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The Inland Revenue has announced on the 8th February 2017, new rules regarding the profit margins on back-to-back financing transactions with related parties. The new rules are in line with the requirements of the OECD and in essence follow the arm’s length principle.
At present, the minimum acceptable net profit margins on back to back financing transactions between related parties depend on the total amount of the loan advances and are as follows:
In case interest, free intra-group loans are provided the Cyprus Income tax authorities will impose tax on a deemed interest basis, per the margins set out above.
The Current regime will apply for the year 2017 up to 30 June 2017 and thereafter the new regime will apply.
In addition, all the tax rulings which were previously issued in relation to the above matter will cease to apply as from 30 June 2017.
The new Regime
As from 1 July 2017 the interest rates applied on back-to-back financing transactions with related parties should be in accordance with transfer pricing rules (arm’s length principles) and be supported by a transfer pricing study according to OECD rules performed by independent experts. For loans existing before 1 July 2017, applicable interest rates should be adjusted in accordance with transfer pricing rules.
Posted on Apr 25, 2017
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