Base erosion and profit shifting (BEPS)
Egypt signed an inclusive framework agreement with the OECD, to become a member to the BEPS Project. Accordingly, Egypt has signed the multilateral instrument (MLI) agreement with the BEPS member countries, and should start implementing it soon. Such agreement requires the implementation of the four minimum standards action points of the BEPS Project in order to cope with the dramatic changes being introduced to the tax environment. The four minimum standard actions address the following:
- Harmful tax practices.
- Transfer pricing documentation.
- Treaty abuse.
- Dispute resolution.
As mentioned earlier, Egypt signed the MLI on 7 June 2017 and opted to apply the principal purpose test (PPT) to its covered tax agreements. Currently, the MLI is being discussed in the Egyptian parliament and expected to be ratified in the next few months. Once this is done, the DTTs that Egypt has chosen to be covered under the MLI will be automatically changed.
Finally, once the MLI is ratified and becomes integrated in the Egyptian income tax law provisions, the ETA would most likely impose stricter substance requirements on the claimants of DTTs’ benefits in order to apply the relevant DTT’s benefits. There is no guidance yet on what the ETA would require as a proof of sufficient substance. In any case, it is recommended to have a solid business and economic substance in the country where the DTT benefit claimant is resident in order to mitigate the risk of denying the DTT benefits in Egypt.