EGYPT Law and Practice Contributed by: Mohamed Hashish, Heba El Abd, Farida Rezk, Omar Aboul-Ella, Mariam Rabie and Mohamed Selim, 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 unre - lated companies, that will reduce the tax base or transfer its burden from one taxable company to another exempt or non-taxable 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 concluded 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 transactions with respect to the exchange of goods, services, raw materials, capital equip - ment, the distribution of shared expenses, roy - alty returns and other commercial or financial transactions that are carried out. A Transfer Pricing Decree was adopted in 2018 to provide new tax guidelines for cross-border transactions between related companies, requir - ing the submission of specific documents by the relevant companies. 5.7 Anti-Evasion Rules As a general rule, the Egyptian Unified Tax Pro - cedures Law No 206 of 2020 (“Unified Tax Law”) provides that financiers, taxpayers and others shall abide by specific 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 provisions of laws and regulations;
exemptions and reliefs from stamp taxes, notari - sation, and registration fees related to company incorporation contracts, as well as credit facility and mortgage agreements pertinent to the com - pany’s operations. Moreover, the company may benefit from exemptions on capital gains tax as well as taxes on distributable profits. Tax rates applicable 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, the Egyptian thin capitalisation rules provide that the debt-to-equity ratio is 4:1. The debt interest paid by legal persons on loans and advances obtained and that are more than four times the average of equity rights according to the pre - pared financial statements, are not deductible costs. 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 purpos - es of this item, bonds and any form of financing by debts through securities with fixed or variable interest. Equity includes the paid-up capital in addition to all reserves and dividends 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.
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