CYPRUS Law and Practice Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
“nexus” approach will be considered as a deemed expense for corporation tax purposes. According to the nexus approach, the level of the qualifying profits is positively correlated to the extent that the claimant of the IP regime undertakes its R&D activities and performance to develop the qualifying asset within the same company. The remaining 20% will be subject to the normal corporation tax rate of 12.5%. Thus, the qualifying profits will have an effec - tive tax rate of as low as 2.5%. Qualifying assets for the purposes of the IP regime include the following: • patents; • copyrighted software programs; and • other intangible assets that are non-obvious, useful and novel. Trade marks and copyrights are excluded for IP regime purposes. Qualifying persons under the IP regime include Cyprus tax residents and Cyprus tax-resident permanent establishments (PEs). 4.2 Hard-to-Value Intangibles There are no special rules regarding hard-to-value intangibles. 4.3 Cost Sharing/Cost Contribution Arrangements There are no special rules that apply to cost sharing/ cost contribution arrangements. 5. Adjustments 5.1 Upward Transfer Pricing Adjustments Cyprus does not permit a taxpayer to make affirmative TP adjustments after filing tax returns unless a revised tax return is also submitted. 5.2 Secondary Transfer Pricing Adjustments While Cyprus does not have specific rules on second - ary adjustments, it does provide a provision within the Cyprus Income Tax Law for corresponding adjust -
ments, which apply specifically to non-cross-border transactions between related parties.
6. Cross-Border Information Sharing 6.1 Sharing Taxpayer Information Cyprus has signed over 60 double tax treaties and tax information exchange agreements. The Cyprus tax authorities may share information with other jurisdic - tions; however, fishing expeditions are not accepted 6.2 Joint Audits Cyprus has a provision for joint audits in the Tax Col - lection and Assessments Law, which further governs the process and ensures co-operation with interna - tional tax authorities. Cyprus also actively participates in joint audits, par - ticularly within the framework of the European Union’s Joint Audit Programme. This programme enables tax authorities from different EU member states to col - laborate on auditing multinational enterprises operat - ing across borders, ensuring consistent application of tax laws and preventing tax avoidance. Additionally, the provision of joint audits is included in the majority of the double tax treaties signed by Cyprus. 6.3 Simultaneous Controls Cyprus co-operates in simultaneous controls, particu - larly within the framework of EU administrative co-oper - ation (eg, under the DAC and related EU Directives). There is a specific legal framework in place, based on EU legislation transposed into domestic law as well as on the exchange of information and mutual assistance provisions contained in Cyprus’ Double Tax Treaties (largely reflecting Article 26 of the OECD Model Tax Convention) and the OECD framework, as implement - ed through Article 6 of the Assessment and Collec - tion of Taxes Law. These instruments allow for the exchange of information and participation in simul - taneous controls and, where applicable, joint audits. Communication is maintained through designated competent authority contact points, with ongoing
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