Transfer Pricing in Nicosia

Cyprus transfer pricing law

Cyprus introduced comprehensive transfer pricing legislation with effect from 1 January 2022, transposing OECD Transfer Pricing Guidelines into domestic law under Article 33 of the Income Tax Law. Related-party transactions must be conducted at arm's length — the price that unrelated parties would have agreed under comparable circumstances. Non-arm's length pricing gives the Cyprus Tax Department authority to make transfer pricing adjustments, potentially triggering double taxation.

The rules apply to all Cyprus tax-resident companies and permanent establishments of foreign companies conducting related-party transactions, regardless of size.

Documentation requirements

Cyprus taxpayers must maintain contemporaneous transfer pricing documentation where their annual related-party transactions cross defined thresholds. The revised thresholds published by the Cyprus Tax Department on 1 February 2024 (applicable for tax year 2022 onwards, superseding the original €750,000 per-category threshold) are: €5 million per year for the financing category, and €1 million per year for each of the other categories (goods, services, IP/royalties, other). Documentation comprises a Local File (Cyprus-specific documentation on transactions and comparability analysis) and, for MNE parents with consolidated revenue exceeding €750 million, a Master File (group-level information).

Below the thresholds taxpayers must still substantiate arm's length pricing but with lighter documentation. The Local File must be submitted to the Tax Department within 60 days of a written request; the Master File within 90 days.

Country-by-Country Reporting

Cyprus tax-resident ultimate parent entities of MNE groups with consolidated group revenue exceeding €750 million must file a Country-by-Country Report (CbCR) with the Cyprus Tax Department within 12 months of the group's fiscal year end. Cyprus entities that are not the ultimate parent must file a CbCR notification. Cyprus has signed the OECD Multilateral Competent Authority Agreement enabling exchange of CbCR data with treaty partners.

Penalties for non-compliance

Failure to maintain or submit the required transfer pricing documentation triggers administrative penalties of €5,000 to €20,000 per taxpayer per tax year. Late submission of the Local File attracts €5,000 penalty; failure to submit €10,000; failure to submit despite request from the Tax Department €20,000. In addition, the Tax Department may make transfer pricing adjustments increasing taxable income if arm's length pricing cannot be demonstrated.

When to engage a transfer pricing specialist

Transfer pricing is a specialist field within international tax. Engage a firm with dedicated TP expertise if your Cyprus entity: exceeds the revised documentation thresholds (€5m for financing category or €1m for any other category), engages in complex intra-group financing or IP licensing arrangements, has intercompany transactions in high-risk jurisdictions, faces a TP audit or Advance Pricing Agreement application, or needs benchmarking studies (comparable searches, financial analysis). Big 4 firms and major networks maintain dedicated TP teams; some boutique Cyprus firms specialise in mid-market TP work.