Taxand Cyprus discusses the long-awaited transfer pricing guidelines on intra-group financing.
As of 1 July 2017, the tax treatment of intra-group financing arrangements has been amended in Cyprus. Intra-group financing transactions refers to finance activities between related parties (as defined in Section 33 of the Income Tax Law), including permanent establishments in Cyprus. Based on the Interpretative Circular issued by the Cyprus Tax Department, intra-group financing arrangements must be taxed from 1 July 2017 onwards under the arm’s length principals (transfer pricing rules).
For the purposes of the transactions under the scope of the Circular issued, it must be determined for each intra-group transaction whether it complies with the arm’s length principles. A comparability analysis must be performed in order to determine whether the transaction between independent entities is comparable to transactions between related entities.
The changes will have an immediate impact on all Cyprus financing companies with intra-group financing transactions and it is imperative that such structures are examined so as to ensure that their tax treatment is correct and their tax risk exposure is mitigated.