The Cyprus tax office with a relevant letter issued to the Institute of Certified Public Accountants of Cyprus have expressed their intention to abolish the minimum profit spreads on qualified back to back loan transactions. As per this letter it is stated that the intention is for these profit spreads to be abolished as from July 1 2017 onwards whereby related-party financing transactions will have to be supported by Transfer Pricing (TP) studies which need to be prepared by independent experts based on the relevant OECD transfer pricing guidelines.
All relevant rulings issued up to 31 June 2017 involving back to back financing transactions will cease to be applicable on 1 July 2017. All qualified back to back loan arrangements remaining in place after 1 July 2017 will have to be supported by TP studies as from 1 July 2017 onwards.
Further guidance is expected to be issued by the Cyprus tax office on the application of this new practice, we will let you know as soon as new information is released in order to provide our advice and recommendations for any restructurings that may be required.
At your disposal for any further assistance required on this in the meantime.