Dear clients,
We would like to inform you of the introduction of new transfer-pricing legislation that is applicable in the event where a Cyprus tax resident company (or a permanent establishment of a non-resident company) carries out transactions between connected parties.
The new transfer-pricing rules introduce new requirements for legal entities that engage in transactions with related parties whether these are legal persons or individuals as follows:
- To prepare and submit a summary information table (SIT) that will include high level information regarding related party transactions such as details of the counterparties, category of intercompany transactions, and amounts per transaction category. The SIT reporting obligation is applicable to all companies engaged in related party transactions, with no reporting materiality threshold and shall be submitted to the Tax Department on an annual basis.
- To prepare a transfer-pricing study to support that they comply with the arm’s length principle. This includes the preparation of a local file (covers all types of related party transactions) and a master file (maintained at the level of the Ultimate Parent Entity or the Surrogate Parent Entity of an MNE group with consolidated revenues of over €750m).
The requirement to prepare a transfer-pricing study does not apply to the extent that transactions with related parties do not exceed the amount of €750.000 cumulatively per category of transaction. The relevant categories are goods, services, transactions involving IP, financial transactions and other transactions.
Related parties are determined based on the 25% connection threshold.
The deadline for the preparation of the SIT and transfer-pricing study is the due date for the submission of the income tax return for a given tax year, i.e., 15 months after year end. The transfer-pricing study must be submitted to the Tax Department upon request within 60 days.
The new law provide for penalty of €500 for late submission of the SIT. Failure to provide the local file and Master file (where applicable) within 60 days from the day of request by the Tax Department will result to penalties ranging from €5.000 – €20.000 depending on the length of the delay.
Based on the above please contact us if you estimate that the amount of intercompany transactions in 2022 will exceed the amount of €750.000 per category of transaction. Note that for financing arrangements the receivable and payable balances must be considered.
We remain at your disposal to address any questions you may have. Our minimum fees to review the latest financial statements and assess whether there may be a need for transfer-pricing study will be €200 plus VAT.
