CYPRUS Trends and Developments Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
selection of the most appropriate set of criteria in determining the transfer pricing over a fixed period of time, not exceeding a period of four years. Where the APA includes a request of consulta - tion with the tax authorities of other states with which Cyprus has a double tax treaty in place (bilateral or multilateral APA), the taxpayer must submit the same request with all the supporting documents to the foreign tax authorities as well. In this case, the Commissioner of Taxation may hold consultations with the foreign tax authori - ties using the mutual agreements procedures (MAP) provided in the double tax treaty con - cluded between the contracting states. The formal exchange of views between the competent tax authorities shall take place in the form of an exchange of position documents, which shall be made available to the applicant in accordance with the provisions which restrict and prohibit the use of information contained in an international agreement to which the Repub - lic of Cyprus is a party and the provisions of the EU law. The APA will be examined by the Commissioner of Taxation who will decide whether to accept or reject it. The decision should be communicated to the taxpayer within ten months. The Com - missioner can extend this period to 24 months, provided that the taxpayer is notified about the delay. An APA can be revised, revoked or cancelled in the case of erroneous assumptions or failure of the taxpayer to comply with fundamental con - ditions or obligations agreed with the Commis - sioner. If the APA procedures prove to be func - tional, many hands will be untied and some of the decisions regarding the approach reached
by the Commissioner can be used for paradigms in the future. Tax Authorites’ Issuance of Frequently Asked Questions The first guidance on the interpretation of the new TP rules was set out by the tax authorities in the form of frequently asked questions (FAQ), published in February 2023. The answers mainly concerned the way a taxpayer can assess the aggregation of the amounts, the selection of the correct category for some transactions and other technicalities in assessing the need for a benchmark study update and the completion of the SIT. An important aspect was the clarification that the threshold is determined by reference to the absolute values of the controlled transactions for each category occurring in a tax year. For instance, purchases and sales need to be con - sidered cumulatively in assessing the trigger of a local file obligation. Also, the tax authorities’ FAQ explained that, when it comes to intragroup loans, the transfer pricing benchmark analysis must be updated and performed again for the relevant tax year when: • new loans are provided or received by the company; or • significant terms of the existing loans change or amended; or • the functional profile of the company chang - es; or • the market and economic conditions change significantly. This is similar to the previous FAQ published, regarding the interpretation and application of the Circular.
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