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Egypt Publishes Updated Transfer Pricing Guidelines Including Three-Tiered Documentation Requirements

The Egyptian Tax Authority (ETA) has published the final update of the Egyptian Transfer Pricing Guidelines, which reflect the outcomes of the OECD BEPS project, including the three-tiered documentation requirements. The guidelines were developed based on the OECD's 2017 Transfer Pricing Guidelines, which should be referenced as needed for a more detailed discussion of the transfer pricing principles.

Some of the key aspects of the updated guidelines as compared to prior guidelines include:

  • Guidance on the allocation of risk as per the latest OECD guidance, including the six-step process for identifying and analyzing risks in a controlled transaction, as follows:
    • Step one: Identification of economically significant risks with specificity;
    • Step two: Determination of contractual assumption of the specific, economically significant risks assumed by the associated enterprises;
    • Step three: Functional analysis to determine the capacity (ex: risk/control mitigation, financial capacity) in which the associated enterprises that are parties to the controlled transaction operate in respect to the assumption and management of the specific, economically significant risks;
    • Step four: Interpreting the above steps to determine whether the contractual assumption of the economically significant risks is consistent with the conduct of the associated enterprises;
    • Step five: Re-allocation of risks where inconsistencies are identified, i.e. when the associated enterprise assuming the risks under steps one to four does not control/have the financial capacity to assume the risk; and
    • Step six: Pricing of the controlled transaction taking into account the risk allocation (financial and other consequences of risk assumption) and appropriately compensating risk management functions.
  • Guidance on the use of the profit-split and transactional net margin transfer pricing methods, which are no longer placed below the traditional transaction methods in terms of preference, as well as the use of other methods if none of the five standard methods can establish an appropriate degree of comparability, including the use of the global formulary apportionment method;
  • Guidance on the preparation of transfer pricing documentation, including the Master and Local file, which should be prepared and submitted annually by taxpayers directly to ETA’s transfer pricing department in respect of fiscal years ending on or after 31 December 2018:
    • The Master file should be prepared in accordance with the ultimate parent's tax return filing date and made available to ETA by the taxpayer in due course (once available);
    • The Local file must be submitted to the ETA within two months following the date of filing the tax return;
  • Guidance on the preparation and submission of Country-by-Country (CbC) reports, which applies in respect of fiscal years ending on or after 31 December 2018 for Egyptian parented MNE groups meeting a consolidated group revenue threshold of EGP 3 billion, with the CbC report to be submitted to the ETA within 12 months following the end of the reporting fiscal year; and
  • Guidance on the procedures for Egypt's APA program, including the types and benefits of APA's, the application and processing of unilateral APAs, APA compliance, and application form templates (bilateral and multilateral APAs are also briefly covered, but applications will not yet be accepted).

With respect to documentation requirements, the guidelines include that in the case of preparing and maintaining transfer pricing documents in languages other than Arabic, the ETA may require the taxpayer, at its own expense, to submit an official translation of the required documents. With respect to CbC reporting, the guidelines note that further practical guidance will be issued on format, instructions, electronic filing, etc.

The guidelines also note that the ETA will issue separate guidelines to address the application of the arm's length principle to transactions involving intangible property, controlled services, and cost contribution arrangements. In addition, separate guidelines will be issued regarding the tax treatment of Permanent Establishments including the attribution of profits with the head office, as well as guidelines to address key transfer pricing issues for certain industries.

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