Transfer pricing often first appears to be an accounting question. The legal position matters just as much. A payment between companies in the same group may be recorded correctly in the accounts and still need to be tested against the terms independent parties would have agreed. In Cyprus, that test sits alongside reporting and documentation obligations.
Cyprus introduced its current transfer pricing documentation framework with effect from 1 January 2022. The underlying rule is the arm’s-length principle: connected persons should transact on terms that independent parties would have agreed in comparable circumstances. If a controlled transaction does not meet that standard, the Tax Department may adjust the taxable profits of the relevant taxpayer.
The basic rule
The main Cyprus rule is in Article 33 of the Cyprus Income Tax Law. It covers Cyprus tax-resident persons and permanent establishments in Cyprus of non-Cyprus tax-resident persons when they carry out controlled transactions with connected persons. Cyprus applies the rule with reference to the OECD Transfer Pricing Guidelines.
The rules can apply to a smaller Cyprus company as well as to an international group. An intra-group loan, a guarantee, a recurring management charge, a software licence or a service arrangement may all need review. The amount affects the level of documentation, but it does not switch off the arm’s-length rule.
Which transactions are covered
The list below is not exhaustive. Controlled transactions commonly include:
- financial transactions, including intra-group loans, guarantees and cash-pooling arrangements;
- management, administrative, technical and support services;
- the sale or purchase of goods;
- IP licences, royalties and software-related arrangements;
- agency, commissionaire and distribution arrangements; and
- other transactions between connected persons.
A heading in an agreement will not settle the question. What matters is the arrangement as it operates: the functions performed, assets used, risks assumed and benefits received.
The Summary Information Table
The Summary Information Table is a separate annual filing. The Tax Department states that the persons referred to in Article 33(7) of the Income Tax Law who carry out controlled transactions during a tax year must submit an annual Summary Information Table electronically by the due date for the income tax return for that year.
It records high-level information about related parties, transaction categories and amounts. A category may fall below the Local File threshold and still have to be included in the table. The two documents serve different purposes.
The taxpayer remains responsible even when the filing is handled through its statutory auditor or tax consultant. Before filing, someone must consolidate the group data, classify the transactions and check the figures for the tax year. Looking at invoices one by one will not give a reliable answer where several transactions belong to one category.
Local File thresholds from 2026
For tax years from 2026 onwards, the Local File thresholds are:
| Category of controlled transaction | Local File threshold |
| Financial transactions | €10 million |
| Sale or purchase of goods | €5 million |
| Services | €2.5 million |
| IP licences, royalties and intangibles | €2.5 million |
| Other controlled transactions | €2.5 million |
They apply separately to each category and use the aggregate arm’s-length value of the controlled transactions in that category for the year. The figures are not combined into one overall threshold, and the test is not made by treating each invoice as a separate question.
If the amount in one category exceeds its threshold, the Local File requirement arises for that category. It does not, by itself, bring every other category into the Local File.
A Local File sets out information about the taxpayer, its business, the related parties and the transactions. Depending on the facts, it will include the functional analysis, the contractual and commercial background, financial information, the method used and the support for the arm’s-length result. It has to be prepared by the income tax return deadline. The file is also subject to the applicable quality-assurance review and confirmation by an eligible practitioner holding an ICPAC practising certificate or a practising certificate issued by another recognised body of auditors or accountants in the Republic.
What happens below the threshold
If the threshold for a category is not exceeded, a full Local File may not be required for that category. The transaction still has to be priced on arm’s-length terms, included in the Summary Information Table where required and supported by records. The Tax Department can examine the position and adjust taxable profits where the statutory conditions for an adjustment are met.
The Tax Department has published simplification measures under Circular 6/2023 for specified categories of controlled transactions where the taxpayer is exempt from maintaining a Cyprus Local File. The circular is not a blanket exemption. The relevant category and conditions have to be checked before relying on it.
For transactions outside a full Local File requirement, the records kept by the company should explain who the parties are, what each party does, how the transaction has been characterised, why the method was selected and how the price was tested. Keep the agreement, invoices, calculations, relevant financial information and any benchmarking or other supporting material. The documents should reflect the actual arrangement.
A practical compliance process
Most reviews can be handled in a short sequence, provided the information is gathered early:
- List the connected persons and the controlled transactions for the year. Include loans, guarantees, charges, licences and arrangements that may not appear under a transfer pricing heading in the accounts.
- Put each transaction into the right category and aggregate the amounts for the year.
- Compare the agreements with what happened in practice: who made the decisions, performed the work, used the assets, bore the risks and moved the money or goods?
- Choose the documentation required for each category — the Summary Information Table, supporting documentation under an applicable simplification measure or a Local File.
- Prepare or update the technical analysis and arrange the quality-assurance review where required.
- File the Summary Information Table by the relevant income tax return deadline and make sure the required documentation is ready by then.
It is easier to fix a weak arrangement before it is put in place. For a new loan, service arrangement or licence, the company should record its commercial reasons, agree terms that match the intended conduct and keep the records from the start.
How we can help
Transfer pricing starts with the relationship between the parties. The financial analysis must reflect their rights and actual activities; a well-drafted agreement alone does not establish that the pricing is at arm’s length.
We advise on group structures, related-party relationships and the legal issues in proposed or existing transactions. We draft and review intercompany agreements and advise on intra-group financing, services, goods, intellectual property and distribution arrangements. We can also assist with corporate approvals, governance, correspondence and disputes.
When financial analysis, benchmarking, technical transfer pricing documentation, Summary Information Table preparation or quality assurance is needed, we coordinate with a separate accounting and tax firm, subject to the client’s instructions and an agreed allocation of responsibility. That firm handles its accounting and technical tax work; we handle the legal advice, agreements and corporate work assigned to us.
