The arm’s length principle means that: ‘entities that are related via management, control or capital in their controlled transactions should agree the same terms and conditions which would have been agreed between non-related entities for comparable uncontrolled transactions’. This is codified in Section 33 of the Income Tax Law. The TP rules provide for the content of the TP Documentation Files (Local and Master Files) and the Summary Information Table (SIT) as well as introduce the concept of Advance Pricing Agreements (APAs).

There are documentation requirements in relation to TP that apply to all Cypriot tax resident companies, as well as permanent establishments of non-resident companies as from 1 January 2022:

Upon request by the Tax Department of the Republic of Cyprus, the Local File (and Master File, if applicable) should be made available within 60 days from receiving the relevant request by the taxpayer or by a person approved to act as a representative of the taxpayer.

The Summary Information Table (SIT) is an additional form that is applicable to all taxpayers engaged in related party transactions, with zero reporting materiality threshold. It must reflect high-level information about the taxpayer’s annual intercompany transactions, including details of the counterparties, category of intercompany transactions entered, and amount per transaction category. The SIT is submitted to the tax authorities on an annual basis alongside their respective Income Tax Return.

Penalties for non-compliance with the submission deadlines for TP Documentation Files and the SIT:

An Advance Pricing Agreement (APA) is a chosen agreement linking a taxpayer and one or more tax authorities that permits the parties to approve in advance the transfer pricing approach for any given intercompany transaction(s) for a specific time. An APA includes certain criteria and assumptions used in determining the arm’s length pricing of the related transactions for a particular period. Taxpayers may submit APA to the Cypriot Tax Authorities for evaluation and approval. APAs may have unilateral, bilateral, or multilateral applications and in these situations, they will be valid for four (4) years.