Transfer Pricing: Understanding your obligations
All Cyprus Tax Residents and Permanent establishments needs to comply with Transfer Pricing Legislation which is part of the Cyprus Law from 30 June 2022. On 30 June 2022, the Cyprus Parliament voted the detailed transfer pricing legislation.
The new legislation is applicable for the years 2022 and onwards.
Who is affected
All entities described above with transactions over €750,000 in aggregate per category per year. The amount includes the adjusted amount as per arm length basis and not the accounting amount.
Related Party explanation
If you hold direct or indirect 25% on the share capital of the party under consideration
In case you hold 25% of the voting rights
When you have right to receive economic benefit more than 25%
Method of estimation of the arm’s length amounts
You need to apply the Transfer Pricing Guidelines issued by OECD. By applying the specific guidelines, you comply with the arm’s length principle as per Cyprus Income Tax Law.
A local transfer pricing file (local file) must be kept and updated on an annual basis. The file should include
Structure of the Cyprus entity
IC transactions occurred during the tax year including dates, type and nature
Related Parties agreements
Transfer pricing mythology application
A table summary (Table of Summarized Information) should be submitted for the relevant tax year together with the tax form for the year.
Special case: You have obligation to prepare and update a master transfer pricing file.
Master File vs Local File
You have an obligation to prepare and update a master file if the company is the ultimate or surrogate parent company of an multinational group which has consolidated revenues above €750m.
The master file should be available to the Tax Authorities of all jurisdictions with RP transactions. On the other hand, local file should be available only to Cyprus Tax Authorities.
A table summary (Table of Summarized Information) should be submitted no later than the due date of the Income Tax Return (15 months after the tax year under review)
If you fail to submit it within deadline, there is a penalty of €500.
Cyprus Tax Department has the right at any time to request the Table of Summarized Information. In that case you have obligation to provide Cyprus Tax Authorities the table withing 60 days.
If you fail to provide Cyprus Tax Authorities it within deadline of 60 days, the following penalties are applicable:
Between 61 – 90 days: €5,000 penalty
Between 91 – 120 days: €10,000 penalty
For more than 120 days: €20,000 penalty
Disclaimer: The information provided in this article /page is for general awareness and is not intended to be and do not constitute a professional advice.