Transfer Pricing

Transfer Pricing is the term used to describe the intra-group financing transactions and activities.

The Cyprus Tax Department (CTD) has issued a circular (the “Circular“) on 30 June 2017 revising the transfer pricing framework for companies carrying out intra-group transactions in Cyprus.

The said Circular applies to any company carrying out group financing transactions that is a Cyprus tax resident, as well as to any company that is not a Cyprus tax resident and has a permanent establishment in Cyprus, as per Section 2 of the Income Tax Law 118(I)/2002.

The Circular defines intra-group financing transactions as any activity consisting of financing through loans or cash advances remunerated by interest (or should be remunerated by interest) to related companies.

Transfer Pricing Study (TPS)

TPS (Transfer Pricing Study) is defined as the supporting document to be provided to the Cyprus Tax Authorities, evidencing that the transaction which took place, was based on the Arms’ Length Principle. The Circular prescribes the minimum requirements that need to be included in a transfer pricing report.

In addition, it provides that the transfer pricing report should be:

  • prepared by a transfer pricing expert
  • submitted to the CTD by a person who has a license to act as an auditor of a company according to the Cyprus Companies Law Cap. 113 and is required to carry out an assurance control confirming the quality of the transfer pricing report.

Standard basic requests for the preparation of the TPS:

  • Questionnaire to be completed by the client
  • KYC information and documents of the client including the Directors
  • Corporate structure
  • Audited Financial Statements

Arm's Length Principle

The Circular provides that the remuneration arising from back-to-back intra-group financing transactions should comply with the arm’s length principle i.e. correspond to the price that would have been agreed by independent parties in comparable transactions in the open market. In this respect, a comparability analysis must be carried out for the purpose of:

  • Identifying the commercial and financial relationship between the related parties and determining the conditions and the economically significant circumstances of the transaction
  • Comparing the conditions and economically significant circumstances of the transaction with comparable transactions between independent parties

In order to fulfill and assess accurately the above requirements our team uses the most reputable platforms such as Bloomberg.

In addition the Circular provides that entities:

(1) 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) Must have qualified personnel to control the transactions performed. It is noted that the Circular allows for the outsourcing to third parties of any functions that do not have a significant impact on risk control

Simplified explanation as per the Circular:

For group companies exercising a purely intermediary financing activity and meeting the substance requirements listed above, the transactions entered into by such group financing companies will be considered as compliant with the arm’s length principle if such group companies obtain a minimum return on the assets financed after tax of at least 2%.

Reliance on the simplified measure needs to be disclosed (when applied) in the tax return of the company and could be subject to exchange of information.

A deviation with the above-described requirement of a 2% minimum return is acceptable when duly justified in a transfer pricing study.

As a result the TPS will conclude on the possible tax consequences and applicability of the Transfer Pricing Rules to the particular case. The eventual tax consequences are simply calculated based as follows:


Profits before TPS

Profits after TPS







marinos marinou

Marinos Marinou

Graduated from Liverpool John Moores University in 2011. Became a member of the Institute of Chartered Accountants of England and Wales (ICAEW) in 2015. Currently undergoing Certified Fraud Examiner (CFE) Level 1. Member of the International Tax Planning Association (ITPA).


Marinos is specialized in International Tax Planning, Advanced Consulting, and Corporate Services.

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