CYPRUS Trends and Developments Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
Penalties In order to ensure compliance with the law, the trans - fer pricing regulations intend to penalise taxpayers who fail to provide the Local File or Master File upon request by the Cyprus Tax Authorities. Generally, the Local and Master File must be provided to the Cyprus Tax Department within 60 days of the request. The range of penalties for late or non-compliance vary from EUR5,000 (for late submissions) to EUR20,000 (for failure to submit or if the delay to provide the documentation exceeds 120 days). Like the penalties for failure to comply with the Local and Master File requirements, the penalty for failure to submit the SIT is EUR500. Documentation Contents The transfer pricing regulations also list the manda - tory contents of the required documentation. Local Files should be prepared for the local entity and must include: • the company’s management and organisational structure; • a general description of the activities of the group; • the relevant financial information including the audited financial statements, the summary sched - ules of the relevant financial data; and • an explanation of how the transfer pricing results are used to determine taxable income. • the group structure; • the key competitors; In addition, Local File preparers should include: • a description of the controlled transactions; • copies of the intercompany agreements; • a detailed functional analysis with respect to each documented category of transactions; • the selection and application of the most appropri - ate transfer pricing method; • the conclusion of the arm’s length price; • any relevant adjustments; and • the decision of the APA or tax ruling, if any. When it comes to the Master File, the required infor - mation relates to the strategies and policies followed by the group, rather than the entity. The contents of the Master File must include:
period to 24 months, provided that the taxpayer is notified of the delay. An APA can be revised, revoked or cancelled in cases of erroneous assumptions or the failure of the tax - payer to comply with fundamental conditions or obli - gations agreed with the Commissioner. If the APA procedures prove to be adequate, many hands will be untied and some of the decisions regarding the approach reached by the Commissioner can be used as paradigms for the future. Tax Department’s Issuance of Frequently Asked Questions Since their initial publication in February 2023, the Fre - quently Asked Questions (FAQs) issued by the Cyprus Tax Department have been progressively expanded and updated, reflecting the practical challenges encountered in the application of the transfer pricing framework. The continuous addition of new questions and clarifications demonstrates the evolving interpre - tative approach of the Tax Department and its effort to address areas of uncertainty. The first set of interpretative guidance was issued in February 2023 and primarily addressed practical mat - ters arising from the implementation of the transfer pricing documentation rules. The guidance focused on: • the manner in which taxpayers should assess the aggregation of transaction amounts for threshold purposes; • the correct classification of specific transactions within the relevant categories; • technical considerations regarding the need to update a benchmark study; and • the completion of the Summary Information Table (SIT). Importantly, the FAQs also included clarifications regarding the scope of the Local File obligation, including guidance on certain transactions that may be exempt from Local File preparation, as well as interpretative clarifications concerning the inclusion and reporting of specific transactions in the SIT.
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