Cyprus transfer pricing (tax year 2026)

Source-cited draft: not reviewed by an accountant, not for filing.

Cyprus transfer pricing rules sit in article 33 of the Income Tax Law 118(I)/2002 (arm's length rule and documentation), article 33C (advance pricing agreements), the Income Tax (Transfer Pricing Documentation File and Advance Pricing Agreement) Regulations of 2022 (K.D.P. 273/2022), the Tax Commissioner's notice on the content of the file (K.D.P. 314/2022) and article 50Z of the Assessment and Collection of Taxes Law 4/1978 (penalties). The documentation regime applies from tax year 2022. The Income Tax (Amendment) (No. 4) Law 244(I)/2025 raised the local file thresholds from 1 January 2026.

Related skills: cy-corporate-tax (the 15% rate, the taxable base, the IR4 deadline, interest limitation, payments to associated low-tax companies, SDC, withholding), cyprus-income-tax (individuals), cyprus-tax-optimization (planning), cy-non-dom. This skill does not repeat those rules.

Who this applies to

The arm's length rule (article 33(1) and (2)). Where a business in Cyprus takes part, directly or indirectly, in the management, control or capital of another person's business, or the same persons take part in two or more businesses, and their commercial or financial relations carry terms that differ from those between independent businesses, the Commissioner may add to the Cyprus business's profits the profit it would have made on arm's length terms. The rule also covers any transaction between connected persons, domestic or cross-border. It can only increase the profits of the person adjusted; the other side gets relief under article 33(5) (see "The taxable base").

Connected persons (article 33(3) and (4)).

• An individual is connected with a spouse and with relatives up to the third degree, with the spouse of such a relative, and with relatives of their own spouse (article 33(3)(a), 33(4)(c)).
• A person is connected with their business partners and with a partner's spouse or relatives (article 33(3)(b)).
• Two companies are connected where the same person, alone or with persons connected to them, holds directly or indirectly at least 25% of the voting rights or share capital, or is entitled to at least 25% of the income, of both companies; the same applies where groups of two or more persons that are, or can be treated as, the same persons hold 25% of each (article 33(3)(c)).
• A company is connected with a person holding directly or indirectly at least 25% of its votes, capital or income, alone or with connected persons (article 33(3)(d)).
• Two or more persons acting together to secure 25% of a company's votes, capital or income are connected with each other and with anyone acting on their instructions (article 33(3)(e)).
• From 2026, a director or adviser who, alone or with connected persons, holds at least 50% of the voting rights over board decisions under the articles or a shareholder authorisation is treated as connected with the company. The proviso sits at the end of article 33(4)(c) and applies for the "control" test in article 33(4)(a)(ii), control through powers in the articles or another governing document (Law 244(I)/2025, s. 17(b)).

Documentation duty (article 33(7)). Connected persons that are Cyprus tax resident, or non-residents with a Cyprus permanent establishment, keep a transfer pricing documentation file and a Summary Information Table for their controlled transactions. Every such person files the Summary Information Table with its return (article 33(10)); the exemptions in article 33(9) cover only the master file and the local file, not the table. "Controlled transactions" means transactions between connected persons as defined in article 33(3) (article 2). The file has two parts: a master file and a Cyprus local file (article 33(8)).

Shareholder use of company assets (article 33(2), proviso added for 2026). The arm's length rule does not apply to a shareholder's (or connected individual's) use of company assets to the extent the shareholder has paid 10% SDC on a disguised dividend distribution for that use under article 3A(2)(a) of the SDC Law. See cy-corporate-tax for the 10% charge.

