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The Cyprus Tax Department has updated, on 24 January 2022, its Frequently Asked Questions (FAQs) section on its website, Cyprus Tax Department – FAQs, for frequently asked questions with reference to the Interpretive Circular 3 dated 30/06/2017, with title “Tax treatment of intra group back to back financing transactions” (“Back to Back Circular”), Back to Back Circular.

The answers to the FAQs are applicable to all transactions that fall within the scope of the Back to Back Circular and relate to loan agreements concluded as at the date of the issue of the FAQs and thereof (i.e. 24/01/2022), as well as to those loan agreements which were concluded prior to that date and have not been examined by the Tax Department by that date.

Key questions clarified within the new FAQ section, amongst others, are as shown below:

1)      Will TP studies be required to be submitted to the Tax Authority as part of the Annual Tax Filing process?
The TP studies will be submitted to the Tax Department upon request.

2)      Is the Company required to prepare a TP study when it opts to apply the simplification measures as described in section 4 of the back to back circular?
A company which opts to apply simplification measures (2% margin after tax) because it is functionally reduced as it is purely an intermediary financing entity should only prepare a functional analysis.

3)      In case a Company does not support its controlled transactions with a TP study and the Tax Department makes an upward adjustment on taxable profit, how will an adjustment be made?
The Tax Department may assess the company’s taxable profits on the basis of the available information and at its own discretion in the absence of a TP study.

4)      Should transfer pricing be prepared every tax year or only if something changes with regards to intragroup loans?
A TP study should be prepared when an intra group loan is initiated and updated when:


a.       new loans are provided or received by the company, or

b.      significant terms of the existing loans change or amended, or

c.       the functional profile of the company changes, or

d.      the market and economic conditions change significantly (if applicable)

This list is indicative and not exhaustive.

5)      Is there a requirement for a Company to hire specialised personnel?
There is no requirement for the Company to hire specialized personnel provided that the Company’s board of directors has sufficient knowledge, possess competence and experience to perform the decision making functions and to control the risks of a controlled transaction under consideration.

6)      Does the back to back Circular apply only to cases where all parties in the back to back financing arrangement are Cyprus tax resident companies?
The Back to Back Circular applies to both cross-border transactions and domestic transactions between related companies.


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