On 14 March 2023, the Tax Department of Cyprus has issued three additional questions to its Frequently Asked Questions (FAQs) section, with respect to transfer pricing.
The additional questions are summarized below:
- How is the EUR 750,000 threshold in the context of loan financing activities determined in a tax year?
The threshold for loan financing transactions is determined only by reference to the loan principal, including interest charged but not paid.
- Which balance is relevant in the case of loan financing activities (e.g., year end, average balance for the year, or facility amount)?
The maximum loan balance (i.e., only the loan principal, including interest charged but not paid) during the tax year should be used to determine the threshold in the respective tax year and must be reported in the summary information table.
- Should the loans or any other monetary facilities, including cash withdrawals (but excluding any balances arising from commercial transactions), granted by companies to the persons described in article 5(1)(z) & 5(2)(z) of the Income Tax Law be taken into account for the purposes of assessing whether the EUR 750,000 threshold has been exceeded for financing activities?
No, provided the company which is granting the loans or any other monetary facilities including cash withdrawals to its directors or to its shareholders who are individuals or their spouses or to their relatives up to and including the second degree of kinship does not have as a taxable activity the provision of financing.
In this specific case only, such balances should not be taken into account for the purposes of assessing whether the threshold of €750.000 has been exceeded in the category of financing activities and as such should not be reported in the Summary Information Table. No documentation with respect to these specific transactions in the local file is required.
