On 30 June 2022, the Cyprus House of Representatives enacted detailed transfer pricing legislation amending the Cyprus Income Tax Law (ITL) and the issuance of Regulations. The amendment includes the new TP documentation requirements and a framework for taxpayers to apply for Advance Pricing Agreements. The new law came into force retroactively as of 1 January 2022.

The act introduced 25% relationship test for the definition of related parties under the amendment of section 33 of ITL. If taxpayers meet the conditions of this 25% relationship test, TP documentation requirements will arise assuming the relevant thresholds for the value of related party transactions have been exceeded.

The new rules provide that Cyprus tax resident companies, as well as permanent establishments of non-resident companies, are obliged to maintain TP documentation supporting their controlled transactions with related parties as defined in Section 33(3) of the ITL.

Taxpayers are required to maintain and submit local file if the aggregated value of the controlled transactions per particular category equal to or exceed EUR 750,000 per tax year. A taxpayer that is not part of a multinational group subject to country-by-country reporting (CbCR), i.e. is not part of a group that has consolidated group revenues of more than EUR 750 million, will not be required to prepare a Master File. Even if a taxpayer is a member of such MNE group subject to the CbCR, it is exempt from the requirement to keep a master file if it is not the ultimate parent company (UPE) or the Surrogate Parent Entity (SPE) of the group for CbCR purposes. The local file and master file are to be prepared by the 12 months from the tax year-end. The taxpayer would have to submit these documentations within 60 days, once a request is made by tax authorities.

Where a taxpayer fails to submit TP documentation within timeframe requested by CTD, penalties of between €5.000 and €20.000 will apply depending on the length of the delay.

According to enacted law, the CTD will examine the application and reach a decision to be communicated to the taxpayer within 10 months from the date of the application. Notwithstanding this, by decision of the Commissioner of Taxation, a longer time period of up to 24 months may be set for the CTD to reply. The validity of an APA may not exceed 4 years.

The new law came into force retroactively as of 1 January 2022.