CYPRUS Trends and Developments Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
New Transfer Pricing Regulations The new TP regulations in Cyprus provide a guidance on the application of the arm’s length principle in practice. In a nutshell, the new TP regulations require the taxpayers to document the following. • A summary information table (SIT), which is completed and submitted electronically by all taxpayers by the same deadline as for the TD4. The SIT includes information on related parties with which company transactions and nature and value of the transactions. The nature of transactions is divided into categories including goods, services, IP and intangibles, financial transactions and other transactions. • A local file, where the materiality threshold of EUR5 million in the category of financial transactions is met between related parties. • A local file, where the materiality threshold of EUR1 million in the rest categories (goods, services, IP and other transactions) is met between related parties. • A master file, where the consolidated rev - enues of the group exceed EUR750 million, with the guidance of the OECD materials. According to the law, a documentation file must be maintained on intragroup transactions per - formed between: • companies that are residents in the Republic; or • permanent establishments of foreign compa - nies in the Republic. The obliged entities with accumulated intra - group transactions per category, equal or below EUR5 million for financing and EUR1 million for the rest of the categories of transactions per tax year, based on the arm’s length principle,
or share capital or have the right to a share of at least the 25% of the income of both companies; or • a group of two or more persons holds, directly or indirectly, a participation in at least 25% of the voting rights or share capital or have a right to a share of at least 25% of the income of each company, and the group either consists of the same persons or could be regarded as consisting of the same per - sons by treating a member of either group as replaced by a person with whom they are connected. A company is connected with another person where: • that person and persons connected with that person hold, directly or indirectly, a partici - pation in at least 25% of the voting rights or share capital or have a right in at least 25% of the income of that company; or • a group of two or more acting together with the intention of securing, directly or indirectly, at least 25% of the voting rights or share capital or right to a share of at least 25% of the income of a company. Arm’s Length Principle Transfer pricing, both in theory and practice, relies on the arm’s length principle. The arm’s length principle provides that when two con - nected parties transact with each other, the terms and conditions attached to that transac - tion should be the same as that in a comparable transaction under comparable circumstances in the open market, between unrelated parties. The arm’s length principle is the cornerstone of the current transfer pricing rules.
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