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Cyprus tax-resident companies engaged in intercompany transactions with related parties must now comply with amended Transfer Pricing (TP) regulations designed to ensure these dealings adhere to the arm’s length principle. These changes, effective from January 1, 2022, align the Cyprus tax framework with the OECD Transfer Pricing Guidelines, reinforcing a robust system for managing cross-border transactions.
Understanding the core aspects of these regulations is vital for businesses operating in Cyprus, as the new legislation introduces significant obligations and penalties for non-compliance.
Key Concepts in the Updated Framework
The amended TP rules apply to Cyprus tax-resident entities and Permanent Establishments (PEs) of non-resident entities involved in transactions with related parties. Related parties are defined as entities or individuals who (a) directly or indirectly hold at least 25% of the voting rights or share capital, or (b) are entitled to at least 25% of a company’s profits.
At the heart of the regulations is the arm’s length principle, which mandates that the pricing for goods, services, royalties, and loans between related parties reflect market conditions, ensuring fairness and transparency in intercompany transactions.
Mandatory Reporting Obligations
Entities engaging in intercompany transactions must submit a Summary Information Table (SIT) alongside their annual Income Tax Return, regardless of transaction value. The SIT provides high-level details such as transaction categories, counterparties, and values. A penalty of €500 applies for late or non-submission.
Additional documentation, including a Local File and Master File, is required if specified thresholds are exceeded:
Local File: Required for intercompany transactions exceeding €1,000,000 per category or financing transactions exceeding €5,000,000. It must be prepared before the tax return deadline and submitted to the Cyprus Tax Department (CTD) within 60 days upon request. Non-compliance can result in penalties ranging from €5,000 to €20,000.
Master File: Necessary for multinational enterprise groups where Cyprus serves as the Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE), provided the group’s consolidated revenues exceed €750 million. The Master File provides a comprehensive overview of the group’s operations and transfer pricing policies. Submission is required within 60 days of a CTD request, with penalties similar to those for the Local File.
Advance Pricing Arrangement (APA)
An APA offers businesses certainty about the application of TP rules for specific transactions. Taxpayers can apply to the Tax Commissioner for pre-approval of transfer pricing methods or cross-border transaction pricing. Decisions are issued within 10 months, and the APA remains valid for up to four years from the application date.
How Flexi Group Can Assist
The complexities of the amended TP legislation require careful navigation to ensure compliance and mitigate risks. Flexi Group offers tailored support to businesses affected by these regulations, providing expert guidance on preparing and maintaining TP documentation, meeting reporting obligations, and securing APAs.
Our team of professionals works closely with clients to align their intercompany transactions with the arm’s length principle and meet the stringent requirements set by the Cyprus Tax Department. By partnering with Flexi Group, you can focus on your business operations while we handle the intricacies of TP compliance.
For personalized advice and assistance, contact Flexi Group today and ensure your business stays ahead in this evolving regulatory landscape.
*DISCLAIMER: This article and its publication are intended to provide a brief introduction and act as a general guide. This is provided for information purposes only and cannot be utilized as a substitute for professional advice. This document does not represent a legal opinion and one must not rely on it without receiving independent advice based on the particular facts of its own case. No responsibility is accepted by the author or the publishers for any loss suffered from acting or refraining from acting based on the contents of this publication.
Start a conversation with us today to find out how you can benefit from a relationship with Flexi Group.
Please get in contact with our Head of Business Development:
Mrs Daniella May / Head of Business Development
Tel.: + 357 7000 2 5555 / + 357 22 87 57 55
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