Cyprus Tax Authorities announce their intention to cease their practise of specified minimum spreads on qualifying related – party financing transactions
The Cyprus Tax Authorities (CTA) have recently sent a letter to the Institute of Certified Public Accountants of Cyprus (ICPAC) informing the latter that as from 1 July 2017 they will withdraw the specified minimum spreads on qualifying related-party financing transactions. The letter specifically states that as from 1 July 2017 all related-party financing transactions will have to be supported by Transfer Pricing (TP) Studies prepared by independent experts. This new practice regarding related-party financing transactions will apply both for the purposes of issuing tax rulings and for tax examinations and such TP studies will have to be prepared by independent experts based on the relevant OECD transfer pricing guidelines.
All relevant rulings issued up to 31 June 2017 involving the back-to-back financing transactions will cease to be applicable on 1 July 2017. Any such transactions remaining in place after 1 July 2017 will need to be supported by TP Studies for the period from 1 July 2017 onwards.
In accordance with the CTA, the need to revise the latter’s approach in relation to back-to-back financing transactions is due to the recent international tax developments, the OECD/G20 initiative on BEPS, as well as from the particular review of this specific regime within the context of the Code of Conduct for Business Taxation and from an EU State Aid perspective.
Further guidance is expected from the CTA on the application of this new practice and as soon as this is available we shall update your accordingly.