Introduction of Transfer Pricing Documentation Requirements in
Cyprus
On 30th June 2022 the Cyprus Parliament approved the long awaited
amendments to the Cyprus Income Tax Law and new Regulations to
introduce Transfer Pricing ("TP") documentation
compliance obligations which closely follow the OECD TP Guidelines
(as amended from time to time).
The amendments to the Income Tax Law and new
regulations are summarised as follows:
1. Definition of Related Parties
In a nutshell two companies are considered as related
if the same person (and its related persons) or group(s) of persons
(under certain conditions) directly or indirectly:
- hold 25% of the voting rights or share capital ofboth companies, or
- have the right to at least 25% of both companies'
A company is also considered related to a person (and its related persons) that directly or indirectly:
- hold 25% of its voting rights or share capital, or
- have the right to at least 25% of its income.
Two or more persons are considered related if they acttogether (or take directions) to directly or indirectly:
- hold 25% of the voting rights or share capital, or
- have the right to at least 25% of the profit of a
company
2. TP Documentation Obligations and Advanced Pricing Agreement ("APA") Procedure
- The requirements for transfer pricingdocumentation cover:
(i) transactions between Cyprus tax resident companies;
(ii) transactions between permanent establishments in Cyprus of non – tax resident companies and their head office or related companies of the head office established outside Cyprus and
(iii) transactions between Cyprus tax resident companies and their foreign permanent establishments.
- The Transfer Pricing Documentation will include the Master Transfer Pricing File (where the ultimate parent is in Cyprus) and the Cyprus Local Transfer Pricing File, as well as the Summary Information table.
- There will be no requirement to maintain a Cypriot Transfer Pricing File for companies of which the value of transactions with related parties is below Euro750.000 per annum per category (e.g., sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licencing/royalties, others).
- The TP Documentation File must be updated on an annual basis taking into consideration market fluctuations and must be submitted for Quality Review by the submission deadline of the Income Tax Return for the relevant year.
- The Transfer Filing File must be retained by the taxpayer and
submitted to the Cyprus Tax
Department within 60 days from such request received from the Tax Department - The Summary Tables must be submitted electronically together with the Income Tax Return for the relevant year.
- The Cyprus Tax Department will be issuing a relevant Notification to announce (amongst others) the required detailed contents of the Master File and Cyprus Local File.
- Cyprus tax resident persons and non-Cyprus tax resident persons that have a permanent establishment situated in Cyprus may submit to the Cyprus Tax Department an APA Request with respect to current or future domestic or cross border Controlled Transactions.
Effective date
This Law is effective from tax year 2022 onwards.
Administrative Penalties
Penalties will apply for non-compliance ranging fromEur500 for non-submission of the Summary Tables toEur20.000 for non-submission of the TP Documentation File upon a request by the Tax Department.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.