Rates, bands and thresholds

Item	Rate or amount	Year	Source
Ownership test for connected companies	At least 25% of votes, share capital or income	2026	Income Tax Law, article 33(3)(c) and (d): https://www.cylaw.org/nomoi/enop/non-ind/2002_1_118/full.html
Director treated as connected	At least 50% of the voting rights over board decisions	From 2026	Income Tax Law, article 33(4)(c) proviso; Law 244(I)/2025, s. 17(b): https://www.cylaw.org/nomoi/arith/2025_1_244.pdf
Cyprus local file exemption, general (services, intangibles, other categories)	Controlled transactions per category at or below EUR 2,500,000 per tax year	From 2026	Income Tax Law, article 33(9)(a); Law 244(I)/2025, s. 17(c)
Cyprus local file exemption, purchase and sale of goods	At or below EUR 5,000,000 per tax year	From 2026	Income Tax Law, article 33(9)(a), first proviso
Cyprus local file exemption, financing transactions	At or below EUR 10,000,000 per tax year	From 2026	Income Tax Law, article 33(9)(a), second proviso
Cyprus local file exemption, tax years 2022 to 2025	EUR 750,000 per category per tax year	2022 to 2025	Law 244(I)/2025, s. 17(c)(i) (the wording it replaced)
Master file	Required only where the Cyprus person is the ultimate parent entity or surrogate parent entity, as defined in Annex III Part I of the Administrative Cooperation in Taxation Law. Those terms mean a constituent entity of an "MNE group", which excludes a group with consolidated revenue below EUR 750,000,000 in the preceding fiscal year and a group with all its entities in one jurisdiction, so a Cyprus parent of a smaller or purely domestic group keeps no master file	2026	Income Tax Law, article 33(9)(b); Law 205(I)/2012, Annex III Part I, definitions 4, 5, 8 and 9
Production of the file on request	Within 60 days of the Commissioner's request	2026	Income Tax Law, article 33(11)
Penalty: Summary Information Table not filed	EUR 500	2026	Assessment and Collection of Taxes Law, article 50Z(1): https://www.cylaw.org/nomoi/enop/non-ind/1978_1_4/full.html
Penalty: file produced on day 61 to 90 after the request	EUR 5,000	2026	Assessment and Collection of Taxes Law, article 50Z(2)(a)
Penalty: file produced on day 91 to 120	EUR 10,000	2026	Article 50Z(2)(b)
Penalty: file produced after day 121, or never	EUR 20,000	2026	Article 50Z(2)(c)
APA decision period	10 months from the application, extendable by notice up to 24 months	2026	K.D.P. 273/2022, reg. 4(2)(a) and (c): https://www.cylaw.org/KDP/data/2022_1_273.pdf
APA maximum term	4 years, never a tax year already past when the application is filed	2026	K.D.P. 273/2022, reg. 4(2)(b)
Country-by-country report: excluded group	Consolidated group revenue below EUR 750,000,000 in the preceding fiscal year	2026	Administrative Cooperation in Taxation Law 205(I)/2012, Annex III Part I definitions: https://www.cylaw.org/nomoi/enop/non-ind/2012_1_205/full.html
Country-by-country report deadline	12 months after the last day of the group's reporting fiscal year	2026	Law 205(I)/2012, article 7C(1)
Corporate tax rate on an adjustment	15%	2026	See cy-corporate-tax (Income Tax Law, Second Schedule)
Interest limitation on exceeding borrowing costs (borrowing costs minus taxable interest income)	30% of taxable EBITDA, with EUR 3,000,000 deductible in any case per company or Cyprus group	2026	Income Tax Law, articles 2 and 11(16)(a) and (d)(ii): https://www.cylaw.org/nomoi/enop/non-ind/2002_1_118/full.html
Cyprus safe-harbour margin for back-to-back or other intra-group financing	Not given: the Tax Department circular was not read from an official copy	2026	See "Not yet confirmed"

The Council of Ministers may change the local file thresholds by decree (article 33(14), added for 2026). No such decree was found.

