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Cyprus Transfer Pricing update

18 January 2023 7:00 am Leave a Comment

Introduction

On 30 June 2022, the Cyprus Parliament approved amendments to the Cyprus Income Tax Law and new Regulations to introduce Transfer Pricing (“TP”) documentation compliance obligations (Master File, Cyprus Local File, Summary Information Table).

The documentation requirements apply to Cypriot tax resident persons and Permanent Establishments (PE’s) of non-tax resident entities that engage in transactions with related parties. The aim of the new law and regulations is to ensure compliance of covered entities with the arm’s length principle.

In addition, the law has been amended to update the definition of related parties by introducing a minimum 25% relationship threshold relevant for companies.

The law amendments and Regulations are effective from the tax year 2022 onwards.

Overview

The new transfer pricing law and regulations cover all types of transactions between related parties in excess of €750.000 per category of transaction.

Different types of transactions include sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others.

A relevant notification has been issued by the Cyprus Tax Department (“CTD”) providing (amongst others) the required detailed contents of the Master File and Cyprus Local File.

The Summary Information Table (SIT) must be prepared by all taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions. There is no threshold for the SIT, and this must be submitted electronically together with the Income Tax return for the relevant tax year.

Exemptions

The following exemptions shall apply:

Master File: It applies only to Cyprus tax resident entities that are ultimate or surrogate parent entities of multinational group which has consolidated revenues above €750M (with CbCR obligations). All other persons are exempt from this obligation.

Local File: Exception is granted if the volume of controlled transactions does not exceed €750,000 per category of transactions.

Quality Review

A person who holds a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another approved by the Council of Ministers body of certified auditors

in Cyprus is expected to perform a Quality Review of the Cyprus Local File.

Deadline

The TP Documentation File must be prepared on an annual basis, by the deadline of filing the Income Tax Return for the relevant tax year.

Penalties

In case of late submission or non-submission of files, the law and regulations prescribe the following penalties:

Non-submission of Table of Summarized Information within deadline	€ 500
Late filing of the Local &/or Master File:
– within the 61st and 90th day from request	€ 5,000
– within the 91st and 120th day from request	€ 10,000
– after the 121st day from request or non-filing	€ 20,000

If you have any queries about this Cyprus Transfer Pricing update, or Cyprus tax matters generally, then please do not hesitate to get in touch.

The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

Malta Transfer Pricing Rules published

26 November 2022 5:09 pm Leave a Comment

Introduction

Malta has recently published legislation that implements Transfer Pricing Rules into Malta’s tax code (“TP Rules”).

From when will the TP rules apply?

The TP Rules apply to transactions entered into on or after 1st January 2024 as well as pre-existing ones if they are materially altered on or after that date.

Where will the TP rules apply?

The TP Rules will apply when calculating a company’s tax base derived from “cross-border arrangement” between “associated enterprises”. They will apply where associated enterprises have more than 75% (directly or indirectly) of participating rights.

This is reduced to 50% where the entity is a Multi-National Enterprise (“MNE”).

SMEs and MNEs

SMEs, as defined in the State Aid Rules, do not fall under these rules.

The term “MNE group”, as used in these Rules, refers to a multinational enterprise (or other entity) whose tax residence(ies) or permanent establishment(s), within and outside of Malta, exceeds 75 million Euro per year.

Cross-border transactions

The TP Rules don’t apply to cross-border transactions with an aggregate arm’s length value of €6m and €20m revenue and capital respectively.

The TP Rules will apply to cross-border transactions and arrangements taking place between:

a resident and a non-resident company; an
a resident company having a permanent establishment situated outside Malta and a non-resident company dealing with a PE in Malta of another non-resident company to which the transactions are effectively connected in ascertaining the total income of the company.

The TP Rules provide for a deeming provision that, where the actual amount differs from an arm’s-length amount under cross-border arrangements, the latter figure shall be used in ascertaining total income instead of the former.

Next steps?

It is anticipated that more detailed guidance will be issued in due course.

Amongst other things, it is expected that this will include reference to the OECD Transfer Pricing Guidelines.

If you have any queries about this article on Malta Transfer Pricing Rules or Malta tax matters in general, then please do not hesitate to get in touch.