On 7 July 2023, the Cyprus Tax Authority released Circular 7/2023, focusing on transfer pricing for intra-group back-to-back financing transactions. The Circular specifies that starting from the tax year 2023, the Comparable Uncontrolled Price (CUP) method will be regarded as the suitable approach for documenting arm’s length pricing for such back-to-back financing transactions, following the OECD Transfer Pricing Guidelines.
The Circular highlights that the utilization of any alternative method is permissible only in exceptional situations and necessitates prior approval from the Tax Commissioner via a tax ruling. In such cases, the taxpayer must provide reasons explaining why the CUP method is not the most suitable option, including evidence from a comparable data search indicating the absence of comparable rates, along with a comprehensive analysis supporting the fulfillment of the arm’s length principle through the chosen alternative method. Additionally, the taxpayer must explain why the selected method is deemed to yield a more appropriate result than the CUP method.
