CYPRUS Trends and Developments Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
Kinanis LLC 12 Egypt Street 1097
Nicosia Cyprus
Tel: +357 2255 8888 Fax: +357 2266 2500 Email: tax@kinanis.com Web: www.kinanis.com
Introduction to Transfer Pricing in Cyprus Cyprus has consistently remained a top des - tination for foreign companies and individuals due to its stunning coastline, favourable legal framework and enticing tax incentives. Recent - ly, Cyprus elevated its tax regime by integrating transfer pricing regulations into its laws, aligning with the standards set by the OECD. This marks a significant milestone for the island, demon - strating its ability to maintain a balance between attractiveness and regulatory certainty in its tax environment. On 30 July 2022, the Cyprus Parliament voted for the introduction of the transfer pricing regu - lations in Cyprus to enhance certainty. The new regulations are effective as from 1 January 2022 and are aligned with the OECD standards. In particular, the new regulations go hand-in-hand with what the OECD provides in the TP Guide - lines, the Base Erosion and Profit Shifting (BEPS) Action Plan 8-10 and 13. The need of a solid transfer pricing legal frame - work in Cyprus began with the inclusion of the arm’s length principle in Section 33 of the Cyprus Income Tax Law. This need was then triggered after the tax authorities’ publication of the Circu - lar on the back-to-back financing arrangements,
requiring the Cyprus companies engaged in such arrangements to support the margins earned by a transfer pricing analysis. The lack of an assem - bled relevant law and guidance on the practice and application of transfer pricing resulted to a great unambiguity in the field. With the introduction of the TP regulations, TP experts started pulling the yard from the skein, now having a clear understanding of the taxpay - ers’ obligations in Cyprus, which no longer lag Transfer pricing obligations and/or the need for compliance arises when, regardless the nature of the transactions, the transactions in place are between related parties. The revised Section 33(3) of the Cyprus Income Tax Law gives the following definition for associ - ated enterprises. A company is connected with another company where: behind other countries. Associated Enterprises • the same person and persons connected with that person, hold directly or indirectly, a par - ticipation in at least 25% of the voting rights
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