Following the legislative amendments of the Cyprus Income Tax Law on transfer pricing (TP) matters, as well as the new Regulations on TP documentation obligations and the Advance Pricing Agreement (APA) procedure, approved by the Cyprus Parliament on 30th June 2022, the Cyprus Tax Department (CTD) has published the Notification in the Official Gazette of the Republic of Cyprus on 29th July 2022.
The required contents of the Master File, the Cyprus Local File and the Summary Information Table outlined in the Notification are generally in line with the recommendations of the Organisation for Economic Co-operation and Development (OECD) on Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines).
The Notification, in effect as of 1st January 2022, provides guidance with regard to TP documentation obligations, as introduced in Article 33 of the Cyprus Income Tax Law, including but not limited to the requirements stated hereinafter (full requirements to the reporting files are published in the Official Gazette of the Republic of Cyprus).
The Notification states the requirement to provide information in the Master File which applies to the ultimate or surrogate parent entity of a multinational group with annual consolidated revenue exceeding €750M. Master File: i) should be updated annually; ii) should be prepared by the submission deadline of the Income Tax Return of the parent entity; and iii) should be provided to the CTD within 60 days upon request.
Master File contains standardized information about all group companies of a multinational enterprise (MNE) and consists of 5 sections:
Cyprus Local File
The Notification states the requirement to provide information in the Cyprus Local File which applies to Cyprus tax resident persons and permanent establishments of non-Cyprus tax resident entities. Taxpayers engaging in controlled transactions with a total value of less than €750,000 per year per transaction category are exempt from the obligation to prepare the Cyprus Local File. Cyprus Local File: i) should be updated annually; ii) should be prepared by the submission deadline of the Income Tax Return of the local entity; and iii) should be provided to the CTD within 60 days upon request.
Cyprus Local File contains detailed information about specific intercompany transactions, including financial information relevant to the transactions, a comparability analysis, and the selection of the most appropriate transfer pricing method and should include the following:
Summary Information Table
The Notification states the requirement to prepare the Summary Information Table by all taxpayers that engage in Controlled Transactions, disclosing details regarding the transactions with related parties, including: values of the transactions, identification of the related counterparties, their countries of tax residence, respective values per transaction category i.e. sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others. Summary Information Table: i) should be prepared annually; and ii) should be submitted electronically together with the Income Tax Return for the relevant tax year.
For more information on the Notification for transfer pricing rules & documentation requirements in Cyprus and how this may affect your business, please contact us on [email protected]