What Cyprus’s new transfer pricing rules mean for you

Cyprus transfer pricing is finally aligning with the rest of the EU in terms of regulations. Here’s what you need to know.

In summer 2022 the Cypriot parliament voted into law a raft of new transfer pricing rules.

We’re currently waiting on an update from the government tax office on the details of how these rules will be implemented in practice. But what we know already is that they will align Cyprus transfer pricing with most of the rest of the EU, regarding the tax treatment of related entities.

Cyprus is one of the last countries in the EU to adopt transfer pricing guidelines.

What do the rules mean for business?

The new rules are most relevant to capital markets and larger corporate clients because there is a small size exemption.

To be captured by the new regulations, relevant intercompany transactions have to cumulatively exceed EUR750,000 per category in any tax year.

While the new rules are backdated to come into effect from 1 January 2022, at the moment they lack definition. We expect the tax office to provide further guidance soon.

In the meantime, companies and funds likely to be affected by the new rules should begin to prepare for their implementation.

While Cyprus is a little behind most of the EU in terms of transfer pricing law, it’s clear that fairness and transparency in the way related parties deal with each other, is a priority for financial regulators.

We’re at the start of a new era in company taxation in Cyprus, and those that fail to comply risk fines, reputational damage and increased scrutiny from tax authorities.

Three stages of preparation

Intertrust Group Cyprus is closely monitoring developments and would recommend companies take the following steps to prepare for the new tax regime.

1. Assess the impact on your business

Take this opportunity to assess whether and how the new rules apply to you. For example, the law goes into some detail about what it means by “related parties”. The most important element here is the 25% rule. This is complex but effectively means that parties are related if one holds at least a 25% stake in the other.

If your organisation is captured by the legislation, review transactions between related parties to see whether they exceed the EUR750,000 per category, per annum threshold. Include all your most recent transactions.

2. Gather information for a summary of activities

If the new rules apply, you will have to produce a summary information table detailing relevant business activities before the deadline for filing your tax return. This table should include general information about the company and its various entities, the nature of intercompany transactions and the transfer pricing method used.

3. Start researching for a transfer pricing study

This is a key requirement of the new law and should show that transactions between related parties have been conducted “at arm’s length”. The new Cyprus law incorporates the Organisation for Economic Cooperation and Development (OECD) transfer pricing guidelines in full and these should be referenced in the study. You might not be able to produce a complete transfer pricing study yet, but you should prepare your organisation for the moment when it becomes necessary. Think about what information you need to collect and how you will collect it. Automate these processes wherever possible.

Cyprus transfer pricing: change is inevitable

While some of the practical details are still to be ironed out, change to corporate tax law in Cyprus is now inevitable.

Businesses that might be affected by the new rules should start preparing now for more detailed data gathering and reporting standards. Specific transfer pricing documentation will be required, unless you claim small size exemption.

Reviewing your intercompany activities and understanding their implications is a good place to start.

How Intertrust Group can help

• We help finance teams manage accounting and reporting obligations and remain compliant with all regulatory requirements.
• As a strategic partner, we can give your teams access to the latest top-tier applications and advanced automation, coupled with the expertise and knowledge they need to leverage those tools.
• Intertrust Group is a publicly listed company with 70 years’ experience in providing world-class trust and corporate services to clients around the world.