The taxable base

1. Identify controlled transactions. List every transaction with a connected person (the 25% test above, relatives, partners, the 50% board director). Domestic transactions count.
2. Price each one at arm's length. Article 33(1) may be applied and read in line with the OECD Transfer Pricing Guidelines as amended from time to time (article 33(6)). The notice K.D.P. 314/2022, para. 7, repeats that the principle is the one in article 9 of the OECD Model Tax Convention and that the OECD Guidelines may be taken into account.
3. Primary adjustment. Where the terms differ from arm's length terms, the profit the Cyprus business would have made is added to its profits and taxed at 15% (article 33(1)). The adjustment is upward only.
4. Corresponding adjustment (article 33(5)). If the Commissioner increases the profits of a Cyprus resident (or a non-resident with a Cyprus permanent establishment) because of its dealings with another Cyprus resident or Cyprus permanent establishment, the other person gets a deduction equal to the increase. The deduction is an expense subject to the normal limits on deductions. If the increase was computed on a loan, credit facility or debit balance, the deduction is treated as interest and article 11 applies, including the interest limitation rule described in cy-corporate-tax. No corresponding deduction arises under article 33(5) when the counterparty is abroad; relief there depends on the other country, a treaty MAP or the EU procedure.
5. Interest-free and below-market loans. An interest-free loan from a Cyprus company to a connected company is a financing transaction. The Commissioner can add arm's length interest to the lender's income (worked example 1). An ordinary Cyprus-resident trading or holding company pays no SDC on interest. Article 3B of the SDC Law charges resident individuals; resident public-character religious, charitable or educational institutions and companies set up solely to promote art, science or sport, where their income is tax exempt; state bodies, local authorities and general government entities; pension and provident funds and the social insurance and health insurance funds; and companies resident in an EU-listed non-cooperative jurisdiction on Cyprus-source interest.
6. Local file categories. The Summary Information Table template (annex to K.D.P. 314/2022) splits controlled transactions into five categories: goods; services; royalties and other intangibles; financing transactions; other. Each column records sales or provision and purchases or receipt, with a "total per category" row. The local file thresholds apply to the controlled transactions in aggregate, per category, and are tested on what the amounts are or would be at arm's length (article 33(9)(a): "δεν υπερβαίνουν ή δεν θα υπερέβαιναν, με βάση την αρχή των ίσων αποστάσεων"). An interest-free loan or an underpriced sale counts at its arm's length value, not at the price charged.
7. What the Cyprus local file contains (K.D.P. 314/2022, para. 2(b)): the group's activities and structure; the local organisation and who management reports to; the business and strategy, including changes from the previous year; restructurings and transfers of intangibles; key competitors; a detailed description of each controlled transaction, the amounts per category per connected person, the group entities involved, copies of the contracts; for each category, a comparability and functional analysis, the method chosen and why, the tested party, the comparables and any adjustments to them, and why the result is at arm's length; copies of APAs and rulings issued by other tax authorities; and financial information, including the audited financial statements for the year. The master file content follows para. 2(a).
8. Quality review. A holder of a practising certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another recognised audit body in Cyprus carries out a quality assurance review of the Cyprus local file, no later than the return filing date for the year (K.D.P. 273/2022, reg. 3(3)).
9. Below the threshold. A taxpayer under the local file threshold for a category still has to price that category at arm's length; article 33(1) applies regardless. The Tax Department has issued guidance on the documentation it expects below the threshold and optional simplified pricing for some transactions. That guidance was not read from an official copy for this skill, so no safe-harbour figure is given here.

Pricing intra-group loans and other financing

Cyprus law gives no formula for an interest rate. Article 33(6) lets the Commissioner apply article 33(1) in line with the OECD Transfer Pricing Guidelines, and Chapter X of the 2022 Guidelines is the OECD's guidance on financial transactions. The steps below follow Chapter X. The Tax Department's own circular on financing transactions was not read from an official copy (see "Not yet confirmed"), so this skill gives no Cyprus safe-harbour margin and no minimum spread.

Step 1. Delineate the transaction. Decide first whether the advance is a loan at all, and for how much (OECD 10.11 to 10.13). Indicators: a fixed repayment date; an obligation to pay interest; the right to enforce payment; the lender's rank against ordinary creditors; covenants and security; the source of the interest payments; whether the borrower could borrow the same amount from a bank; whether the money buys capital assets; and whether the borrower has repaid on time or asked for postponements (10.12). If good-faith projections show the borrower could never service the full amount, only the part an independent lender would have lent is priced as a loan (10.13). The label in the contract does not decide this (10.11).

