The Cyprus Tax Department announced that it updated its Frequently Asked Questions (FAQs) (English version) on transfer pricing on 24 September 2024. New questions are added from 25 through 43.
The main question is 25, which highlights that companies do not need to consider interest-free payable balances when preparing the local file and summary information table (SIT) for 2022 and 2023, but this requirement will begin in 2024.
Additional questions offer further clarification on various administrative issues.
The questions from 24 to 43 are as follows:
25. Company “A” has an outstanding interest-free payable balance to Company “B”.
Should Company “A”:
(a) take into account this outstanding interest-free payable balance for the purposes of assessing whether the applicable Local File threshold is exceeded or
(b) report the outstanding interest-free payable in the SIT or
(c) include the outstanding interest-free payable in the Local File?
Applicable for years 2022 and 2023 only:
Company “A” shall not,
(a) take into account the outstanding interest-free payable for the purposes of assessing whether the threshold of Article 33(7) of the ITL has been exceeded or
(b) report the outstanding interest free payable in the SIT.
In the case where article 33(5) of the ITL is triggered with respect to such outstanding interest-free payable, the arm’s length nature of the resulting allowable deduction will be evaluated by reference to the Cyprus Local File or Minimum Transfer Pricing documentation (if applicable) prepared by the Lender (i.e., Company “B”).
For years 2024 and onwards:
Company “A” shall,
(a) take into account the outstanding interest-free payable for the purposes of assessing whether the threshold of Article 33(7) of the ITL has been exceeded and
(b) report the outstanding interest free payable in the SIT.
In the case where article 33(5) of the ITL is triggered with respect to such outstanding interest-free payable, the arm’s length nature of the resulting allowable deduction will be evaluated by reference to the Cyprus Local File or Minimum Transfer Pricing documentation (if applicable) prepared by the Lender (i.e., Company “B”).
26. How should the yield of the ten-year government bond of the country in which the borrower operates (as per paragraphs 18 and 25 of Circular 6/2023) be determined with respect to the relevant safe harbour rate?
For the purposes of paragraphs 18 and 25 of the Circular 6/2023, the yield of the ten-year government bond of the country in which the borrower operates should correspond to the yields published by the Cyprus Tax Department for the purposes of article 9B of the Income Tax Law with respect to the Notional Interest Deduction rules.
27. Company “A” manufactures goods “X” and Company “B” is a wholesaler of goods “X”. The two related companies are Cyprus Tax resident Companies and Company “A” sells goods “X” to Company “B”. Do both Companies, i.e. Company “A” and Company “B” have an obligation to report the controlled transaction in the SIT?
Yes. Company “A” will report the transaction in Category “Goods” under the column “Sale of Goods” and Company “B” will report the same transaction in Category “Goods” under the column “Purchases of Goods” of the SIT.
28. Company “A” has controlled transactions during the year. Who can submit the SIT on behalf of Company “A”?
The Summary Information Table can be submitted by the following persons:
- a) The Secretary of Company “A”,
- b) The Director of Company “A”,
- c) The registered Representative/ Agent of Company “A” as per the registry of the TFA taxpayer portal.
29. There are several fields in the SIT where the Tax Identification Number (TIN) is required to be disclosed for Cyprus Tax resident persons. What does the acronym TIN mean?
The acronym TIN, is the Tax Identification Number that a person was assigned by the Cyprus Tax Department at the time of registration in the tax registry via the TFA taxpayer portal.
It is noted that for taxpayers that were registered for VAT purposes upon their transition to TFA, their TIN is their VAT number. For taxpayers that were not registered for VAT purposes at the time of their transition to TFA, their TIN is their Direct Tax TIC.
30. Company “A” has controlled transactions in category “A” that cumulative do not exceed the required threshold on the basis of the arm’s length principle in a tax year. Is Company “A” required to report these transactions in the SIT?
Yes. Company “A” is required to report the transactions in Category “A” in the SIT irrespective whether these have not exceeded cumulatively the required threshold. Please refer to Question 14 also.
31. Company “A” has controlled transactions in Category “Financial Transactions” that exceed the required threshold in a tax year. Can Company “A” make use of the safe harbour rates of Circular 6/2023 “Simplification measures for the persons who are exempt from keeping the Cyprus Local File in accordance to the provisions of article 33(9)(a) of the ITL”?
