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The BEPS Effect: Transfer Pricing Rules in Cyprus
Taking into consideration that the tax authorities in neighbouring countries in South Eastern Europe and the Mediterranean have started focussing considerable attention on transfer pricing, it is expected that this ‘trend’ will influence Cyprus as well.
For example the Albanian transfer pricing rules have been present for more than a decade in their corporate income tax (CIT) Law, however, detailed regulations on the application of these rules have only now been published in the Official Journal (No 70), dated 20/05/2014. The recent changes lead to the alignment of local rules to the OECD guidelines, eliminating the conflicting rules that have been applied so far.
The Bulgarian transfer pricing rules were initially introduced in the Corporate Income Tax Act (CITA), the Tax and Social Security Procedures Code, as well as in Ordinance № H-9 for implementation of the transfer pricing methods issued by the Minister of Finance on 29 August 2006. Following the international trends, a manual providing guidance on transfer pricing issues was published in 2010 by the tax authorities.
In Serbia the rules have been present since 1 July 2001, while the latest amendments related to interest rates came into force on 15 February 2014. The rulebook was enacted on 20 July 2013 giving clarity to transfer pricing rules.
Cyprus does not have specific transfer pricing rules in its domestic legislation. However, the country follows the OECD transfer pricing guidelines and the arm’s length principle.
According to Article 33 of the Income Tax Legislation (118 (I)/2002 as amended), the Cyprus tax authorities may proceed with adjustments in the taxable bases of companies if conditions indicate that transactions occurred were not valued in the same way as if they had been carried out between unrelated parties.
The definition of related parties is very broad, but exclusively includes situations where one party directly or indirectly participates in the management and control, or capital, of another party (no specific thresholds), or if the same parties participate directly or indirectly in the management and control or capital of another party. Moreover, the term ‘related party’ between entities may include situations ranging from statutory to economic dependency and also certain family relations.
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By implementing international transfer pricing principles with an effective approach, Cyprus may attract more multinationals which would have a positive impact on the country’s investment environment. Multinationals with operations in Cyprus should keep abreast of all developments in the jurisdiction in order to ascertain the impact new transfer pricing rules and regulations would have on their specific situation.
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