As of 1 January 2022, transfer pricing documentation requirements have been introduced. The transfer pricing documentation compliance obligations include the preparation of a Master File, Cyprus Local File, and Summary Table for Cyprus tax resident persons and PEs of non-Cyprus tax resident persons situated in Cyprus that engage in transactions with related parties. A formal Advance Pricing Agreement (APA) procedure has also been introduced. Specific penalties for noncompliance with the new obligations are now in place.
Transfer Pricing Documentation
As of 1 January 2022, Cyprus tax resident persons and PEs of non-Cyprus tax resident persons situated in Cyprus that engage in domestic and/or cross-border controlled transactions, subject to exemptions mentioned below, are required to prepare, on an annual basis, a Transfer Pricing Documentation File, which consists of the 'Master File' and the 'Cyprus Local File'.
The required contents of the Master File and Cyprus Local File closely follow the definition and suggested contents of the Master File and Local File as per the OECD Transfer Pricing Guidelines (and BEPS Action 13 Report).
The following exemptions apply:
Only Cyprus tax resident entities that are the ultimate parent or surrogate parent entity of a multinational enterprise (MNE) group falling under the scope of country-by-country (CbC) reporting are obliged to prepare and maintain a Master File. All other persons are exempt from this obligation.
Persons that engage in controlled transactions with arm's-length value less than EUR 750,000 per annum, per transaction category in aggregate (e.g. sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licensing/royalties, others) are exempt from the obligation to prepare a Cyprus Local File.
A person who holds a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another approved by the Council of Ministers’ body of certified auditors in Cyprus is expected to perform a Quality Review of the Cyprus Local File.
Format and language
The Transfer Pricing Documentation File should be maintained by the taxpayer in electronic or paper format and may be prepared in a generally acceptable language, preferably in English; however, the Tax Authorities may request its translation in Greek if necessary.
The Transfer Pricing Documentation File (consisting of the Master File and Local File as applicable) must be prepared and be subject to Quality Review (if necessary) on an annual basis by the deadline of filing the Income Tax Return for the relevant tax year. The Transfer Pricing Documentation File needs to be retained in compliance with the general document retention obligations for tax purposes; however, it should be submitted to the Tax Authorities upon request (e.g. for the purpose of a tax audit) and specifically within 60 days from the date of such request. Penalties shall be imposed for late filing or non-filing.
Transfer Pricing Documentation File updates
The Transfer Pricing Documentation File must be updated annually and include details regarding the impact of market fluctuations or other events on the information and analyses included therein.
A Summary Table must be prepared by all taxpayers that engage in controlled transactions on an annual basis, disclosing details regarding such transactions, including the names and tax identification codes of the related counterparties and the respective values per transaction category (sale/ purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others). The Summary Table must be submitted electronically with the Income Tax Return for the relevant tax year.
The new Regulations introduce a formal APA procedure. Specifically, Cyprus tax resident persons and non-Cyprus tax resident persons with a PE situated in Cyprus may submit an APA request to the Tax Authorities concerning the current or future domestic or cross-border controlled transactions. The APA may cover the various conditions and assumptions relevant for determining the arm’s length pricing of the controlled transactions for a specific period. The Tax Authorities examine the APA request and either approve or reject it.