CYPRUS Law and Practice Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
3.2 Unspecified Methods It used to be common practice in Cyprus to use the capital asset pricing model (CAPM) for fully func - tional financing companies. However, further to the publication of Circular 7/2023 on 7 July 2023 by the Cyprus tax authorities, the most appropriate method for determining the arm’s length pricing for financ - ing transactions, including those of a back-to-back nature, is the CUP method. The application of the CAPM will only be permitted in exceptional cases, upon a pre-approval in the form of a ruling obtained by the Cyprus tax authorities. The Circular is effective from the tax year 2023. 3.3 Hierarchy of Methods Cyprus has no hierarchy for selecting the most appro - priate TP method. The approach adopted by the Cyprus tax authorities is in line with OECD guidance, which urges practitioners to assess each case individ - ually and to determine the most appropriate method on a case-by-case basis – although the CUP method should be preferred when available. 3.4 Ranges and Statistical Measures Cyprus does not require the use of ranges or statisti - cal measures. 3.5 Comparability Adjustments The Cyprus tax authorities require comparability adjustments to be performed where they are reason - ably accurate. Cyprus introduced an intangible property (IP) regime, which is in line with the OECD’s guidance and devel - opment. Specifically, the Cyprus IP regime complies with both the provisions of the OECD BEPS Action 5 on “Harmful tax practices” and with relevant EU rules. The Cyprus IP box regime applies to qualifying IP which is developed in Cyprus. In order for a Cyprus IP holding company to benefit from the favourable tax regime, it must satisfy certain conditions of the IP box regime. According to the regime, 80% of “qualifying profit” generated from qualifying IP rights using the 4. Intangibles 4.1 Notable Rules
This Section defines associated enterprises, providing the following 25% relationship test. A company is connected with another company where: • a person and persons connected with that person hold, directly or indirectly, a participation in at least 25% of the voting rights or share capital or have the right to a share of at least 25% of the income of both companies; or • a group of two or more persons holds, directly or indirectly, a participation in at least 25% of the vot - ing rights or share capital or has a right to a share of at least 25% of the income of each company, and the group either consists of the same persons or could be regarded as consisting of the same persons by treating a member of either group as replaced by a person with whom they are con - nected. A company is connected with another person where: • a person and persons connected with that person hold, directly or indirectly, a participation in at least 25% of the voting rights or share capital or have a right in at least 25% of the income of that company; or • a group of two or more persons acts together with the intention of securing, directly or indirectly, at least 25% of the voting rights or share capital or right to a share of at least 25% of the income of a company. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods The Cyprus tax authorities suggest that the methods used by taxpayers are in line with the methods speci - fied in the OECD TP Guidelines, which are the following: • the comparable uncontrolled price (CUP) method; • the resale price method (RPM); • the cost-plus method (CPM); • the transactional net margin method (TNMM); and • the profit split method (PSM).
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