On 30 June 2022, the Cyprus Parliament voted for the introduction of transfer pricing documentation requirements for Cyprus tax resident persons and permanent establishments of non-Cyprus tax resident persons, applicable as from 1 January 2022.
The arm's length principle is at the heart of Transfer Pricing, pursuing the fair and proportional attribution of profits between related parties for tax purposes. The arm’s length principle provides that transactions between related parties should be carried out at no different terms and conditions to those applied in transactions between unrelated parties.
In this article, we mention the main provisions of the new transfer pricing law and regulations.
€ 750.000 per category of transactions
Covers all types of transactions between related parties, more than € 750.000 per category of transactions, such as distribution of goods, provision, and receipt of services, licensing of Intangibles, transfer of intangibles, financing transactions, and other types of transactions.
The transfer pricing documentation should be prepared in accordance with OECD Transfer Pricing Guidelines.
25% relationship threshold
The definition of related parties introduces a minimum 25% relationship threshold.
Revenue of a Group of Companies
If a Cyprus company belongs to a group with a consolidated revenue exceeding €750 m, a master file should be also prepared.
Types of Agreements
It will be possible to proceed with Advanced Pricing Agreements (both Bilateral and Multilateral).
The deadline for the preparation of the transfer pricing documentation is 15 months from the year-end. For example, the deadline for the tax year 2022 is 31/3/2024.
The transfer pricing documentation should be filed within the Cyprus Tax Department upon a request and the documentation should be filed within 60 days from the notification of such request.
The taxpayers affected should proactively understand the impact of new transfer pricing documentation rules into their operations, review their transfer pricing policies and inter-company agreements and align the functions carried out by each party and risks assumed with their transfer pricing policies to ensure compliance and avoid additional taxes and penalties, in case of future tax audits.
During BEST LEGAL Conference in September 2022 a workshop titled “Unfolding the New Cyprus Transfer Pricing Documentation Requirements – Real Life Application” will be offered to the delegates. It will include case studies with the most common business activities carried out in Cyprus, including financing activities, provision of services, licensing and transfer of intangibles, and distribution activities.
More details: www.blcyprus.com
Managing Partner, TP & Tax Minds Ltd