Cyprus: Long-awaited transfer pricing guidelines on intra-group financing released

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Cyprus: Long-awaited transfer pricing guidelines on intra-group financing released

intl-updates-small.jpg
nicolaou.jpg
sagianni.jpg

Maria Nicolaou

Anastasia Sagianni

As of July 1 2017, the tax treatment of intra-group financing arrangements has been amended in Cyprus.

Intra-group financing transactions refers to finance activities between related parties (as defined in section 33 of the Income Tax Law), including permanent establishments (PE) in Cyprus. Based on the Interpretative Circular issued by the Cyprus tax department, intra-group financing arrangements must be taxed from July 1 2017 onwards under the arm's-length principles (transfer pricing rules).

For the purposes of the transactions under the scope of the circular issued, it must be determined for each intra-group transaction whether it complies with the arm's-length principles. A comparability analysis must be performed in order to determine whether the transaction between independent entities is comparable to transactions between related entities.

The comparability analysis mentioned above should consist of the two following parts:

  • Identification of the commercial financial relationship between entities and determining the conditions and economically relevant circumstances attached to those relations in order to accurately delineate the controlled transaction; and

  • Comparison of the accurately delineated conditions and economically relevant circumstances of the controlled transaction with those of the comparable transactions between independent entities.

It should be noted that the group financing company should be controlling the risk if it has the decision-making power to enter into a risk-bearing commercial relationship. In order to justify the risk control and further validate that the management and control are exercised in Cyprus, it is essential that the group financing company has an actual presence in Cyprus.

In case of companies with a profile comparable to the entities subject to Regulation (EU) No. 5/2013 of the European Parliament and of the Council of June 26 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 64/2012, a return on equity of 10% after-tax can be observed in the market and be considered as reflecting arm's-length remuneration for the financing and treasure functions in question.

Simplified procedures exist, according to which the transactions of financing companies pursuing a purely intermediary activity are deemed to comply with the arm's-length principle if the company under review receives a minimum return of 2% after tax on assets. In order to benefit from this simplification measure, the use of it should be communicated to the tax department.

The above mentioned percentages are valid as of the date of issuance of the circular and will be reviewed by the tax department based on relevant market analysis and – if required – will be changed accordingly.

Minimum requirements for the transfer pricing analysis exist and are necessary in order for the analysis to be in compliance with the principles of the new circular.

Finally, any tax rulings relating to the matters of the circular which were issued prior to July 1 2017 will no longer be considered valid.

The above changes will have an immediate impact on all Cyprus financing companies with intra-group financing transactions and it is imperative that such structures are examined to ensure that their tax treatment is correct and their tax risk exposure is mitigated.

Maria Nicolaou (maria.nicolaou@eurofast.eu) and Anastasia Sagianni (anastasia.sagianni@eurofast.eu)

Eurofast Taxand Cyprus

Tel: +357 22699222

Website: www.eurofast.eu

more across site & shared bottom lb ros

More from across our site

Over two-thirds of survey respondents back the continuation of the UK’s digital services tax, research commissioned by the Fair Tax Foundation also found
Given the US/G7 pillar two deal, the OECD is in danger of being replaced by the UN as the leading global tax reform forum
Cinven’s latest investment follows its acquisition of a stake in Grant Thornton UK in December; in other news, a barrister listed by HMRC as a tax avoidance promoter has alleged harassment
CIT base narrowing measures remain more prevalent than increased CIT rates, the report also highlighted
ITR's parent company, LBG, will acquire The Lawyer, a leading news, intelligence and data-driven insight provider for the legal industry, from Centaur Media
KPMG UK’s Graeme Webster and KPMG Meijburg & Co’s Eduard Sporken outline the 20-year evolution of MAPAs, with DEMPE analyses becoming more prevalent and MAPA requirements growing stricter
Rishi Joshi, of the Institute of Chartered Accountants of India, warns of potential judicial overreach as assets are recharacterised to bypass a legislative exclusion
Only 2% of in-house survey respondents said they were ‘heavy’ users of AI for TP, Aibidia’s report also found
There was a ‘deeply embedded culture within PwC that routinely disregarded formal confidentiality obligations,’ the chairman of Australia’s Tax Practitioners Board said
Jennifer Best was most recently the acting commissioner of the IRS’s large business and international division
Gift this article