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Cyprus Tax Department – Introduction Of Transfer Pricing Law And Regulations In Cyprus – Tax Authorities



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This is a joint article with the
company
T.P. Alfa
Services

A. INTRODUCTION

The Cyprus Parliament on 30th of June 2022 has voted
the new transfer pricing law and regulations which establish
transfer pricing documentation requirements for Companies that are
resident in the Republic and Permanent establishments (PEs) in the
Republic of non-tax resident companies.

The law and regulations are aligned with the OECD Transfer
Pricing Guidelines and apply as from 1st of January
2022.

B. DOCUMENTATION AND REPORTING REQUIREMENTS

The most important points of the law and regulations are the
following:

  1. Documentation should be maintained for related party
    transactions. Article 33 of income tax law has been amended to
    introduce a 25% relationship test which upon fulfilment, the
    parties are considered related and any transactions between them
    should be at arm’s length.

  1. Companies and PEs mentioned above are obliged to maintain the
    following Transfer Pricing documentation:

    1. master file;

    2. local file and;

    3. table of summarised transactions





    The above should be ready by 31 March of 2024 which is the deadline
    for submission of tax returns for the tax year 2022.

  1. Table of summarised transactions is the only one of the above
    documents that must be submitted to Tax Authorities on the
    submission of the tax return. This document will provide high-level
    information for the related parties transactions.

  2. Local files must be prepared by taxpayers involved in
    controlled transactions (transactions with related entities) and
    submitted to the Tax Authorities upon request. Exempted from
    preparation of local file are taxpayers whose volume of controlled
    transactions per category (analysed below) does not exceed the
    amount of EUR 750.000.

  3. Master file must be prepared by companies that are either the
    ultimate or surrogate parent entities of the group with an annual
    consolidated turnover that exceeds the amount of EUR 750 million
    and submitted to the Tax Authorities upon request.

C. CATEGORIES COVERED

The new transfer pricing law covers all types of transactions
that are concluded between related parties. Therefore,
documentation must be prepared (subject to the above exemptions)
on:

  1. Sale/purchase of goods

  2. Provision/receipt of services

  3. Paying/receiving royalty income and sale/purchase of
    Intellectual Property (IP)

  4. Provision/receipt of financial services

  5. Other types of transactions between related entities

D. PENALTIES

Penalties will be imposed to taxpayers who do not comply with
requirements of the new law and regulations regarding transfer
pricing documentation.

The penalties can vary from EUR 500.00 to EUR 20,000.00
depending on the case as will be described in the articles of the
law.

E. ADVANCED PRICING ARRANGEMENTS

The new legislation also introduces provisions for requesting
Advances Pricing Arrangements (APA).

APA will set in advance the price/methodology/assumptions for a
specific transaction that is requested by the taxpayer and
eventually agreed between tax authorities and taxpayer.

Commissioner of Taxation will review the application and provide
a reply to the taxpayer within 10 months from the date of
application. The period for reply can be extended to up to 24
months where necessary.

Bilateral APAs (APAs involving tax authorities of more than one
state) will also be available to the taxpayers. The application
will be made in parallel to both states tax authorities by the
taxpayer who will provide the authorities with all necessary
information/documents necessary to assess the request.

An APA can be valid for a maximum period of 4 years. APA can be
revisited and revised upon request of the taxpayer or where the
Commissioner of Taxation consider it necessary.

It must be noted that the Commissioner retains the power to
revoke or cancel an APA under certain circumstances.

F. HOW CAN TP ALFA SERVICES LIMITED ASSIST

TP ALFA SERVICES LIMITED can assist to you to:

  • Understand the impact of the information included in this
    publication on your intragroup financing transactions.

  • Perform and submit a transfer pricing study for your intragroup
    transactions.

  • Prepare an APA and liaise with tax authorities to enable the
    client secure a pricing in advance;

  • Assist in the formation of the internal transfer pricing
    policy

  • Represent you in a transfer pricing dispute with the tax
    authorities

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.

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