Intra-group back to back financing arrangements

Last month, the Cyprus Tax Department informed the Institute of Certified Public Accountants of Cyprus of its intention to terminate the application of the pre-agreed minimum profit margins of 0.125% – 0.35% on qualifying intra-group back to back financing arrangements, with effect from 1 July 2017.

According to the letter issued by the Cyprus Tax Department to the Institute of Certified Public Accountants of Cyprus, from the above date onwards, all tax rulings confirming the applicability of the above profit margins on intra-group back to back financing arrangements will cease to be effective and acceptable taxable profit margins on intra-group back to back financing arrangements will be determined by Transfer Pricing rules.

Although the Transfer Pricing rules have not yet been finalized by the Cyprus Tax Department, they are expected to follow the relevant OECD guidelines and subject to conditions, they will require tax payers to support the applicable profit margins with a Transfer Pricing study, to be prepared by an independent expert.