Step 2. Do the functional analysis. For the lender, the key functions are assessing the borrower's risk, committing the capital, setting the terms, documenting the loan and monitoring it (10.24). If the lender does not control the risk of the loan, or lacks the financial capacity to bear a default, the risk goes to the group company that does, and the lender earns no more than a risk-free return (10.25). This is the test that decides how much a Cyprus finance company may keep.

Step 3. Rate the borrower. Creditworthiness is one of the main factors in the rate (10.62). Use the borrower's own public rating if it has one; otherwise replicate a rating agency's method or use a credit-scoring tool, and record why the rating was chosen (10.68, 10.71 to 10.74). Adjust for implicit support: a subsidiary that is important to the group is rated closer to the group, with no fee for that support (10.76 to 10.79). The group rating may be used where the borrower is important to the group and its own credit metrics are close to the group's (10.82). Where both exist, prefer the rating of the specific debt (issue rating) over the borrower's general rating (10.70). Check whether controlled transactions that are not at arm's length distort the financial ratios; if they do, the rating derived from them is not reliable (10.75).

Step 4. Find comparables (CUP method). Benchmark against loans or bonds of borrowers with the same rating and similar terms: amount, maturity, currency, security, seniority, covenants (10.89 to 10.91). Long maturity, no security and subordination push the rate up; strong collateral, a good guarantee and covenants push it down (10.90). Loans to members of other groups can be comparables (10.92), and so can realistic alternatives such as bonds, deposits and commercial paper, after adjustments (10.93). Look for internal comparables: a loan from an independent bank to the borrower or the group on similar terms (10.94, 10.95). The group's average external interest rate is not usually an internal comparable (10.95). Expect a range of rates, not one rate (10.91).

Step 5. Set the rate and the fees. Pick a point in the range and write it into the loan agreement. Arrangement or commitment fees are tested like any other charge, remembering that a bank's fees partly cover regulatory costs a group lender does not have (10.96). If no comparables exist, the cost of funds approach builds the rate from the lender's borrowing cost plus its costs of arranging and servicing the loan, a risk premium and a profit margin; the lender's cost of funds must be competitive with other lenders', and the borrower must have had no cheaper realistic option (10.97 to 10.99). Credit default swap spreads and economic models are fallbacks with known weaknesses (10.101 to 10.106). A bank's "bankability" letter is not evidence of an arm's length rate (10.107, 10.108).

Step 6. Document it. Keep the loan agreement, the rating analysis, the comparable search and the rate chosen. Above the EUR 10,000,000 financing threshold this goes in the Cyprus local file, which for each category must hold the functional analysis, the method and why it was chosen, the tested party, the comparables and adjustments, and why the result is at arm's length (K.D.P. 314/2022, para. 2(b)). A Cyprus ultimate or surrogate parent's master file also describes how the group is financed, which entities provide central financing, and the group's transfer pricing policy for financing (K.D.P. 314/2022, para. 2(a)(iv)).

Back-to-back financing. A Cyprus company that borrows from one party and lends on to a connected company must show what it actually does (OECD 10.44 to 10.47). Two outcomes:

• Real lender. Its own people in Cyprus decide whether to lend, on what terms, and monitor the borrower, and it has equity that could absorb a default. Then it bears the credit risk, and the on-loan is priced by steps 3 to 5 on the borrower's rating; the Cyprus company keeps the spread over its own cost of funds (10.24, 10.138 to 10.141).
• Conduit. It only passes money through. Then it earns a return on its intermediary function, priced on the costs of that function, not a credit spread (10.100, 10.46), and no more than a risk-free return on the funds (10.25).

The evidence for the margin is the functional analysis (who decides, who monitors, what capital is at risk) and the comparable search for the borrower's rate. No fixed Cyprus margin is given here, because the circular that sets the Tax Department's expectations for back-to-back financing was not read.

Interest-free and below-market loans.

