1600216 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com
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