Introduction

Transfer Pricing has become one of the most critical components of the Egyptian tax system in recent years, especially with the expansion of multinational groups and the increase in transactions between related parties. The Egyptian Tax Authority places strong emphasis on Transfer Pricing due to its significant impact on the fair allocation of taxable profits.

For companies operating in Egypt particularly those with parent companies or subsidiaries abroad it is essential to understand Transfer Pricing rules, documentation obligations, and the OECD Arm’s Length Principle to avoid risks and ensure full tax compliance.

What Is Transfer Pricing?

Transfer Pricing refers to the pricing of goods, services, financing, intellectual property, or any intra-group transactions between related companies within the same multinational group.

The main purpose is to ensure that transaction prices:

Reflect the fair market value as if the transaction were conducted between completely independent parties.

This is known as the Arm’s Length Principle.

Why Does the Egyptian Tax Authority Focus on Transfer Pricing?

Because Transfer Pricing can be used intentionally or unintentionally to shift profits across borders, such as:

• Moving profits from high-tax countries to low-tax jurisdictions

• Inflating or deflating intra-group service fees

• Charging excessive royalties or management fees

• Underpricing or overpricing intercompany goods

• Structuring loans at non-market interest rates

Therefore, Egypt applies strict Transfer Pricing rules to ensure companies pay the correct tax.

Transfer Pricing Framework in Egypt

Egypt relies on three main sources:

1. Income Tax Law No. 91 of 2005 and its amendments

2. Transfer Pricing Guidelines issued by the Egyptian Tax Authority

3. OECD Transfer Pricing Guidelines

Egypt is clearly aligned with the OECD approach, especially regarding documentation, economic analysis, and benchmarking.

Who Are Considered Related Parties?

Entities are considered “related” if:

• One company owns 50% or more of another entity

• A company controls, manages, or influences another

• Companies share board members or executives

• One entity has significant financing or guarantee arrangements with another

• There is operational or strategic control

Any transaction between such parties MUST follow Transfer Pricing rules.

Types of Transactions Subject to Transfer Pricing

Transfer Pricing rules apply to nearly all intra-group dealings, such as:

• Sale and purchase of goods

• Administrative and technical services

• Management fees

• Technology and software licensing

• Royalties and trademarks

• Intercompany loans and financing arrangements

• Transfer of assets or intellectual property

• Cost-sharing agreements

The Arm’s Length Principle

This principle ensures that:

The price applied between related parties must match the price that independent parties would charge under similar conditions.

It is the foundation of all Transfer Pricing regulations in Egypt and globally.

Transfer Pricing Methods Accepted in Egypt (OECD-Based)

Egypt fully adopts the OECD five methods:

1. Comparable Uncontrolled Price (CUP)

Compares the related-party transaction price with an identical or similar transaction between independent parties.

2. Resale Price Method (RPM)

Starts from the resale price to third parties and subtracts an appropriate gross profit margin.

3. Cost Plus Method (CPM)

Adds an arm’s length markup to the internal costs of producing a good or service.

4. Transactional Net Margin Method (TNMM)

Compares the net profit margin of the tested party with margins earned by comparable independent companies.

5. Profit Split Method

Allocates the combined profits between related parties based on value creation, functions, assets, and risks.

Mandatory Transfer Pricing Documentation in Egypt

Companies must maintain three levels of documentation, fully aligned with OECD standards.

1. Master File (Global Documentation)

Includes:

• Group organizational structure

• Business activities

• Intangible assets and IP ownership

• Intercompany financing

• Global Transfer Pricing policies

• Overall functional and risk analysis

2. Local File (Egypt-Specific Documentation)

Includes:

• Detailed description of all related-party transactions in Egypt

• Functional analysis (functions, assets, risks)

• Economic analysis

• Benchmarking study

• Justification and selection of the TP method used

• Financial information supporting the analysis

This file is the most critical document for tax audits in Egypt.

3. Country-by-Country Report (CbCR)

Required for multinational groups exceeding a specific global revenue threshold.
It includes:

• Revenues, profits, and taxes paid per country

• Number of employees

• Assets and business presence per jurisdiction

Which Companies in Egypt Must Apply Transfer Pricing Rules?

• Multinational groups operating in Egypt

• Egyptian companies with subsidiaries abroad

• Egyptian subsidiaries of foreign companies

• Any company conducting transactions with related parties above certain financial thresholds

Risks of Non-Compliance with Transfer Pricing in Egypt

Failure to comply may lead to:

• Reassessment of related-party transactions

• Significant tax adjustments

• Administrative penalties

• Full-scope tax audits

• Low compliance rating by the Tax Authority

• Long, costly tax disputes

How Companies Should Prepare for Transfer Pricing Compliance

1. Prepare annual Transfer Pricing documentation

Master File + Local File + Benchmarking.

2. Review all related-party transactions

Ensure pricing aligns with market standards.

3. Conduct Value Chain Analysis

Identify which entity creates value and bears risk.

4. Select the most appropriate TP method

5. Ensure all intercompany agreements are documented and updated

6. Perform annual benchmarking studies

7. Maintain transparency with the Tax Authority

Common Violations Leading to Tax Exposure

• Charging unjustified management or service fees

• Overcharging or undercharging intercompany goods

• Charging excessive royalties

• Granting loans at non-market interest rates

• Allocating costs to the Egyptian entity without economic justification

Best Practices for Transfer Pricing in Egypt

• Maintain strong, updated TP documentation

• Establish clear intra-group pricing policies

• Align Transfer Pricing with actual business operations

• Ensure consistency between tax, finance, and legal functions

• Seek professional tax advisory support

• Review pricing annually to adjust for market changes

Conclusion

Transfer Pricing in Egypt is no longer optional it is a mandatory compliance requirement for all multinational and related-party groups. With Egypt fully aligned with OECD Guidelines, companies are expected to adopt transparent, well-documented, and defensible Transfer Pricing practices.

Proper compliance protects companies from tax risks, builds trust with authorities, and ensures long-term financial stability.