On 6 July 2023, the Cyprus Tax Department released a new circular (6/2023) entitled “Simplification measures for persons exempt from the obligation to maintain a Cyprus local file”. The Circular provides guidance for persons exempt from the obligation to maintain a Cyprus local file on the minimum transfer pricing documentation that must be maintained to ensure the arm’s length character of their related party transactions. In addition, the Circular introduces optional simplification measures that can be used by these individuals for certain controlled transactions.
Minimum transfer pricing documentation requirements
The Circular clarifies that persons exempt from preparing a Cyprus Local File must maintain minimum documentation for their controlled transactions. Specifically, this requirement applies to transactions that do not exceed the threshold of EUR 750,000 in aggregate per category on an annual basis.
Simplification measures
Persons who are not required to prepare a Cyprus Local File have the option to apply simplification measures for the following types of controlled transactions:
- Back-to-back financing, which involves financing provided to related parties and funded through debt.
- Financing received or provided, not falling under the back-to-back financing category.
- Low-value adding services.
The application of the simplification measures is limited to the specific categories of transactions that do not exceed the threshold of EUR 750,000 per category annually.
