Tax Update – Intention to abolish back to back profit margins

On 8 February 2017, the Cyprus Tax Department indicated the intention to abolish the current tax legislation which requires minimum profit margins on loan transactions of a Cypriot resident company to and from related companies, in light of international tax developments, such as the OECD/G20 BEPS Project.

As of 1 July 2017, all such financing transactions between related companies must be supported by Transfer Pricing Studies, which shall be prepared by independent experts and based on the OECD transfer pricing guidelines. All relevant rulings that have been issued or will be issued by  30 June 2017 will cease to be applicable on 1 July 2017. Any relevant transactions still in place after 30 June 2017 will have to be supported by Transfer Pricing Studies after that date.