• Cyprus company lends. The Commissioner adds arm's length interest to the lender's income (article 33(1)), taxed at 15% (example 1). The arm's length interest, not the nil charge, counts for the financing threshold (article 33(9)(a)).
• Cyprus company borrows from a connected lender. Article 33(1) only adds profits, so it gives the borrower no deduction for interest it did not pay. The one exception is article 33(5): when the Commissioner increases a Cyprus lender's profits on a loan to a Cyprus borrower, the borrower gets an equal deduction treated as interest. Delineation still matters: an advance an independent lender would not have made may be equity, not a loan (step 1).

Guarantees. First decide whether there is a guarantee at all. A letter of comfort with no enforceable right is not one, and support that comes only from group membership earns no fee (OECD 10.155, 10.163). An explicit guarantee is priced only for the benefit beyond implicit support (10.156, 10.175). The yield approach gives the most the borrower would pay: the rate it would pay without the guarantee, with implicit support, minus the rate with the guarantee (10.174 to 10.177). The cost approach gives the least the guarantor would accept, based on its expected loss or the capital needed (10.178 to 10.180). The arm's length fee comes from both perspectives (10.180). Where a guarantee lets the borrower borrow more than it could alone, part of the loan may be delineated as a loan to the guarantor followed by an equity contribution (10.161).

Cash pools. A cash pool leader that only coordinates balances earns a service fee, not a bank's spread (10.130, 10.137). A treasury company that sets rates and bears credit, liquidity and currency risk is priced as a lender and may earn the spread (10.139 to 10.141). The netting benefit is shared among members after the leader is paid (10.121, 10.143). Balances that stay in the pool year after year may be re-delineated as term loans or deposits (10.122, 10.123). Cross-guarantees required by the pool bank may give the borrower nothing beyond implicit support; where the facts support that conclusion, no guarantee fee is due, and any support paid on another member's default is a capital contribution (10.147, 10.148).

Interaction with interest limitation and SDC.

• The 30% of taxable EBITDA limit with the EUR 3,000,000 safe harbour (article 11(16), see cy-corporate-tax) applies to "exceeding borrowing costs": deductible borrowing costs minus taxable interest income and economically equivalent income (article 2). A Cyprus on-lender that earns more interest than it pays has no exceeding borrowing costs, and a primary adjustment that raises its interest income reduces them further.
• A corresponding deduction given to a Cyprus borrower under article 33(5) is treated as interest, so article 11, including the interest limitation, applies to it.
• Interest paid to an associated company in a low-tax jurisdiction is not deductible (article 11(17), see cy-corporate-tax).
• An ordinary Cyprus-resident company pays no SDC on interest, including deemed interest from an adjustment (SDC Law, article 3B; see point 5 of the list above). Interest received by a resident individual is in cyprus-income-tax and cy-non-dom.

Deadlines and filing

What	When	Source
Prepare the transfer pricing documentation file (master file where required, Cyprus local file)	By the filing date of the income tax return for the year. For a company's tax year 2026: 31 January 2028 (see cy-corporate-tax)	K.D.P. 273/2022, reg. 3(1)
Update the file	Every tax year, by the return filing date of the year the update was needed; it must have a chapter on changes in market conditions	Income Tax Law, article 33(10) proviso; K.D.P. 273/2022, reg. 3(4); K.D.P. 314/2022, para. 6
Quality assurance review of the Cyprus local file by an ICPAC or other recognised auditor	By the return filing date	K.D.P. 273/2022, reg. 3(3)
Summary Information Table	Filed electronically with the income tax return for each tax year	Income Tax Law, article 33(10); K.D.P. 314/2022, para. 5(a)
Produce the file to the Commissioner	Within 60 days of the request, by the taxpayer or an authorised representative	Income Tax Law, article 33(11)
Greek translation if asked	Within a reasonable time, not more than 60 days from the request. The file may be kept in an internationally accepted language, preferably English, on paper or electronically	K.D.P. 314/2022, para. 4
Keep the file	At the taxpayer's seat, for as long as the books and records of that year must be kept	K.D.P. 273/2022, reg. 3(2)
Country-by-country report (Cyprus ultimate or surrogate parent, or other reporting entity)	12 months after the end of the reporting fiscal year	Law 205(I)/2012, article 7C(1)

The Summary Information Table is not proof that prices are at arm's length (K.D.P. 314/2022, para. 5(b)). It records, per connected person (tax number, name, tax residence), the euro amounts in each of the five categories.

