The Cyprus House of Representatives is debating a bill that contains provisions to codify the country’s transfer pricing rules. The proposed rules are based on and would be applied in accordance with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as well as actions 8-10 and 13 of the OECD BEPS project. The House is expected to pass the bill into law in early 2022.
The proposed legislation would require that domestic and international transactions between associated persons be on arm’s length terms, as stated in article 9 of the OECD model tax treaty and as explained in the OECD transfer pricing guidelines. Under the proposed rules, taxpayers would be required to prepare and maintain transfer pricing documentation, which would ensure that the Cyprus tax authorities have the information needed to assess the arm’s length nature of intragroup transactions. In addition, an advance pricing agreement (APA) program would be introduced.
Transfer pricing documentation would have to be provided for all related party transactions entered into by Cyprus resident companies and foreign entities operating through a permanent establishment in Cyprus, subject to certain exemptions. “Related parties” for this purpose would have the same meaning as under the Income Tax Law, i.e., where one party has a direct or an indirect relationship of at least 25% of the share capital or voting rights of another party.
Taxpayers would be required to prepare and maintain both a local file and a master file as follows:
Transfer pricing documentation would have to be prepared within 12 months of the end of the tax year and be accompanied by a summary table of information. The taxpayer would have to submit the table electronically to the Cyprus tax authorities within nine months after the end of the tax year. The documentation would not have to be submitted to the tax authorities, unless so requested, and once a request is made, the taxpayer would have to submit the documentation within 60 days. Additionally, it should be noted that the responsible entity would be required to update all transfer pricing documentation, if necessary.
The bill would introduce a new APA program, under which a taxpayer could apply to the Tax Commissioner for pre-approval of the transfer pricing methodology selected, and/or the pricing of specific or existing cross-border transactions with related parties.