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Global transfer pricing guide

Transfer pricing - Cyprus

01 Oct 2023

Please click on each section to expand further:

Introduction to transfer pricing in Cyprus
New TP regulations
  • The Cyprus parliament amended Article 33 of the Income Tax Law concerning Transfer Pricing, and at the same time issued regulations concerning the application of the new Transfer Pricing legislation.
  • The law and regulations have been published in the Government Gazette on 08 July 2022 and are effective from 01 January 2022.
Summary
  • Covers all type of transactions between related parties in excess of €750.000 per category of transaction.
  • Type of transactions covered:
    • Goods: sale and purchase;
    • Services: provision and receipt of services;
    • IP Related: sale, purchase, leasing of intangible assets;
    • Financing: provision and receipt of financing;
    • Other: any other transaction between related parties.
Related Parties Introduction of 25% relationship test
  • A company is connected with another company under the following conditions:
    • If the same person has, directly or indirectly, at least 25% of the voting rights or of the share capital or is entitled to at least 25% share of the income of both companies;
    • If the same person and persons connected with that person holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the income of both companies;
    • If a group of two or more persons holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the income of each company and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom that person is connected.
  • A company is connected with another person under the following conditions:
    • If this person holds, directly or indirectly, at least 25% of the voting rights or of the share capital or is entitled to at least 25% share of the company's income or if that person and persons connected with him together holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the company's income;
    • Any two or more persons acting together to secure directly or indirectly, at least 25% of the voting rights or share capital or a right to a share of at least 25% of the income of a company, shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure directly or indirectly 25% of the voting rights or share capital or a right to a share of at least 25% of the income of that Company.
Transfer pricing documentation
Preparation of transfer pricing documentation
  • The ratification of the new TP legislation aims towards the completion of the three-tiered approach, as per the guidelines of BEPS Action 13 (CbCr / Master File / Local File).
  • Introduces TP documentation requirements to Cyprus tax resident companies and permanent establishments (that meet the aforementioned threshold) to:
    • Prepare a Local File, containing information and documentation for any intercompany transaction that the local entity is engaged with related parties;
    • Prepare a Master file, containing high level information about the global business operations and TP policy of the MNE group (*applies to ultimate or surrogate parent entities of MNE groups with consolidated revenues over €750m*);
    • Submit a Table of Summarized Information (TSI), containing a summary of the transactions with related parties.
Country by Country Reporting (CbCR)
  • CbC reporting requirements apply in Cyprus from fiscal year beginning on or after 01 January 2016.
  • Applies to MNE groups with consolidated group revenue of €750 million or more in the immediately preceding fiscal year.
  • The following constituent entities are required to file a CbC report in Cyprus:
    • A Cyprus tax resident ultimate parent entity of an MNE group;
    • A Cyprus surrogate parent entity of an MNE group;
    • A Cyprus constituent entity (may be required) under the secondary reporting mechanism.
  • Moreover, a constituent entity of an MNE group that is tax resident in Cyprus files a notification with the Cyprus Tax Department, disclosing the identity and tax residency of the reporting entity of the group for CbCR purposes.
Reporting Deadlines
  • Local / Master File: upon request should be made available withing 60 days (Annual preparation requirement & should be prepared by the Income Tax Return deadline);
  • TSI: Should be prepared by the Income Tax Return (ITR) deadline (i.e.15months from the end of the tax year under review) and submitted electronically together with the ITR.
  • CbCR notification filing must be made no later than the last day of the fiscal year to which the CbC report relates to.
  • CbC Report must be filed with the Cyprus Tax Department no later than 12 months after the last day of the fiscal year to which the CbC Report relates to.
Penalties
  • The penalties vary between €500 – €20.000 depending on each case.
    • Non submission of TSI within the agreed deadline - €500.
    • Late filing of the Local / Master file (61st – 90th day) – €5.000.
    • Late filing of the Local / Master file (91st – 120th day) – €10.000.
    • Late filing of the Local / Master file (after the 121st day) – €20.000.
  • A penalty of up to €10.000 and €5.000, in respect of each CbC Report and notification respectively, may be imposed on a Cypriot Constituent Entity for non-compliance. Under certain circumstances each penalty may be increased up to €20.000.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Determines in advance the transfer pricing price and methodology of a transaction(s) under review for a specific period of time.
  • The applicability of an APA is set to four (4) years.
  • Timeline for the Cyprus Tax Department to finalize an APA (10 – 24 months).
  • An APA can either be revised or revoked in case the contractual terms or assumptions on which the APA was based have changed.

For further information on transfer pricing in Cyprus please contact:

George Karavis.png

George Karavis
T +357 22600114
E
 george.karavis@cy.gt.com

Savvas Georgiou.png

Savvas Georgiou
T +357 22600255
E savvas.georgiou@cy.gt.com

Sophoclis Neocleous.png

Sophoclis Neocleous
T
+357 22600199
E sophoclis.neocleous@cy.gt.com

 

 

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