Cyprus: Changes to Intragroup Financing Arrangements

The Cyprus tax authority announced that the previously agreed minimum profit margins on back-to-back intragroup financing will cease to apply from July 1, 2017. Before that date, margins ranging from 0.125% to 0.35% are acceptable. Starting July 1, any such arrangements should follow the arm’s length standard for transfer pricing, as endorsed by the OECD and many major economies.

Cyprus has long been used as a conduit for financing operations, particularly into EU countries, as Cyprus is a member. This change is similar to those enacted by other countries with preferential tax regimes in response to EU criticisms and the OECD program that aims to prevent base erosion and profit shifting (BEPS). 

Any businesses currently using or intending to use Cyprus as a conduit for financing operations into the other EU countries should obtain professional advice on the impact of this change and the availability of alternative arrangements.