Oxford DMCC News - Cyprus implements revised tax treatment for intra-group back-to-back loans

December 13, 2017 5:06 pm

The Cyprus Tax Department issued a circular with amendments relevant to the corporate tax treatment concerning intragroup back-to-back financing transactions.

As of the 1 July 2017, The Arm’s Length Principle, as defined in the OECD Model Tax Convention on Income and Capital (Article 9), it is now applicable in Cyprus to particular intra-group back-to-back financing transactions. It is now imperative that each group ensures that the associated consideration to each covered financial transaction complies with the Arm’s Length Principle.

Covered Financial Transactions

The circular concerns every Cyprus tax resident entity. A Cyprus tax resident entity is a company that is managed and controlled in Cyprus, as well as a non-Cyprus resident company that has set up a permanent establishment in Cyprus.

Intra-group financing transactions concern cash or loans remunerated with interest granted to related companies that are funded by financial instruments (i.e. private loans, bank loans, cash advances or debentures).

According to Cyprus tax law (section 33 of Income Tax Law), two companies are considered related when one of the companies directly or indirectly participates in the control, capital or management of the other company or when the same individuals directly participates in the management, control or capital of both companies.

New Regulations

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