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The Cyprus Tax System can be very complex. Companies subject to taxation must follow these regulations. This system is based, inter alia, on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and local legislation.
This article will discuss the Cyprus Tax System and the documentation requirements for Controlled Transactions between Related Parties.
The Cyprus Tax System requires annual filing of Local and Master File documentation to the Cyprus Tax Authorities, subject to certain exceptions. This applies to all companies that are Tax Residents of Cyprus and involved in Controlled Transactions with Related Parties. The documentation should include all transactions between related parties and should follow the OECD Transfer Pricing Guidelines.
The Cyprus Tax System requires companies filing taxes to comply with the Income Tax Law and the Arms Length Principle; this is mandatory for all companies in Cyprus, the related party transactions of which exceed certain thresholds. Generally, transactions between related parties must adhere to the Arms Length Principle, as well as have supporting Transfer Pricing Documentation.
The Cyprus Tax Authorities recently updated the Transfer Pricing Documentation Requirements. These requirements include a requirement for preparation of a Cyprus Local File. It applies to all companies that the arm’s length value of their related party transactions exceeding €750.000 per category of transactions in a given Tax Year. This new requirement is effective from January 2022. Companies in Cyprus must follow the OECD Transfer Pricing Guidelines and relevant laws.
It is important that companies adhere to these guidelines and requirements in order to ensure that their taxes are filed correctly and in accordance with the Cyprus Tax laws and regulations. Companies should be aware that any breach of the rules may result in civil penalties.
This includes submitting the Transfer Pricing documentation to the Cyprus Tax Authorities, within 60 days from the notification of the submission request by the Cyprus Tax Authorities.
is a critical area of focus for businesses engaged in cross-border transactions with affiliated entities. Understanding and complying with Cyprus transfer pricing regulations is essential for mitigating risks and avoiding potential penalties. The primary objective is to set fair and arm’s-length prices for transactions between associated enterprises, covering goods, services, or intellectual property
Note: The Organisation for Economic Co-operation and Development (OECD) has developed a set of Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to provide guidance on how to determine the arm’s length price of related party transactions. The Guidelines provide guidance on the local file, transfer pricing rules, and transfer pricing legislation. The Guidelines have been developed to ensure that transfer pricing is conducted in line with the arm’s length principle, a fundamental principle of international taxation, and to help minimize disputes between tax administrations. The Guidelines provide a framework for analyzing and documenting related party transactions, as well as for establishing transfer pricing policies and procedures for multinational enterprises. Based on Article 33 of the Cyprus Income Tax Law, Cyprus adopts OECD Transfer Pricing Guidelines.
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