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ARTICLE · 19 JANUARY 2023

Transfer Pricing (TP) "safe Harbours" On Related Party Financing Transactions Abolished.

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On 5 January 2023 the Cyprus Tax department (CTD) issued a circular (1/2023) which terminates the application of "safe harbours" on back-to-back financing transactions with related parties.

CyprusTax
Lefteris Androkli
Lefteris Androkli
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On 5 January 2023 the Cyprus Tax department (CTD) issued a circular (1/2023) which terminates the application of “safe harbours” on back-to-back financing transactions with related parties. The termination applies from 1 January 2022 onwards.

The “safe harbours” being either an after-tax return of 2% on loans granted to related parties (for pure intermediary financing companies) or a 10% after tax return on equity (for companies with a similar functional profile with a credit institution) have been introduced since 1 July 2017 with Interpretive Circular 3. Companies that adopted safe harbours were not obliged to prepare a full transfer pricing study to support their remuneration; only a functional analysis was needed to support that were eligible for the applying of the safe harbours.

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