Key contact: Iacovos Themistocleous, Tax Manager, Board Member, RSM Cyprus
On the 1st of February 2024, the Tax Commissioner issued a letter with the purpose of informing the interested parties that the relevant thresholds for local file requirements have been increased, with effect from 2022.
It is reminded that as of the 1st of January 2022, Transfer Pricing rules (“TP rules”) apply for transactions entered between related parties (“Controlled Transactions”).
As per the TP rules, the arm’s length value of a specific transaction type shall exceed the threshold of €750,000 for the local file requirements to be applied.
In addition to the above, a Summary Information Table needs to be prepared and submitted along with the corporate tax return of the taxpayer, which also mentions the five main categories of transactions to be covered, e.g. Goods, Services, Rights and Other Intangibles, Financing Transactions and Other Transactions.
What are the changes?
Various stakeholders, including the Ministry of Finance, agree that the threshold shall be increased to €5,000,000 for Financing Transactions, whereas for all other types of transactions, the amount increases from €750,000 to €1,000,000. Subject to various formal proceedings required for these legislative changes to take effect and be implemented, the Tax Commissioner formally announced that the below changes take effect as from 1st of January 2022:
- Financing Transactions category: threshold increases from €750,000 to €5,000,000
- All other categories of controlled transactions: threshold increases from €750,000 to €1,000,000
It is highlighted that the simplification measures introduced as part of the Tax Circular 6/2023, issued on 6 July 2023, still apply. This Circular refers to those controlled transactions whose arm’s length value does not exceed the above-mentioned thresholds. However, minimum documentation still needs to be present and maintained for transactions that are related to one of the available safe harbours.
You are encouraged to visit our Cyprus Tax Facts 2024 publication, where the available safe harbours are described.
Contact our professional team of tax advisors to assist you in your Transfer Pricing affairs and in designing your Transfer Pricing policy and documentation.