Transfer pricing are the prices at which associated entities, such as subsidiaries and group companies, transfer goods, services and other intangible and tangible assets between each other. Without the regulations regarding transfer pricing, these aforementioned entities have the potential to manipulate transfer prices between each other and create some form of tax advantage by moving taxable income from a high jurisdiction to a lower one.
Consequently, transfer pricing has become a major focus area in international taxation and MNEs have become targets for tax authorities worldwide for audits in this area, as it is considered a high-risk area. Transfer pricing regulations worldwide are mainly based on OECD Transfer Pricing Guidelines and most of the countries, whether OECD members or not, have adopted these Guidelines into their local regulations.
Tax authorities will get involved if the arm’s length principle has not been applied. This principle has been described in Article 9 of the OECD Guidelines as, “conditions [being] made or imposed between two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for these conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”
Transfer pricing in Cyprus
In Cyprus, currently, there are no detailed transfer pricing regulations other than section 33 of the Income Tax Law that states in general that transactions between related parties should be at arm’s length. In the absence of detailed regulations, the Cyprus Tax office has issued 2 tax Circulars that deal with specific type of transactions namely Interpretative Circular 3 dated 30 June 2017 and Circular 2017-4 dated 22 March 2017.
Full transfer pricing regulations are expected to be introduced in the Cyprus Tax Law in accordance with OECD Transfer Pricing Guidelines and regulations.
Our Transfer Pricing Professional Team is at your disposal should you require any further information and/or specialist advice on Transfer Pricing and is ready to assist by preparing robust TP studies. Contact us for more details.