Transfer Pricing Rules in Cyprus – FAQs by Tax Authorities

15/02/2023

Further to our previous newsfeed on this, the Cyprus Tax Department issued a series of Frequently Asked Questions (FAQs) on its website, providing guidance on certain aspects of the Transfer Pricing Rules introduced with effect from 1 January 2022.  

Below is a selection of the questions and answers appearing on the website mentioned above.

Local File Application Threshold

Question: If the controlled transactions in Category "A" cumulatively exceed €750.000 or shall exceed €750.000 on the basis of the arm's length principle and at the same time the controlled transactions in Category "B" cumulatively do not exceed the €750.000 threshold in a tax year, is there an obligation to include the controlled transactions of Category "B" in the Cyprus Local File?

Answer: No, there is no obligation to include Category's "B" controlled transactions in the Cyprus Local File.

Only, the controlled transactions of a category which cumulatively exceed or shall exceed €750.000 on the basis of the arm's length principle during a tax year must be documented and analysed in the Cyprus Local File.

In this specific example, it will be Category's "A" controlled transactions only.

Aggregation of Transactions

Question: Do purchases and sales need to be aggregated for the purposes of assessing whether the threshold has been exceeded?

Answer: Yes, the threshold is based by reference to the absolute values of the controlled transactions for each category occurring in a tax year.

For example, if total purchases and total sales amount to €400.000 and €500.000 respectively, the cumulative amount in this category is € 900.000. Thus, the threshold in this category has been exceeded.

Benchmarking Study

Question: Should a Benchmarking Study be prepared every tax year or only if something changes with regards to the intra group loans?

Answer: A Benchmarking Study should be prepared when an intra group loan is initiated and updated when:

• new loans are provided or received by the company; or
• significant terms of the existing loans change or amended; or
• the functional profile of the company changes; or
• the market and economic conditions change significantly (if applicable).

The above list is indicative and not exhaustive. Further guidance is provided in the OECD TP Guidelines.

Please note that the Master File (where applicable) and the Local File shall be updated every tax year.

Summary Information Table

Question: Who is responsible for the completion and the submission of the Summary Information Table (SIT)?

Answer: It is the responsibility of the taxpayer to complete the SIT. The SIT shall be submitted by the Statutory Auditor or Tax Consultant.