The Minimum Margin Scheme (MMS) under which inter-company loans
could bear, without any issues an interest rate of 0.35% has been
withdrawn by the Cyprus Tax Office as of 1st July 2017.
This means that intra-group financing transactions (IGFTs) will
now be examined on the basis of the arm's length principle of
the OECD Transfer Pricing (TP) Guidelines. Perhaps
regrettably, this change has immediate effect as it applies to all
existing as well as future IGFTs with no grandfathering
provisions. This means that any rulings issued previously on
IGFTs are, unless challenged in Court1, to be considered
as no longer binding.
As things are now, under section 33 of the Cyprus Income Tax
Law, any income from IGFTs (interest or coupon payments on a
financial instrument) needs to be in keeping with the Arm's
Length Principle and take place on generally acceptable market
terms for similar transactions under similar circumstances.
