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Transfer Pricing in Cyprus

A general outline of the Transfer Pricing regime in Cyprus

Background and legislation

There is currently no specific Transfer Pricing legislation enacted in Cyprus.  The general Income Tax Law (ITL) does refer to the arm’s-length principle (article 33) which allows for the adjustment of reported profits in relation to the transfer pricing between connected entities performing intracommunity transactions.

As an internationally recognised business centre, Cyprus is a jurisdiction largely compliant with Organisation for Economic Co-operation and Development (OECD) standards, thus the arms’ length principle contained in the ITL is largely based on the philosophy as set out in Article 9 of the OECD Model.

It is worth noting that article 33 of the ITL does not apply to transactions where no controlled relation exists between the parties or to certain transactions that constitute capital transactions or which involve immovable property in Cyprus. Nevertheless, the ITL does contain anti-avoidance tax provisions granting the Cyprus Tax Office (CTO) authority to disregard artificial or fictitious transactions, or replace disposal proceeds with market values of property on date of disposal, as appropriate.

Aside from the BtB regulations (outlined further below), Cyprus has yet to issue any other  detailed transfer pricing guidelines,  although in practice the principles underlying the OECD Transfer Pricing Guidelines are commonly cited to support the set transfer price in controlled transactions, in tax examinations; or to potentially initiate a conventional advance ruling application process (although a sophisticated advance pricing arrangement does not exist).

Regulations and rulings

In June 2017, the CTO issued detailed transfer pricing regulations governing financial back to back controlled transactions (the BtB regulations – see below) which replaced an earlier Minimum Margin Scheme regime, effective on 1 July 2017. These BtB regulations are applicable for all existing and future transactions, irrespective of the transaction date and irrespective of any tax rulings issued before that date.

BtB Regulations:

  • Intragroup financing transactions are defined as granting of loans or cash advances to related companies (within scope of article 33 of ITL) that are (or should be) subject to interest and are financed by other similar means (such as debentures, private loans, cash advances or bank loans).
  • Minimum requirements for a Transfer Pricing Study are set out
  • Remuneration arising from BtB controlled transactions should comply with arm’s length principle.
  • A suitable comparability analysis (as defined by OECD) should be performed in order to determine whether independent entities’ transactions are comparable with the transactions between connected parties. The comparability analysis involves Identifying the commercial and financial relationship between the related parties and determining the conditions and the economically significant circumstances of the transaction, such as terms and functions, the assets used and the risks assumed by the related parties.

Substance and Control

The BtB regulations provide that an entity is considered to be able to manage the risk bearing transactions if it has, and actually exercises, the decision making power to enter into such transactions and if it has the ability to address such risks.

In this respect, the BtB regulations provide:

  1. Substance: Entities must have actual presence in Cyprus, which is determined by taking into account the following criteria: the number of Cyprus tax resident directors, the number of the board of directors’ meetings held in Cyprus and whether the main management and commercial decisions of the board of directors are taken in Cyprus, the number of shareholders’ meetings held in Cyprus, etc,.
  2. Control: Entities must have qualified personnel to control the transactions performed. (May outsource to third parties any of the functions that do not have a significant impact on risk control, including daily activities of risk mitigation, provided that the entity maintains control and supervision of the risk and function outsourced).

Simplified measures

The BtB regulations provide a simplification measure as an option to be used to reduce the burden of preparing a TP analysis. For group companies exercising a purely intermediary financing activity and meeting the substance requirements listed above, the transactions entered into will be considered as compliant with the arm’s length principle if they obtain a minimum return on the assets financed after tax of at least 2%.

Documentation Requirements

As outlined above, there is no legislation enacted covering the general requirements in relation to the contents of a Transfer Pricing Documentation File.

However, the CTO issued detailed guidance (DE5) in relation to intra group financing operations (ie BtB controlled transactions). This clarified that the TP documentation file needs to be in accordance with OECD TP guidelines.

The DE5 guidance also specified that the transfer pricing report should be:

  • prepared by a transfer pricing expert, and
  • submitted to the CTO by an auditor licenced in Cyprus, confirming the quality of the transfer pricing report.


Except for the BtB regulations governing intra group financial back to back transactions, there is currently no specific Transfer Pricing legislation enacted. However, the arm’s-length principle in Cyprus Law is in line with the international arm’s-length principle as envisaged in the relevant OECD Model, and it governs controlled transactions in Cyprus.

How we can help you

Our team of experienced and qualified professionals can assist you to determine whether your business is subject to the regulations in Cyprus and ensure that the relevant requirements are met. Our in-house specialist team working closely with other experts across our international network of firms and other associates can assist with the preparation of TP documentation files as required.

For more information on how we may be able to assist you and your business please contact us at  (delete as appropriate) or call (00357) 22379210.

We look forward to hearing from you.

This content of the article should be considered to be of a general nature only not referring to any particular business. Before proceeding with any action, please request further advice relating specifically to your business.  We will be very pleased to be of assistance.

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