Cyprus introduces new transfer pricing legislation
On 30 June 2022, Cyprus has made amendments to their TP legislation. The legislation will take effect, after publication in the Offical Gazette of the Republic, retroactively on 1 January 2022.
The main purpose of amending the current Cypriot Income Tax Law (ITL) and the Assessment and Collection law is to align the TP legislation with OECD TP Guidelines against Base Erosion and Profit Shifting (‘BEPS’). It also creates at arm’s length guidelines on assessment of transactions between related parties and provides the legal basis for entering into APAs.
Section 33 of the ITL is amended and has the following amendments relating to TP documentation:
- Definition of ‘related parties’
Companies with a 25% direct or indirect relationship, based on share ownership, voting rights or profit participation, will be defined as related parties. Before, only companies with at least 50% share ownership or voting rights were considered as related parties.
- The ‘arms-length principle’
Paragraph 6 is new and states that the arms-length principle from now on might be interpreted according to the OECD transfer pricing guidelines (as issued and amended from time to time)
- Filling requirements
Related parties in scope must prepare a Summary Information Table and a TP documentation file, containing the master file and the local file. The TP documentation file should be updated yearly.
Within 15 months after a calendar year-end the filling requirements must be prepared. If requested by tax authorities, the relevant documents should be submitted within 60 days.
Assessment and Collection Law amendments
In addition to the changes in the ITL, penalties provisions for non-compliance with the new Transfer Pricing Cyprus requirement are added in the Assessment and Collection Law. These penalties are as followed:
- No submission of Summary Information Table, €500
- No submission of local file within 60 days after request
- Within 61-90 days, €5,000
- Within 91-120 days, €10,000
- If submitted after 120 days or no submission, €20,000
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