Transfer Pricing – Cyprus

Transfer Pricing – Cyprus

You should act now, if Transfer Pricing applies to you.

The Transfer Pricing regime concerns tax treatment of intra-group financing transactions. The draft bill aims to put an end to the over-pricing of intra-group invoices so that any low tax rate that may apply in one country can be exploited.

To make it easy and simple to understand, if your Cyprus company:

• has intercompany loans, which have been granted out of funds originated out of borrowed funds (intra-group back-to-back financing arrangements); and/or
• has borrowed funds from third party, which are either interest-free or interest bearing;

Then each Cyprus company should prepare a TP study in accordance with the OECD Transfer Pricing Guidelines.

In other words, a Group should document that the charges it has made for these transactions are correct and are the same as those that would be charged for transactions with third parties in order to avoid the phenomenon of transferring profits to countries with lower tax rates.

Cyprus has a relatively low corporate tax rate (12.5%) and it is very important to be able to document to relevant tax authorities within and outside Europe that income received by Cypriot parent companies as well as  subsidiaries by a Group is in line with international standards of intra-group billing as defined by the OECD.

As of 2019, companies entering into intercompany transactions should also submit a Summary Information Table (SIT) providing information with regards to the type and volume of their transactions with related parties. SIT is submitted electronically.

Our transfer pricing experts can assist you to determine whether your business is subject to the new legislation and ensure that the relevant requirements are met.