The Cyprus parliament on June 30th,2022 transposed the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations into the Cypriot Income Tax Law of 2002.
The new TP law allocates income to related companies and permanent establishments and has set out the threshold for related parties, individuals or entities, to a direct or indirect minimum 25% shareholding between two parties.
The first TP requirement under the new law is to submit a summary including intercompany transactions, the profile of the business and the transfer pricing method used.
The second TP requirement is a transfer pricing study to justify compliance with the arm’s length principle (ALP) subject to an exemption when cumulative transactions threshold falls below € 750,000 per tax year. The OECD TP Guidelines, following amendment due to the Base Erosion and Profit Shifting (BEPS), provide a nine-step process for undertaking a transfer pricing analysis, including the appropriate TP method arms-length principle, comparability adjustments and functional analysis, recognition and delineation of the transaction, as well as special rules in intangibles, risks allocation, profit splits and financial transactions. The TP study and the summary information should be prepared no later than the due date for submitting the taxpayer’s Income Tax Return, and the new rules provide specific provisions regarding Advance Pricing Agreements based on the arm’s length principle.
Finally, sanctions apply in the event TP rules are not applied, including interest and penalties, increased scrutiny audits from tax authorities, potential corporate tax liabilities, potential VAT liabilities.