Further to our previous newsfeed on this, the Cyprus Tax Department issued additional Frequently Asked Questions (FAQs) on its website, providing guidance on certain aspects of the Transfer Pricing Rules introduced with effect from 1 January 2022.
Below is a selection of the questions and answers appearing on the website mentioned above.
Threshold on Loan Financing Activities
Question: How is the €750.000 threshold in the context of loan financing activities being determined in a tax year?
Answer: The threshold in the category of loan financing transactions is determined only by reference to the loan principal including interest charged but not paid.
Question: Continuing from the question above, which balance is relevant in the case of loan financing activities (e.g. year end, average balance for the year, facility amount)?
Answer: The maximum loan balance (i.e. only the loan principal including interest charged but not paid) during the tax year should be used to determine the threshold in the respective tax year and be reported in the Summary Information Table (SIT).
Question: Should the loans or any other monetary facilities including cash withdrawals (but excluding any balances arising from commercial transactions) granted by a company to its directors or to its shareholders who are individuals or their spouses or to their relatives up to and including the second degree of kinship be taken into account for the purposes of assessing whether the threshold of €750.000 has been exceeded in the category of financing activities?
Answer: No, provided the company which is granting the loans or any other monetary facilities including cash withdrawals to such persons does not have as a taxable activity the provision of financing.
In this specific case only, such balances should not be taken into account for the purposes of assessing whether the threshold of €750.000 has been exceeded in the category of financing activities and as such should not be reported in the SIT. No documentation with respect to these specific transactions in the Local File is required.