No. The use of the simplification measures and safe harbour rates as per Circular 6/2023 is applicable only in case where the controlled transactions in Category “Financial Transactions” cumulatively do not exceed the required threshold in a tax year.
32. The reporting entity has controlled transactions with Company “B”, a non-Cy Tax resident. Is it mandatory to disclose the TIN of Company “B” in the SIT?
Yes. According to the Appendix of the Regulations Κ.Δ.Π. 314/2022, the Tax Identification Number (TIN) of all related persons as defined in article 33 of the ITL with which the reporting entity has Controlled Transaction(s) need(s) to be disclosed.
33. Who can carry out the quality assurance audit to the Cyprus Local File?
In accordance to paragraph 3(3) of the Regulation Κ.Δ.Π. 273/2022, “a person who holds the practising certificate issued by ICPAC or by any other recognised body of accountants in the Republic of Cyprus carries out a quality assurance audit to the Cyprus Local File”.
34. What is the deadline for carrying out the quality assurance audit to the Cyprus Local File?
In accordance to paragraph 3(3) of the Regulations, Κ.Δ.Π. 273/2022, the quality assurance audit to the Cyprus Local File shall be carried out, the latest by the submission deadline of the Income Tax Return for the relevant tax year.
35. Which of the two registry numbers (statutory auditors or accountants) need to be disclosed in Question 18 of the SIT with respect to the practising certificate number issued by ICPAC of the person who carried out the quality assurance audit?
The practising certificate number as per the ICPAC Registry of accountants is required to be disclosed in Question 18 of the SIT.
36. Can the person who prepared the Cyprus Local File be the same as the person who will carry out the quality assurance audit to that Cyprus Local File?
Yes, provided that the person who carried out the quality assurance audit to the Cyprus Local File holds a practising certificate issued by ICPAC.
37. Can the person who prepared the Cyprus Local File be different to the person who carried out the quality assurance to the Cyprus Local File?
Yes, provided that the person who carried out the quality assurance audit to the Cyprus Local File holds a practising certificate issued by ICPAC.
38. What is the minimum required content of the Master File and Cyprus Local File?
The minimum required content of the Master File and the Cyprus Local File is described in detail in paragraphs 2(a) and 2(b) respectively of the Regulations Κ.Δ.Π. 314/2022.
39. Company “A” has controlled transactions in Category “A” which cumulatively exceed the required threshold and therefore a Cyprus Local File is prepared and kept. Is it mandatory to upload the signed confirmation of the quality assurance audit of the Cyprus Local File upon submission of the SIT?
Yes. The submission of the signed confirmation of the quality assurance of the Cyprus Local file is mandatory upon submission of the SIT.
40. Where can we find the template of the Confirmation of the quality assurance audit to the Cyprus Local File?
The template of the Confirmation is available on the website of the Cyprus Tax Department in section under Frequently Asked Questions / Transfer Pricing.
41. Is it possible to amend the content of the findings of the template Confirmation of the Quality Assurance audit to the Cyprus Local File?
No. It is not possible to amend the content of the findings of the template of the Confirmation of the Quality Assurance audit to the Cyprus Local File.
42. What are the options of Company “A” in case it has controlled transactions in Category “A” that cumulatively do not exceed the required threshold on the basis of the arm’s length principle in a tax year for the purposes of transfer pricing documentation?
In case Company “A” has controlled transactions in Category “A” in which cumulatively do not exceed the required threshold in a year it can opt for one of the following three options:
- a) Meet the minimum simplified transfer pricing documentation requirements as per paragraph 4 of Circular 6/2023 “Simplification measures for the persons who are exempt from keeping the Cyprus Local File in accordance to the provisions of article 33(9)(a) of the ITL” or
- b) Make use of the safe harbour rules for categories “Financial Transactions” and “Low Value Adding Services” and comply with the minimum simplified transfer pricing documentation requirements as per paragraphs 4 and 5 and section D of Circular 6/2023 or
- c) Prepare a Transfer Pricing Study / include the controlled transactions in a Cyprus Local File (if applicable).
43. In which category shall rental income be disclosed by the reporting entity in the SIT?
Rental Income should be disclosed in the Category “Other”.
