Introduction
In September 2022, the Organisation for Economic Co‑operation and Development (OECD) released significant updates to its Transfer Pricing Guidelines including new rules on financial transactions and intangible assets, a strengthened emphasis on economic substance, and refined guidance on hard-to-value intangibles (HTVIs). For multinationals based in Egypt or with operations in Egypt these changes carry critical implications.
Egyptian groups must align their transfer pricing policies, documentation, and global structures with these updates to remain compliant, reduce audit risk, and optimize tax efficiency.
This article presents the key lessons from the OECD 2022 TP Guidelines updates and their relevance for Egyptian multinationals operating in global or regional markets.
1. Enhanced Guidance on Financial Transactions (Chapter XIII)
One of the most notable changes in the 2022 updates is the new Chapter XIII: Financial Transactions, which provides extensive guidance on how to analyze intra-group loans, cash pooling, guarantees, and other financing arrangements.
Key take-aways for Egyptian multinationals:
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Clearly document the economic rationale of intra-group financing: why the transaction is needed, what business purpose it serves in Egypt and elsewhere.
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Conduct creditworthiness analyses for Egyptian borrowers, including local and group ratings.
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Benchmark interest rates using comparables, taking into account Egyptian country risk, currency risks, collateral, and market conditions.
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Document guarantees and cash-pooling functions, especially if an Egyptian entity pulls the funds.
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Evaluate whether the local Egyptian entity bears risk or merely acts as conduit; mischaracterization may lead to loss of interest deduction or re-qualification as equity.
2. Hard-to-Value Intangibles (HTVIs) and Egypt
The 2022 updates refine the definition and documentation requirements for HTVIs intangibles whose value is uncertain at the time of transfer and depend on future outcomes.
Implications:
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Egyptian companies transferring intangibles (software, databases, brand-related assets) must identify whether they fall within the HTVI category.
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HTVIs require enhanced documentation: projections, scenario analysis, comparable valuations, backing assumptions.
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Developing markets (including Egypt) often lack public comparables — more reliance on internal valuation, policy, and sensitivity analysis.
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Tax authorities may challenge optimistic forecasts or valuations lacking substance.
3. Increased Emphasis on Substance, Control & Risks (DEMPE)
The updates reaffirm the importance of the DEMPE functions (Development, Enhancement, Maintenance, Protection, Exploitation) when allocating returns from intangibles. The Egyptian multinationals must verify:
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Whether the local Egyptian entity genuinely performs, controls, and bears risk in relation to the intangible.
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Whether board decisions, funding, and oversight happen locally or centrally abroad.
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Whether local Egyptian operations provide real value-adding functions or merely passive presence.
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Whether substance requirements (employees, premises, resources) are met especially if treaty benefits are claimed.
4. Local File Enhancement and Documentation Synchronization
The 2022 guidelines endorse stronger documentation and align TP files with the entity’s filed tax return.
Things to check for Egyptian multinationals:
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Ensure the Egyptian TP local file links to the Egyptian statutory return and financial statements.
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Document any year-end adjustments and ensure they flow through to the TP file.
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Include entity-specific functional profiles for Egyptian entities e.g., production facility, distribution hub, service provider.
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Monitor margin evolution in Egypt and apply true-ups if margins deviate from benchmarked ranges.
5. Group-wide TP Policy Should Be Updated Globally
The 2022 updates encourage group-wide alignment of TP policies.
Actions for Egyptian-based groups:
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Review your global TP policy to ensure consistency with the OECD updates (financial transactions, HTVIs, risk).
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Ensure Egyptian entities apply the same methodology as other group members and localize documentation as needed.
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Central TP teams should coordinate with Egyptian tax, finance and legal teams to propagate updates and training.
6. Increased Audit Risk in Emerging Markets Including Egypt
Tax authorities in emerging jurisdictions, including Egypt, are increasingly adopting the updated OECD standards and conducting more rigorous audits.
Best practices:
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Prepare for audit queries on intra-group financing, intangibles transferred, and support functions performed in Egypt.
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Ensure Egypt’s position in the group structure is defensible: substance, price, risk control.
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Build a review calendar for Egyptian entities in case you need to revise policies or apply adjustments.
7. Strategy & Implementation Road-Map
Step 1: Gap Analysis
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Compare your current Egyptian group’s TP model against key 2022 update pillars (financial transactions, HTVIs, DEMPE, documentation).
Step 2: Prioritization
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High risk: intra-group loans in Egyptian entities, transferred intangibles, lack of substance in Egypt.
Step 3: Implement Changes
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Update policies, refresh benchmarking studies, adjust documentation.
Step 4: Monitoring & Controls
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Set up monitoring for margins, financing terms, intangibles usage in Egypt.
Step 5: Review Annually
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Given evolving tax rules, update Egyptian TP file each year.
Conclusion
The OECD 2022 TP Guidelines updates introduce important changes for Egyptian multinationals in areas such as financial transactions, intangibles, substance and documentation. By embracing these changes, companies with Egyptian presence can reduce audit risk, strengthen compliance, and align with global standards.
Taking a proactive approach now is essential for companies operating in Egypt and across MENA. A well-designed TP strategy tied to the 2022 updates helps safeguard against future tax adjustments and supports sustainable global business growth.
