Guidance for the compliance obligations in relation to the documentation required for the controlled transactions, as of the tax year 2022 onwards.
1. Controlled Transactions:
A Taxpayer that is engaged into controlled transactions with related party would have the obligation to define the arm’s length remuneration of such transactions in accordance with the provisions of the Cyprus Tax Legislation, as analysed below under sections II and III.
2. Transfer Pricing study requirements:
In accordance with the Cyprus Tax Legislation a Cyprus Local File (what is called: Transfer Pricing study) should be prepared, if a Taxpayer is engaged into controlled transactions falling under the category of financial transactions and are above EUR5.000.000 during the relevant tax year and for all other types of controlled transactions that are above EUR1.000.000. The Cyprus Local file should be prepared in accordance with the Cyprus Tax Legislation which is closely follow the definition and suggested contents as per the OECD TP Guidelines and BEPS Action 13 Report.
3. Minimum Documentation requirements and Simplification Measures for taxpayers that are exempt from the obligation to prepare Transfer Pricing study (as per section II above):
If you have an obligation to prepare the Transfer Pricing study as analysed under section II above, then you may jump to section IV below.
Otherwise, you should continue reading her. For controlled transactions falling below the Transfer Pricing thresholds, the Taxpayer has the following two options to apply.
Option A:
Maintain Minimum Documentation, to support the arm’s length nature of any of their Controlled Transactions analyzing the following mattes:
- Brief functional analysis (functions, assets, risks)
- Description of the functional profile of the entity, based on the results of the functional analysis
- Reasoning for selection of the most appropriate TP method
- Determination of the arm’s length price(s) supported by relevant benchmarking results using internal or external comparable (as applicable) or any other relevant economic analysis as per the OECD TP Guidelines.
Option B:
If option A will not be followed, then the Taxpayer may elect to apply the Simplification Measures for the pricing of the Controlled Transactions in accordance with a circular issued by the Tax Department. Similar with option A above, the Taxpayer should require keeping documentation supporting the application of the Simplification Measures.
Furthermore, for cross-border Controlled Transactions for which the Simplification Measures are applied should be treated as reportable transactions as per the DAC6 provisions.
Transfer pricing documentation
4. Submission of Summary Information Table:
A Summary Information Table must be prepared by all Taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions.
The Summary Table must be submitted electronically together with the Income Tax return for the relevant tax year.
The Taxpayer should declare to the Tax Department via the Summary Information Table which option has followed to define the arm’s length remuneration of the controlled transactions.
5. Administrative fines:
Failure to submit the Summary Information Table will trigger an administrative fine of EUR500.
In relation to the Transfer Pricing study requirements, failure to comply would trigger a penalty of up to EUR20.000.
6. Deadlines for the tax year 2022:
The Cyprus Tax Department decided to extend up to 30 November 2024, the deadline for filing of the Income Tax Return for the taxpayers that they have the obligation to submit a Summary Information Table.
For further information on this topic please contact AMG Mylonas & Associates, LLC by telephone +357 25 101080 or by e-mail [email protected]
The information provided by Mylonas Law is for general informational purposes only. It does not constitute or should not be read as a legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
