Transfer Pricing Update: Termination of circulars concerning ''back-to-back'' financing arrangements

Overview of abandoned main circular

On 30 June 2017, the Cyprus Tax Authorities (”CTA”) issued the circular no.3 in respect of back-to-back financing arrangements. Based on the Circular, Cyprus companies would have the option to either adopt simplification rules (e.g. the recognition of the net profit margin of 2%) subject to justification through a functional analysis, or prepare a full Transfer Pricing Study to determine the margin arising from the back-to-back financing arrangements.

Circular issued on 5 January 2023

Based on the new circular issued on 5 January 2023, as of 1 January 2022, circular no3 (mentioned above) and circular 5 (dated 2 January 2019) will no longer be applicable.

Therefore, the last application date of the two circulars is 31 December 2021.

In essence, the application of simplification measures on intra-group ”back-to-back” financing transactions along with other provisions stated in both  circulars will no longer be applicable as of 1 January 2022.

Therefore, as of 1 January 2022, subject to certain conditions, there may be a legal requirement to prepare a transfer pricing documentation file to document such transactions, as in the case of other related party transactions falling under the provisions of the relevant legislation.

How can Taxcom help you

On account of the Transfer Pricing Cyprus Update being applicable from 1 January 2022, Taxcom can assist  professional service providers to identify the  companies that are required to prepare a Transfer Pricing Documentation, especially as of 1 January 2022.

Accordingly, we can assist you with the preparation of the documentation in relation to the Cyprus Local and Master File as well as the preparation of the Summary Information Table.

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