Penalties and interest

• Summary Information Table not filed: EUR 500 (Assessment and Collection of Taxes Law, article 50Z(1)).
• File not produced within 60 days of a request: EUR 5,000 if produced between day 61 and day 90; EUR 10,000 between day 91 and day 120; EUR 20,000 after day 121 or if never produced (article 50Z(2)).
• Tax on an adjustment. Extra tax from a transfer pricing adjustment is tax due for the year it relates to. Interest at the public interest rate (3.50% for 2026) and the 5% plus 5% late payment charge follow the general rules set out in cy-corporate-tax, which this skill does not repeat.

Cross-border points

• Treaties and MAP. Double tax treaties have effect under article 34 of the Income Tax Law. A person facing a transfer pricing adjustment abroad can ask the Cyprus competent authority for relief under the mutual agreement article of the relevant treaty. The Income Tax Law refers to the EU Arbitration Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of profits of associated enterprises, and APA regulation 4(6)(c) names it alongside treaty MAP.
• EU dispute procedure (Part IX, articles 36B to 36D, transposing Directive 2017/1852). An affected person may file a complaint on a question in dispute with the Commissioner and with each competent authority of every other Member State concerned, with the same information, within 3 years of first notice of the measure that gives rise to the dispute. The Commissioner accepts complaints in Greek or English, acknowledges receipt within 2 months and decides within 6 months of receiving the complaint or of receiving any further information it asked for, whichever is later; if no decision is made in time, the complaint is treated as accepted (article 36C). It applies to complaints filed from 1 July 2019 on about income or capital of tax years starting on or after 1 January 2018 (article 36D).
• APA (article 33C; K.D.P. 273/2022, reg. 4). A Cyprus resident or a Cyprus permanent establishment may apply for an advance pricing agreement on specific ongoing or future controlled transactions. A bilateral request must be filed in parallel with the other treaty states' authorities. While the agreement's terms and critical assumptions hold, prices within it are treated as arm's length. It can be revised, revoked (treated as never issued) or cancelled in the cases listed in reg. 4(6) to (9).
• Related rules elsewhere. Payments of interest or royalties to an associated company in a low-tax jurisdiction are not deductible (article 11(17)); SDC and withholding on outbound dividends, interest and royalties; the exit tax (article 33B); and the general anti-abuse rule (article 33A). All are in cy-corporate-tax.

Worked examples

Example 1: interest-free loan to a foreign subsidiary, tax year 2026

Delta Holdings Ltd is Cyprus resident. On 1 January 2026 it lends EUR 2,000,000 to its 100% subsidiary in Greece, interest free, repayable on demand. The loan is outstanding all year. Delta's own benchmarking study (not an official rate) supports an arm's length interest rate of 4.5% a year for a loan of this kind to a borrower with this credit profile.

The subsidiary is connected with Delta (25% test, article 33(3)(d)). Independent lenders would have charged interest, so the Commissioner can add the interest Delta would have earned: 2,000,000 x 4.5% = EUR 90,000. Corporate tax at 15% on that is EUR 13,500. Delta is a company, so no SDC arises on the deemed interest (SDC Law, article 3B). No Cyprus corresponding deduction arises because the borrower is in Greece; any relief there is a matter for Greek law, the Cyprus-Greece treaty MAP, or the EU dispute procedure. If the borrower had been a Cyprus-resident company, it would get a deduction of EUR 90,000 treated as interest under article 33(5), subject to the interest limitation rule, saving it up to EUR 13,500 at 15%.

