Transfer pricing: The bill under amendment and the CCCI’s recommendations to Keravnos

Amendments to the Income Tax Laws of 2002 until 2022 are currently under consultation following the introduction of provisions obliging companies, under certain criteria, to carry out a transfer pricing study and maintain documentation on their intra-group transactions.

Transfer pricing is an accounting and taxation practice that allows for pricing transactions internally within businesses and between subsidiaries that operate under common control or ownership.

The amendment was first suggested approximately a year ago and is considered to be an obligation that burdens companies, especially the Cypriot ones, with additional costs, which the business world characterizes as unnecessary and unjustified, since there is no question of any tax loss for the state since if both parties are profitable and taxable in Cyprus either one or the other will show the profits.

An example is the statements by Cyprus Chamber of Commerce and Industry Christodoulos Angastiniotis made to InBusinessNews a few days ago who described the proposed move as "an invention made to create a business out of nothing really and where it is not needed.” He called on the Ministry of Finance to change the law in such a way and to such an extent that the majority of Cypriot companies are exempt from this obligation.

The bill under amendment

In view of the above, the Ministry of Finance has prepared an amendment to the bill, which - as mentioned above – has been given to the involved bodies for consultation.

As stated in the explanatory statement, the purpose of the bill is to amend the basic Law, so as to increase the limit (from €750,000 to €5,000,000) for financial transactions, where they are exempted from the obligation to maintain a Cyprus Controlled Transaction Price Documentation File.

Essentially, what is envisaged is the amendment of article 33 of the basic law, as follows:

Article 33 of the basic law is amended as follows by adding immediately after paragraph (a) of subsection (9) the following proviso:

"It is understood that in the case of financial transactions the limit in question does not exceed or will not exceed five million (€5,000,000) per tax year".

The positions of the CCCI

In the context of the consultation, the CCCI sent a letter to the Minister of Finance Makis Keravnos with its position-recommendations.

In the letter dated 27/09/2023, which is signed by the chairman of the Chamber, Christodoulos Angastiniotis, and which was copied to the Permanent Secretary of the Ministry of Finance, George Pantelis, and to the Commissioner of Taxation, Sotiris Markides, the CCCI reiterates its opinion that in most cases the Cypriot companies will be burdened with yet another unjustified and unnecessary cost of a few thousand euros for an unnecessary study.

In this regard, CCCI’s proposal is to completely exclude all purely Cypriot transactions, since, as it points out, there is no purpose for moving profit outside Cyprus, or if it cannot be done on a permanent basis, to exclude them at least until 2025, a year that according to the proposal for a European Directive dated 13/9/2023, the member states should transpose the European Directive on the matter into their national legislation.

Alternatively, the CCCI recommends increasing the limit of €750,000 to €12,000,000 for all categories when the transactions are between Cypriot companies.

In addition, CCCI proposes that the time period for updating in cases where a documentation file is prepared to be set at three years, instead of the current one year, while it expresses its agreement and characterises as mandatory the possibility of incorporating a provision with an effective date of 1 January 2022, provided that it does not raise issues of unconstitutionality.

(Source: InBusinessNews)