On 30 June 2017, the Cyprus Tax Authorities (CTA) published a Circular revising the transfer pricing framework for companies carrying out intra-group financing activities in Cyprus. The Circular defines intra-group financing transactions as all activities of granting loans or advances to related entities that are remunerated by interest (or should be remunerated by interest) and funding them through public debt issuance, private loans, advances, or bank loans, among others.
The Circular provides additional guidance in terms of substance and transfer pricing requirements in line with the Organisation for Economic Co-operation and Development (OECD) Guidelines, as well as guidance as to the required content of a Transfer Pricing study. The Circular is effective from 1 July 2017 and replaces the Minimum Margin Scheme regime applicable until 30 June 2017.
It is required that all intra-group transactions should be conducted in compliance with the arm’s length principle. As such, it is necessary to prepare a comparability analysis testing the group transaction with a similar transaction between unrelated entities. Comparability analysis will need to consist of two parts. First, an identification of the commercial/financial relationship between the related entities and determination of the conditions and economically relevant circumstances applicable to those relations in order to accurately delineate the controlled transaction. Second, a comparison of the accurately delineated conditions and economically relevant circumstances of the controlled transaction with those of comparable transactions between independent entities.