CYPRUS Law and Practice Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
3.5 Comparability Adjustments The Cyprus tax authorities require comparabil - ity adjustments to be performed where they are reasonably accurate.
methods specified 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 It used to be common practice in Cyprus to use the capital asset pricing model (CAPM) for fully functional financing companies. However, fur - ther 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 financing transactions, includ - ing 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 • the profit split method (PSM). 3.2 Unspecified Methods Cyprus has no hierarchy on the selection of the most appropriate method. The approach adopt - ed by the Cyprus tax authorities is in line with OECD guidance, which urges practitioners to assess each case differently and to conclude on the most appropriate method on a case-by-case basis – though where a CUP exists, it should be preferred. 3.4 Ranges and Statistical Measures Cyprus does not require the use of ranges or statistical measures.
4. Intangibles 4.1 Notable Rules
Cyprus introduced an intangible property (IP) regime, which is in line with the OECD’s guid - ance and development. Specifically, the Cyprus IP regime is in line with both the provisions of the OECD BEPS Action 5 on “Harmful tax practices” and with 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 “nexus” approach will be considered as a deemed expense for cor - poration 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 effective 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
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