CYPRUS Law and Practice Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
• a description of the multinational enterprise’s (MNE) business activities, including the drivers of business profit; • the TP policies of the group; and • the geographic markets for the group’s products and services. Additionally, the group’s intangibles must be listed, together with the MNE’s intercompany financial activi - ties and tax positions. The following assumptions apply. For the local file, persons that engage in controlled trans - actions with an arm’s length value of less than EUR10 million per annum in the category of financing transac - tions, less than EUR5million per annum in the category of sale/purchase of goods, or less than EUR2.5 million in the remaining categories in aggregation (ie, provision/ receipt of services, financing transactions, receipt/pay - ment of intellectual property licensing/royalties, etc) are exempt from the obligation to prepare a Cyprus local file. However, they must prepare simplified TP documenta - tion, as per Circular 6/2023 on simplification measures for entities not exceeding the local file threshold. Such entities may also be eligible to apply the applicable safe harbour rule set by the tax authorities. For the master file, only Cyprus tax-resident entities that are the ultimate parent or surrogate parent entity of an MNE group falling under the scope of country- by-country reporting have an obligation to prepare and maintain a master file. All other persons are exempt from this obligation. It should be noted that the threshold for the requirement of local file preparation was initially set at EUR750,000 per category of transactions. This threshold was first increased on 1 February 2024, with retroactive effect from 1 January 2022 onwards, following an announce - ment by the Cyprus tax authorities. It has now been revised again as part of the 2026 tax reform, marking the second upward adjustment since the introduction of the transfer pricing documentation framework. The TP documentation file should be maintained by the taxpayer in electronic or paper format, and should be prepared in a generally acceptable language, pref -
erably in English. However, the Cyprus tax authorities may request its translation into Greek if necessary. The documentation file must be maintained in Cyprus for six years, and must be provided to the tax authori - ties within 60 days from the date that a relevant request has been received by the company or by any other company that is authorised by the company to act as its representative. It must also include a special chapter explaining the events affecting the information and data included in the documentation file and that are related to changes in the market conditions. The documentation file must be updated every tax year, and the update must be completed within 12 months from the end of the tax year in which the need for the update has arisen. The Commissioner of Taxation has the power to determine specific issues concerning updates that are deemed necessary regarding the content of the docu - mentation file, either on an annual or permanent basis. In February 2023, the Cyprus tax authorities, in an effort to ensure clear interpretation of the TP regula - tions and their correct application and practice, pub - lished Frequently Asked Questions providing answers to the most common queries of both taxpayers and TP practitioners. The Commissioner of Taxation will also issue further guidance as to the requirements of the documentation file and the summary table, accept - able TP methods, and the methods of establishing the interquartile range or the profit margin. Also, in an exchange-of-information context, Cyprus implements country-by-country reporting require - ments under the Assessment and Collection of Taxes Law Decree of 2017. It is important to note that although Cyprus is not a member of the OECD, the Cyprus tax authorities refer to OECD materials for guidance in the field of taxation. 2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules The arm’s length principle has been incorporated into Section 33 (3) of the Cyprus Income Tax Law and is to be interpreted in line with the OECD TP Guidelines.
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