The Cyprus Tax Department (CTD) has informed the Institute of Certified Public Accountants in Cyprus (ICPAC) of their intention to abolish the practice of accepting pre-agreed minimum set profit margins of 0,125% – 0,35% on intra-group and related party financing arrangements that were in the form of back-to-back loans.
It is being reminded that in accordance with Article 33 of the Cyprus Income Tax Law, all transactions between related parties must, for tax purposes, be made on an arm’s length basis. The CTD has the right to impose tax adjustments to make up for any deviation from the arm’s length principle (usually made in the form of a notional interest income). In the case of back-to-back loans between related parties, the CTD has, by way of practice, accepted such thin spreads / minimum profit margins without challenging the arm’s length applicability.
This current practice, which had been agreed between the CTD and ICPAC during July 2011, is abolished as from 1 July 2017. It is further noted that any tax rulings issued prior July 1st 2017 on transactions within the scope of this circular will no longer be valid for tax periods as from 1st July 2017.
On the way forward, intra-group financing Read More