The threshold is tested at arm's length value (article 33(9)(a)), so the loan counts even though Delta charged nothing. The financing category is below EUR 10,000,000 whether measured by principal (EUR 2,000,000) or by arm's length interest (EUR 90,000), so Delta has no Cyprus local file for it, but it must still be able to show the arm's length rate. Delta still files the Summary Information Table with its 2026 return (article 33(10)).

name: Delta Holdings Ltd, interest-free loan EUR 2m, 2026
inputs:
  principal: 2000000
  arm_length_rate_pct: 4.5
  months_outstanding: 12
  cit_rate_pct: 15
  financing_threshold: 10000000
steps:
  - deemed_interest: principal * arm_length_rate_pct / 100 * months_outstanding / 12
  - extra_cit: deemed_interest * cit_rate_pct / 100
  - sdc_on_interest_company: 0
  - total_extra_tax: extra_cit + sdc_on_interest_company
  - cyprus_borrower_tax_saving_if_domestic: deemed_interest * cit_rate_pct / 100
  - financing_excess_by_principal: max(0, principal - financing_threshold)
expected:
  deemed_interest: 90000
  extra_cit: 13500
  sdc_on_interest_company: 0
  total_extra_tax: 13500
  cyprus_borrower_tax_saving_if_domestic: 13500
  financing_excess_by_principal: 0

Example 2: does the company need a Cyprus local file, and for which category? (tax year 2026)

Epsilon Trading Ltd, Cyprus resident, is a subsidiary in a group with consolidated revenue of EUR 300m. Its 2026 controlled transactions are: goods sold to connected companies EUR 4,800,000; services provided to connected companies EUR 1,500,000; services received from connected companies EUR 1,200,000; a loan of EUR 6,000,000 received from its parent; no royalties.

The test is per category per year (article 33(9)(a)). Reading the Summary Information Table, which totals each category across both directions, services come to 1,500,000 + 1,200,000 = EUR 2,700,000, which is EUR 200,000 over the EUR 2,500,000 limit. Goods (EUR 4,800,000) are EUR 200,000 under the EUR 5,000,000 goods limit. Financing (EUR 6,000,000) is under EUR 10,000,000. So Epsilon needs a Cyprus local file for its services transactions, with the ICPAC quality review, by 31 January 2028. It is not the ultimate or surrogate parent, and the group is under EUR 750m, so it keeps no master file and there is no country-by-country report. It files the Summary Information Table with its 2026 return. Under the 2022 to 2025 rule (EUR 750,000 per category), all three categories would have needed a local file.

name: Epsilon Trading Ltd, local file test by category, 2026 thresholds
inputs:
  goods_sold: 4800000
  services_provided: 1500000
  services_received: 1200000
  loan_received: 6000000
  limit_general: 2500000
  limit_goods: 5000000
  limit_financing: 10000000
  old_limit: 750000
steps:
  - services_total: services_provided + services_received
  - services_excess: max(0, services_total - limit_general)
  - goods_headroom: limit_goods - goods_sold
  - goods_excess: max(0, goods_sold - limit_goods)
  - financing_excess: max(0, loan_received - limit_financing)
  - categories_over_old_limit_count: min(1, max(0, services_total - old_limit)) + min(1, max(0, goods_sold - old_limit)) + min(1, max(0, loan_received - old_limit))
expected:
  services_total: 2700000
  services_excess: 200000
  goods_headroom: 200000
  goods_excess: 0
  financing_excess: 0
  categories_over_old_limit_count: 3

Example 3: bank loan on-lent to a subsidiary, pricing the on-loan (tax year 2026)

Lambda Holdings Ltd is Cyprus resident. On 1 January 2026 it borrows EUR 8,000,000 from an unrelated bank for 5 years at a fixed 4.60%. The same day it lends EUR 8,000,000 to its 100% subsidiary in Romania for 5 years, unsecured, interest payable yearly, principal at the end. Two Lambda directors in Cyprus with finance experience assessed the subsidiary's forecasts, approved the loan, and review its accounts every quarter. Lambda has equity of EUR 1,500,000 that would absorb a loss if the subsidiary defaulted. Lambda spends EUR 24,000 a year arranging and servicing the loan.

