The Cyprus Tax Department (CTD) has notified the Institute of Certified Public Accountants of Cyprus (ICPAC) of their policy change in terminating the application of the pre-agreed minimum profit margins of 0.125% – 0.35% on qualifying intra-group back to back financing arrangements, with effect from 1 July 2017.
According to the information provided by the CTD to ICPAC, from the 1st of July 2017 onwards, all tax rulings confirming the applicability of the above profit margins on intra-group back to back financing arrangements will cease to be effective and acceptable taxable profit margins on intra-group back to back financing arrangements will be determined by Transfer Pricing rules. Although Transfer Pricing rules have not yet been finalized by the CTD, they are expected to follow the relevant OECD guidelines and subject to conditions, they will require tax payers to support the applicable profit margins with a Transfer Pricing study, to be prepared by an independent expert.
The change of the CTD's policy and approach on this matter derives from the latest developments from the EU Code of Conduct for business taxation as well as the wider OECD/G20 BEPS initiative on tax reform.
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