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

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.