Eurofast is a regional business advisory organisation employing over 200 people in South East Europe and East Mediterranean. Our services range from transfer pricing, International Tax, Mergers & Acquisitions and Transactional Advisory, Financial services, Corporate services, Accounting, Outsourced Payroll and Employment solutions.
Q: What type of documentation does a company have to prepare in order to be compliant in Cyprus?
Cyprus does not have specific transfer pricing rules in its domestic legislation; however, it follows the OECD Transfer Pricing guidelines and the arm’s length principle.
According to Article 33 of the Income Tax Legislation (118 (I)/2002 as amended), the Cyprus Tax Authorities may thus proceed with adjustments in the taxable bases of companies if conditions indicate that transactions occurred were not valued in the same way as if they had been carried out between unrelated parties. However it is advisable for all the companies engaged in intra-group transactions to maintain Transfer pricing documentation in accordance with OECD guidelines. Moreover it is recommended to keep written agreements among related parties in order to document intra-group transactions.
Q: What are the potential penalties for companies if they fail to submit accurate information regarding transfer pricing in Cyprus and in other countries across the Balkans?
In Cyprus even if there are no specific TP guidelines and even if there is no deadline for preparing a transfer pricing file it is highly recommended that documentation should be maintained by companies in case of a tax audit. The arm’s length principle is monitored by the Inland Revenue department. Furthermore according to the annual tax return form of a company in Cyprus, there is an obligation to declare the inter-company balances, the balances with other related parties, its other non-trading debtors and creditors and the balances of directors and shareholders. Moreover a Cypriot entity should confirm that all the sales, purchases and other charges linked with the above balances have been determined based on market prices in the company tax return form. The burden of proof is on the tax payer however the tax authorities have the right to adjust the tax base of a company by reassessment of the tax, impose penalties and interest for late payments.
On the other hand tax authorities across the Balkans have set specific penalties for breaches of Transfer Pricing Rules. For example, the Serbian Tax authorities have recently shown increased interest in transfer pricing documentation and failure to comply with legal requirements carries penalty exposure from 100 thousand to 2 million Serbian dinar (RSD). In Croatia, penalties can reach the amount of HRK200.000 (EUR27.000) for a company and the amount of HRK20.000 (EUR2.700) for the responsible individual within the company, in case there is any underestimation of the corporate income tax while in Bulgaria differences between the transfer prices and the market prices can be considered as a hidden profit and a penal provision of 20% of the respective difference can be applied. Additionally to the above adjustment, every legal entity which no correctly determines its tax obligation is subject of a penalty, ranged among EUR 250 and EUR 1.500.
Q: How do international trends affect Cyprus law?
The increased volume and variety of inter-company transactions have rendered transfer pricing one of the most challenging and widely discussed issues in international taxation. On the one hand MNEs are trying to seize opportunities and identify loopholes to minimize their overall tax burden and on the other hand Tax Authorities seek to combat structures that result in the erosion of tax bases and the artificial shifting of profits to low tax jurisdictions. In light of the changes in the international tax landscape and the imperative demand for transparency, exchange of information and compliance it can be presumed that more likely than not, Cyprus will follow specific guidelines in order to assist to the battle against tax avoidance. Moreover, it is discussed since last year in Cyprus that a Circular will be published with specific rules for the Cypriot Taxpayers by the IRA.
Q: Are there any Risk Indicators for Cypriot Tax Authorities?
Indicators of high risk areas usually can be found in:
•Transactions with tax heavens
•Transactions with loss making affiliated companies
•Transactions with companies that have tax losses for utilization in a Multinational Organization
•Restructuring programs without any consideration (without a Transfer Pricing View)
•Material service transactions without substance
Q: How do you help companies manage their transfer pricing issues and what services do you provide?
In order to manage TP risks, we first identify them carefully and evaluate them. Thereafter, we concentrate to eliminate key risks that materially affect the Group.
Our team of capable advisors can:
•Defend your Transfer Pricing Policy
•Prepare the Transfer Pricing Documentation
•Design and Implement the Transfer Pricing Model that suits to your Business
•Review and Localize the Group Master File
•Achieve compliance with each country’s Law across the region