CYPRUS Law and Practice Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
1. Rules Governing Transfer Pricing 1.1 Statutes and Regulations On 30 June 2022, transfer pricing (TP) regula - tions were voted on and incorporated into the Cyprus Income Tax Law, with effect from 1 Janu - ary 2022. Cyprus has thus introduced broad TP regulations requiring OECD-compliant TP doc - umentation, based on Base Erosion and Profit Shifting (BEPS) Action 13 recommendations. 1.2 Current Regime and Recent Changes On 30 June 2017, the Cyprus tax authorities published a circular on back-to-back financing arrangements, with effect from 1 July 2017 – this was abolished on 5 January 2023 (with effect from 1 January 2022) following the introduction of the TP regulations. The circular required that a comparability anal - ysis for the purpose of describing intra-group financing transactions be performed for deter - mining the applicable arm’s-length remunera - tion. The main factors examined in the compara - bility analysis are the requirements for sufficient equity level for assumption of risks and adequate substance in Cyprus. The new TP regulations, effective from 1 July 2022, require the following. A summary information table (SIT) must be com - pleted and submitted electronically by all tax - payers by the same deadline as for tax returns. The SIT includes information on related par - ties with which the company transacts, and the nature and value of the transactions. The nature of the transactions is divided into categories including: • goods;
• services; • intellectual property and intangibles; • financial transactions; and • other transactions.
A local file must be prepared when the material - ity threshold of EUR5 million in the category of financing transactions and EUR1 million in the remaining categories is met. The thresholds consider the aggregate amount of each category and are based on reference to the absolute values of the controlled transac - tions for each category occurring in a tax year. Local files should be prepared for the local entity, and must include: • the company’s management and organisa - tional structure; • a general description of the activities of the group; • the group structure; • the key competitors; • the relevant financial information, including the audited financial statements; • the summary schedules of the relevant finan - cial data; and • an explanation of the use of the TP results to arrive at taxable income. Also, 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 transaction; • the selection and application of the most appropriate TP method; • the conclusion of the arm’s length price; • any relevant adjustments; and
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