Cyprus Tightens Transfer Pricing Documentation Rules: A New Compliance Era Begins

Cyprus has taken a major step toward aligning with OECD and EU tax governance standards by refining and strengthening its Transfer Pricing (TP) framework. The latest guidance, effective from July 2025, significantly raises the bar for documentation and compliance requirements, signalling a shift toward a more rigorous approach to intercompany pricing and audit readiness.

As global tax authorities continue to crack down on profit shifting and artificial arrangements, Cyprus is ensuring that it remains fully aligned with international expectations. For multinationals, SMEs, and any groups operating across borders, these developments must now become a central part of their risk and tax planning discussions.

Understanding the Revised TP Landscape

The most impactful updates centre around thresholds, documentation content, and enforcement:

• Revised Thresholds: The obligation to maintain a Local File applies when related-party transactions in a specific category exceed €750,000 per year. Meanwhile, entities that are part of a multinational group with consolidated revenues exceeding €750 million are now required to prepare a Master File, even if the Cyprus entity is relatively small.
• Simplified Documentation Regime: SMEs that fall below the documentation thresholds may benefit from simplified reporting, but this is subject to strict conditions. In practice, the burden of proof remains with the taxpayer to demonstrate compliance with the arm’s length principle, regardless of entity size.
• Expanded Documentation Requirements: The updated guidance demands greater detail on the nature of intercompany transactions, the functions performed by each entity, the risks assumed, and the assets employed. Documentation must also be contemporaneous and based on robust benchmarking analysis, using comparable third-party data.
• Increased Enforcement and Penalties: The Cyprus Tax Department is expected to escalate audits and desk reviews of TP documentation. Inadequate or late-filed documentation could result in administrative fines of up to €20,000, along with the risk of transfer pricing adjustments, interest, and reputational consequences.

Implications for Cyprus-Based Groups

These developments are part of Cyprus’ commitment to transparency and credibility on the international stage. However, for taxpayers, they also represent a significant administrative and strategic challenge. Intragroup financing, licensing, cost-sharing arrangements, and service agreements—common features of Cyprus structures—must now be thoroughly analysed and justified through documentation that reflects commercial reality.

Failure to comply not only raises audit risk but may also compromise the tax deductibility of expenses or the defensibility of tax positions during cross-border audits involving other jurisdictions.

Recommended Actions

Multinational groups and local businesses using Cyprus entities should immediately assess their exposure under the new rules. Key recommendations include:

1. Transaction Mapping: Identify all related-party transactions and assess whether they exceed documentation thresholds.
2. Benchmarking and Economic Analysis: Ensure that transfer prices are supported by reliable, up-to-date benchmarking studies and comparability analyses.
3. Functional Review: Re-examine the economic substance, role, and contribution of Cyprus entities in value creation.
4. Contract Review: Align intercompany agreements with actual functions and risks—and ensure consistency with TP documentation.
5. Documentation Readiness: Prepare Local and Master Files in advance of statutory deadlines, with sufficient narrative and financial support to withstand audit scrutiny.

How Savva & Associates Can Help

At Savva & Associates, our international tax team provides end-to-end TP advisory services tailored to Cyprus tax law and global best practices. From preparing Local and Master Files to benchmarking and compliance reviews, we support clients across sectors in establishing defensible and practical TP policies.

As tax authorities worldwide—Cyprus included—raise the bar on enforcement and transparency, proactive planning is the most effective risk management strategy.

To discuss your group’s transfer pricing compliance needs, please contact us at [email protected] or speak directly with one of our tax advisors.

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