Egypts updated transfer pricing guidelines part of tax reform agenda

Egypt has updated its transfer pricing guidelines as a result of a collaborative initiative between the Egyptian Ministry of Finance, the OECD’s Centre for Tax Policy and Administration (CTPA) and the African Tax Administration Forum (ATAF).

The updated “Egyptian Transfer Pricing Guidelines” replace those issued in 2010 and will serve as a practical guide to the application of Article (30) of the Income Tax Law No.91 of 2005, to supplement the existing legislation and regulations.

The release of the updated Guidelines in Ocotber 2018 has been part of the series of tax reforms which Egypt has embarked on over the past couple of years, guided by the objective of setting a stable and clear tax policy to attract investments, create employment opportunities, and support growth. The following principles have been a key priority on Egypt’s Tax Reform Agenda:

• Broadening the tax base by modernising Egypt’s current tax legislation and policies in line with international best practices, including enhancing transparency, and combating tax avoidance, fraud and aggressive planning.
• Improving effectiveness and efficiency of the tax system by simplifying, automating and streamlining tax procedures as well as by reducing compliance cost.
• Enhancing tax administration and upgrading skills and capabilities, through the implementation of an ambitious “Tax Administration Modernisation” project.
• Aligning the Tax Reform Agenda with “international best tax practices” which has been a key guiding principle for Egypt.

Egypt has strong partnerships in the international tax area. In May 2016, Egypt joined the Inclusive Framework on Base Erosion and Profit Shifting (known as ‘BEPS’), working with other member countries on an equal footing to tackle tax avoidance. Egypt is also a member of ATAF, which drives the tax agenda on the African continent.

The European Union (‘EU’) is an important partner to Egypt. The EU Delegation in Egypt has provided resources for a tailor-made support programme for Egypt (‘Enhancing domestic resource mobilisation in Egypt through a better tax and exchange of information system’) in the implementation of the new international tax standards. The programme is a joint exercise of the Global Forum and OECD's Centre for Tax Policy and Administration (CTPA) in collaboration with ATAF.

In-line with Egypt’s Tax Reform Agenda, the programme aims at assisting Egypt in the following areas:

• Improving capacity to counter cross-border tax evasion and tax avoidance, and to tax multinationals fairly and effectively;
• Creating a predictable business environment for multinationals, in accordance with internationally agreed tax principles, to encourage cross-border trade and investment;
• Creating a clearer understanding by taxpayers of the requirements for them to comply with Egypt's international tax rules;
• Developing a technical transfer pricing skill base to support transfer pricing capacity building in Egypt to address BEPS;
• Taking well-informed tax policy decisions with the help of internationally comparable Revenue Statistics data.

As a member of the Inclusive Framework on BEPS, Egypt has introduced several measures to align the Egyptian tax and transfer pricing regime with the globally agreed standards and principles, and particularly, to combat tax evasion and avoidance arising from transfer mis- pricing.

The updated Egyptian Transfer Pricing Guidelines represent one of the key pillars driven by Egypt’s comprehensive Tax Reform Agenda, aiming at increasing domestic resource mobilization in order to foster sustainable economic growth and income redistribution by improving the design of tax policies and international tax cooperation.

The 2018 Egyptian Transfer Pricing Guidelines provide guidance on a wide range of transfer pricing issues, such as the use of the most appropriate method, and the documentation required to be prepared and maintained by taxpayers to demonstrate compliance with the Law and its Executive Regulations.

The updated Guidelines endorse several of the BEPS project’s recommendations, and specifically require taxpayers to prepare their transfer pricing documentation in accordance to the three-tiered documentation approach. Moreover, a formal Advanced Pricing Agreement system has been introduced, which allows taxpayers to conclude APAs with the Egyptian Tax Authority in relation to their prospective controlled transactions.

Prior to the issuance of the updated Guidelines, an amendment of the transfer pricing articles of the Executive Regulations to the Income Tax Law has taken place in May of 2018, through which the scope of controlled transactions became broader, the five OECD transfer pricing methods have been endorsed, and an Advance Pricing Agreement “APA” system has been legally recognised.