Termination of Intra-Group Financing Transactions Circular
As per the enclosed Circular 1/2023 issued by the Cyprus Tax Department on 05 January 2023, Interpretative Circular 3 dated 30 June 2017 which captured Intra-Group Financing Transactions should be considered terminated as from 1 January 2022.
A brief reminder of Interpretative Circular 2 of 2017
As per the 30-June-2017 Circular, as from 01 July 2017 onwards, entities involved in Intra-Group Financing Transactions were required to perform a Transfer Pricing (TP) study in order to establish the arm’s length remuneration on their said Transactions. Such Transactions captured the granting loans or cash advances to related parties which were financed out of debt.
The 05-January-2023 Circular stipulates that the 30-June-2017 Circular (along with Circular 5 dated 02 January 2019) are considered abolished with effective date 1 January 2022. This is in line with newly introduced TP legislation introduced in the Cyprus tax framework which is effective as from 1 January 2022. In a nutshell, such TP legislation stipulates that Cyprus entities involved in Intra-Group Financing Transactions have the obligation to prepare and maintain a Local File in order to assess the arm’s length remuneration on their said Transactions.