On June 30, 2022, the Cyprus Parliament enacted by first a detailed Transfer Pricing legislation and incorporated the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations into the Income Tax Law of Cyprus, 2002.

Arm’s Length Principle

Prior to the enactment of this law, the legal basis for dealing with Transfer Pricing issues was based on the Arm’s Length Principle, as contained in Section 33 of the Income Tax Law 2002 (ITL).

Related Parties

A 25% threshold was introduced in Section 33 to define the relationship of a Cypriot company to another company or person for Transfer Pricing purposes, as follows:

  • If the same person (or persons related thereto) directly or indirectly holds at least 25% of the voting rights or share capital or is entitled to at least 25% of the equity stake in the income of both companies.
  • If a group of two or more persons has control of each enterprise, and these are comprised of related persons.

In addition, a company is related to another person (or more if they operate together) if the latter directly or indirectly holds at least 25% of the voting rights or share capital or is entitled to at least 25% of the equity stake in the company’s income or if the latter and the persons related thereto directly or indirectly, jointly, hold at least 25% of the voting rights or share capital or are entitled to an equity stake of at least 25% of the company’s income.

Transfer Pricing Documentation

The new Transfer Pricing law and regulations cover all types of related party transactions exceeding €750,000 per transaction category.

The first requirement consists of filing a summary information chart including intercompany transactions, general group information, business profile, and the Transfer Pricing method employed. This must be filed in every situation with related party transactions, regardless of their value.

Local Report

A Local Report would be required when the cumulative intra-group transactions per category are equal to or exceed € 750,000 per tax year. The rules do not indicate the specific information to be included in the file. Conversely, according to the OECD Transfer Pricing Guidelines, the Local Report provides more detailed information related to specific intercompany transactions.

This information would include the management structure of the Cypriot entity, financial information on specific transactions, a comparability analysis, and the selection and application of the most appropriate Transfer Pricing method.

Master File

The Master File requirement applies only to companies operating as the Ultimate Parent Entity (UPE) or Substitute Parent Entity (SPE) of a multinational corporate group with consolidated revenues exceeding € 750 million. It must provide a high-level overview of the global business transactions of the taxpayer, including its organizational structure, general Transfer Pricing policies, profit generators, and the allocation of revenues and profits of the multinational group jointly.


Penalties will be imposed on taxpayers failing to comply with the requirements of the new Transfer Pricing Documentation Law and Regulations.

Penalties may vary from € 500.00 to € 20,000.00, depending on the case.

Source: Tax Department of Cyprus

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 Author:       Wolfgang Hartl
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