Transfer Pricing in Cyprus

Effective as of 1 January 2022, the Cypriot Income Tax and the Assessment and Collection of Taxes Laws were amended to introduce Transfer Pricing rules in accordance with the Organization for Economic Co-operation and Development on Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines).

The TP rules provide for the content of the TP Documentation Files (Local and Master Files) and the Summary Information Table (SIT) as well as introduce the concept of Advance Pricing Agreements (APAs).

  • Master File

    Master File is a document which contains high level information about the global business operations of a multinational group. The content of the Master File  should be in line with the OECD TP Guidelines. The Master File shall be prepared by Multinational groups that meet both of the below requirements:

    • Consolidated revenue exceeding Euro 750 million (groups with CbCR obligation)
    • The Ultimate Parent Entity (UPE) or Surrogate Parent Entity of the group is Cypriot tax resident company.

    The Master File is to be prepared by the Income Tax Return submission deadline for the respective tax year. After the preparation deadline the Master File must be made available by the taxpayer and submitted to the tax authorities upon request within 60 days.

  • Local File

    The Local File is a document which contains detailed information about the local business of the taxpayer, including description and documentation of related- party transactions. The content of the Local File should be in line with the OECD TP Guidelines. The Local File shall be prepared by Cypriot tax resident companies/Cypriot tax resident companies with a foreign branch/Cypriot branches of non- Cypriot tax resident companies being engaged in related-party transactions with an accumulated amount during the tax year exceeding Euro 750,000 (per transaction category as defined in the SIT).

    The Local File should be subject to Quality Assurance Review (sign-off) by a person who has a practicing certificate of ICPAC or any other recognized institute of certified accountants in Cyprus.

    The Local File is to be prepared by the Income Tax Return submission deadline for the respective tax year. After the preparation deadline the Local File must be made available by the taxpayer and submitted to the tax authorities upon request within 60 days.

  • Summary Information Table (SIT)

    The SIT is an additional form (i.e., TP return) that should reflect high-level information about the taxpayer’s related-party transactions, including details of the counterparties, category of intercompany transactions entered into, and amound per transaction category. The categories of transactions as per SIT is Goods, Services, Royalties and Other Intangibles, Financing Transactions and Others.

    The SIT reporting obligation is applicable to all taxpayers engaged in related party transactions, with no reporting materiality threshold. The SIT shall be submitted to the tax authorities on an annual basis concurrently with the Income Tax Return.

  • Introduction of Advance Pricing Agreements (APAs)

    Taxpayers may submit advance pricing agreements (APA) to the Cypriot tax authorities, to agree on pricing methodologies in advance. Such APAs may have unilateral, bilateral or multilateral application and will be valid for a period of up to four years.

    More specifically, an APA determines an appropriate set of criteria (e.g., method, comparables and appropriate adjustments thereto, critical assumptions as to future events) to be applied for a fixed period of time with respect to specific controlled transactions concluded based on the arm’s-length principle.

  • Penalties for non-compliance with the new TP legislation

    Penalties for non-compliance with the submission deadlines for the TP Documentation Files and the SIT shall be as follows:

     

Point of Contact:

Charalambos Palaontas | Partner | Head of Transfer Pricing Services

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