EGYPT Law and Practice Contributed by: Mohamed Hashish, Heba El Abd, Mariam Rabie, Mohamed Selim and Abdelaziz Mohamed, Soliman, Hashish & Partners
5.6 Transfer Pricing Under the Income Tax Law, if related companies place conditions in their commercial or financial transactions that differ from those between unrelated companies, that will reduce the tax base or transfer its burden from one taxable company to another exempt or non-tax - able company, the Egyptian Tax Authority (ETA) shall be entitled to determine the taxable profit on the basis of the neutral price of the relevant transaction, which shall be deemed transfer pricing of transactions con - cluded between related companies under common ownership or control. The ETA shall verify the proper application of neutral price (market price) by related persons in their trans - actions with respect to the exchange of goods, servic - es, raw materials, capital equipment, the distribution of shared expenses, royalty returns and other com - mercial or financial transactions that are carried out. A Transfer Pricing Decree was adopted in 2018 to pro - vide new tax guidelines for cross-border transactions between related companies, requiring the submission of specific documents by the relevant companies. 5.7 Anti-Evasion Rules As a general rule, the Egyptian Unified Tax Procedures Law No 206 of 2020 (“Unified Tax Law”) provides that financiers, taxpayers and others shall abide by spe - cific requirements, including the following: • notifying of the commencement of the activity and registering with the ETA; • obligation to keep paper or electronic books and records within the prescribed legal period, and issue tax invoices in accordance with the provi - sions of laws and regulations; • enabling the ETA’s employees to perform their duties with regard to the procedures of review, examination, completion and control; • notifying the ETA of any changes in the activity or establishment within the specified legal period; • determining the responsible person(s) dealing with the ETA, whether the individual concerned or a legal representative thereof; • calculating the tax correctly in accordance with the laws and regulations;
related to company incorporation contracts, as well as credit facility and mortgage agreements pertinent to the company’s operations. Moreover, the company may benefit from exemptions on capital gains tax as well as taxes on distributable profits. Tax rates appli - cable to the company are also reduced, and such companies are exempt from the obligation to maintain the records, books, and documents stipulated in the Unified Tax Procedures Law No 206 of 2020. 5.4 Tax Consolidation Tax consolidation is not currently regulated under Egyptian law. 5.5 Thin Capitalisation Rules and Other Limitations In accordance with the Income Tax Law (as amended), debt interest (interest expenses) paid by legal per - sons on loans and advances obtained by them is not a deductible cost to the extent that such loans and advances exceed two times the average equity rights as reflected in the financial statements prepared in accordance with Egyptian Accounting Standards. Debt interest includes all amounts chargeable by the legal person in return for the loans, advances of any kind obtained thereby, bonds and bills. The loans and advances include, for the purposes of this item, bonds and any form of financing by debts through securi - ties with fixed or variable interest. Equity includes the paid-up capital in addition to all reserves and divi - dends reduced by retained losses, provided that the difference of the adjusted account is not included in the reserves account and is determined to be non- taxable. However, by way of exception to the above, Law No 30 of 2023 provides that interest on loans and advanc - es obtained by legal persons shall remain deducti - ble where the debt-to-average-equity ratio exceeds 2:1, provided that it does not exceed the applicable threshold prescribed below during the transitional period commencing in 2022 and ending with the close of the 2028 tax year: • 4:1 for the 2023 tax year; • 3:1 for the tax years 2024 through 2027; and • 2:1 for the 2028 tax year.
316 CHAMBERS.COM
Powered by FlippingBook