Profit margins on back to back loans
On February 2017, the Cyprus tax department (CTD) has send a letter to the Institute of Chartered Accountants (ICPAC) relating to the minimum margins on back to back loans transactions that CTD used to accept. As per the letter, the existing regime (with the minimum margin requirements) will be abolished from 01/07/2017 onwards.
This decision was taken due to the international tax developments (OECD/G20 initiative – BEPS) and as well of the assiduous review of the regime under Business Code of Conduct and under a state aid perspective.
From 2017 onwards these transactions need to be supported by Transfer Pricing Studies, to be prepared by independent professionals based on OECD guidelines. From 01/07/2017 any tax rulings issued based on previous regime will cease to be applicable. Any back to back loans remaining in place after 01/07/2017 need to be supported by Transfer Pricing Studies.
Further guidance is expected to be issued from CTD in the near future.