Officials with the tax department of Cyprus have written to the Institute of Certified Public Accountants of Cyprus, advising that the minimum profit margins that the tax authorities would be willing to accept in back-to-back loan transactions—“the back-to-back finance regime”—will no longer apply, effective 1 July 2017.
Instead of the back-to-back finance regime, all related-party financing transactions must be supported by a transfer pricing study as of 1 July 2017. Transfer pricing studies:
All relevant tax rulings issued as of 1 July 2017 and that involve the back-to-back finance regime will cease to apply on 1 July 2017. Any back-to-back finance transactions remaining in place after 1 July 2017 will need to be supported by a transfer pricing study for the period from 1 July 2017 onwards.
The change in the approach to the back-to-back finance regime stems from international tax developments, including the base erosion and profit shifting (BEPS) initiative of the OECD, as well as from a review of the current regime both under the Code of Conduct for Business Taxation and under an EU State Aid perspective. It is expected that the tax authorities will issue further guidance on what practice will need to be adopted.
Read a March 2017 report prepared by the KPMG member firm in Cyprus
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.