Transfer pricing rules in Cyprus

There are no transfer pricing rules in Cyprus but a provision in the Cyprus Tax Law requires transactions to be based on an "arm's length" principle. Cyprus legislation incorporates the OECD model and pertinent guidelines to determine what an "arm’s length transaction" is.

Article 33 of the Income Tax Law No. 118(I)/ 2002 as amended relates to the arm’s-length principle between related companies.

Article 33 of the Income Tax Law states among others the following:-

“…when conditions are made or imposed between two businesses in their commercial or financial relations which differ from those which would be made between independent businesses, then any profits which would but for those conditions, have accrued to one of the businesses, but, by reason of those conditions, have not so accrued, may be included in the profits of that business and be taxed accordingly. The above conditions apply also with any transaction between connected persons”.

In effect, what the above provides is that, if a transaction is not considered as being made at arm’s length (i.e., not based on normal market conditions), then any profit which would have accrued to the Cyprus company, if the operation was done at arm’s length, can be calculated based on these market conditions and may be included in the taxable profits of the Cyprus company and be taxed accordingly.