Transfer pricing · August 2026
Most assessments do not turn on the choice of method. They turn on the distance between what the documentation asserts and what the company’s own records show.
Egypt’s transfer pricing rules follow the OECD framework, and taxpayers whose related-party transactions exceed EGP 15 million in a year are required to prepare a local file and, where applicable, a master file. That threshold was raised from EGP 8 million in early 2024, which relieved smaller taxpayers but also concentrated attention on the ones that remain in scope.
In practice, the files that get into trouble rarely fail on technical method selection. They fail on internal consistency. Below are the five weaknesses we encounter most often.
Documentation is frequently rolled forward from year to year with the numbers refreshed and the narrative left alone. Meanwhile the Egyptian entity has taken on inventory risk, hired a technical team, or started servicing customers in a neighbouring market. A functional analysis that describes a limited-risk distributor, sitting alongside a payroll and a balance sheet that describe something more substantial, is the single easiest thing for an inspector to attack.
The fix is unglamorous: re-perform the functional interviews annually, and record who was asked and what they said.
Regional or global benchmarks prepared at head office are often perfectly defensible in the jurisdiction they were written for and quietly unusable in Egypt — typically because the comparable set contains no companies operating in comparable markets, or because the tested party definition does not match how the Egyptian entity actually operates. Group benchmarks should be reviewed for local defensibility before they are adopted, not after they are challenged.
A management services agreement that specifies an allocation key the group stopped using two years ago, or a royalty agreement whose rate differs from the rate actually charged, converts a pricing discussion into a documentation problem. Agreements should be reviewed on the same cycle as the file itself, and amended by side letter where practice has moved on.
The related-party figures disclosed in the tax return, in the financial statements and in the local file should tie to each other and to the underlying ledger. When they do not — usually because of foreign exchange treatment, cut-off, or netting of intercompany balances — the discrepancy is discovered by the inspector rather than by the taxpayer. A reconciliation schedule prepared as part of the file removes an entire line of questioning.
A limited-risk entity reporting sustained losses invites an adjustment unless the file explains why, with evidence. Start-up phase, a market disruption, a specific one-off cost — whatever the reason, it belongs in the documentation contemporaneously, supported by board minutes or budget approvals. An explanation constructed after the assessment carries far less weight.
A defensible Egyptian file is not necessarily a long one. It is one where the narrative, the agreements, the financial statements and the ledger tell the same story, and where each assertion can be traced to a document that existed before the tax authority asked for it. That takes a working session or two each year with the people who actually run the business. It is considerably cheaper than an assessment.
This note reflects our understanding of the position at the date of publication and is general in nature. It is not advice on any specific set of facts.
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