The Cyprus Commissioner for Income Tax has recently clarified his department's policy on acceptable margin parameters for taxable interest in transactions involving Cyprus resident companies used as intermediary financing vehicles in back-to-back financing arrangements. The minimum margin which the Inland Revenue Department will accept varies according to the amount of the advance, as follows.
For advances of less than €50 million, a minimum margin of 0.35% is required. For advances of between €50 million and €200 million, the minimum margin is 0.25% and on advances in excess of €200 million it is 0.125%. For advances made on an interest-free basis a deemed margin of 0.35% will be used as the basis for taxation, irrespective of the amount of the advance.
We anticipate that the law will be amended or that a circular will be issued by the Inland Revenue Department in the next few months to formally confirm this policy. In the meantime, it is reasonable to expect that the tax authorities will follow it in practice.
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