In the new circular issued on 24 November 2016, Cyprus' Tax
Authorities clarify that they will also allow downwards or
compensating Transfer Pricing (TP) adjustments.
Circular 2016/15 issued by the Ministry of Finance clarifies the
application of article 33 of the Income Tax Law. Article 33 - as
amended in 2015 (L.187(I)/2015) - provides the definition of the
arm's length principle for controlled transactions between
associated enterprises. In particular, according to the
above-mentioned article, if a taxpayer is resident in Cyprus or if
there is a permanent establishment of a non-resident in the
Republic then for any deviation from the arm's length price,
downward adjustments are also possible. In other words, for
intra-group transactions on terms that deviate from similar
transactions between independent parties, the tax base may be
adjusted in order to reflect an arm's length price.
