Termination of Special Tax Treatment for “Back to Back” Financing Arrangements

Through a circular issued on 5 January 2023, the Cyprus Tax Authorities announced that the provisions of circulars issued in the past about the so called “back-to-back” financing arrangements (Interpretive Circulars 3 and 5) are retroactively terminated as of 31 December 2021.

As a result, the application for tax purposes of the simplification provisions on intra-group “back-to-back” financing transactions (e.g. the recognition of the margin of 2,3% before tax), will not be applicable as of 1 January 2022.

As it is already known, as of 1 January 2022, any “back-to-back” financing transactions together with any other related party transactions must be based, from a tax perspective, on normal commercial terms based on the arm’s length principle. Relevant documentation requirements (applicable under conditions) related to this to have been covered in previous newsfeeds.

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