Recently, the Department of Taxation (Cyprus) (DOT) has announced its intention to terminate the application of the pre-agreed minimum profit margins of 0.125% – 0.35% on qualifying intra-group back to back financing agreements effective from 1 July 2017.
Accordingly to the above date onwards, the above profit margins on intra-group back to back loan agreements will cease to be effective and acceptable taxable profit margins on intra group back to back financing arrangements will be determined by Transfer Pricing rules.
Although the Transfer Pricing rules have not yet been finalized by the DOT, they are expected to follow the relevant OECD guidelines and subject to conditions, they will require tax payers to support the applicable profit margins with a Transfer Pricing study, to be prepared by an independent expert.
A large number of taxpayers is expected to be affected by these changes. It is highly recommended for Taxpayers to review their existing financing arrangements and structures in order to take action ahead of time so as to ensure their conformity with the new framework.
An update will be provided as soon as the DOT release further details on the Transfer Pricing rules.