The market data below is assumed for the example. It is not real data. A credit model gives the subsidiary a stand-alone rating of B+. It is a core trading company of the group, so implicit support lifts it one notch to BB- (OECD 10.78). A database search for euro 5-year senior unsecured loans and bonds of BB- borrowers gives a range of 5.50% to 6.30%, median 5.90%. Lambda sets the rate at 5.90%.

Lambda's directors control the lending risk and it has the capital to bear it, so it is a real lender, not a conduit, and it keeps the spread (OECD 10.24, 10.25, 10.141). Interest received: 8,000,000 x 5.90% = EUR 472,000. Interest paid to the bank: 8,000,000 x 4.60% = EUR 368,000. Taxable profit on the arrangement: 472,000 - 368,000 - 24,000 = EUR 80,000. Corporate tax at 15%: EUR 12,000. No SDC, because Lambda is a company (SDC Law, article 3B). Interest received exceeds interest paid, so Lambda has no exceeding borrowing costs and the interest limitation does not bite (Income Tax Law, article 2 and article 11(16)).

If Lambda had charged only 4.70%, its cost plus 0.10%, the Commissioner could add the shortfall to 5.90%: 8,000,000 x 1.20% = EUR 96,000, extra tax EUR 14,400. The financing category is under EUR 10,000,000 whether measured by principal or by interest, so Lambda keeps no Cyprus local file for it, but it keeps the rating analysis and comparable search to prove the rate, and files the Summary Information Table. Romania may test the same 5.90% from the borrower's side; that is outside this skill.

name: Lambda Holdings Ltd, bank loan on-lent to subsidiary, 2026
inputs:
  principal: 8000000
  bank_rate_pct: 4.6
  arm_length_rate_pct: 5.9
  low_rate_pct: 4.7
  servicing_costs: 24000
  cit_rate_pct: 15
  financing_threshold: 10000000
steps:
  - interest_received: principal * arm_length_rate_pct / 100
  - interest_paid: principal * bank_rate_pct / 100
  - taxable_profit: interest_received - interest_paid - servicing_costs
  - cit: taxable_profit * cit_rate_pct / 100
  - exceeding_borrowing_costs: max(0, interest_paid - interest_received)
  - adjustment_if_low_rate: principal * (arm_length_rate_pct - low_rate_pct) / 100
  - extra_cit_if_low_rate: adjustment_if_low_rate * cit_rate_pct / 100
  - financing_excess_by_principal: max(0, principal - financing_threshold)
expected:
  interest_received: 472000
  interest_paid: 368000
  taxable_profit: 80000
  cit: 12000
  exceeding_borrowing_costs: 0
  adjustment_if_low_rate: 96000
  extra_cit_if_low_rate: 14400
  financing_excess_by_principal: 0

Ask the client first

1. Who owns the company, directly and through relatives, partners or other companies, and does any director hold 50% or more of board votes? This decides who is connected.
2. What are the 2026 controlled transactions, by category (goods, services, intangibles, financing, other), in each direction?
3. Are there loans to or from connected persons at no or low interest, and on what terms? Does the counterparty sit in Cyprus or abroad?
4. Is the company the ultimate or surrogate parent of a group, and what was consolidated group revenue in the previous year?
5. Does any shareholder use company assets privately, and has 10% SDC on a disguised distribution been paid for that use?
6. Has any other country adjusted the price of these transactions, or is an APA or MAP request open?
7. For each connected loan: the agreement, amount, currency, term, security, ranking, and any guarantee or cash pool behind it. Does the borrower have a credit rating, or recent bank loans we can use as comparables?
8. If the company borrows to lend on: who in Cyprus decides on and monitors the loans, and how much equity does the company have at risk?

Sources

Source	URL	Read on
Income Tax Law 118(I)/2002, consolidated: articles 2, 33, 33A, 33B, 33C, 34, 36B to 36D	https://www.cylaw.org/nomoi/enop/non-ind/2002_1_118/full.html	2026-10-23
Income Tax (Amendment) (No. 4) Law 244(I)/2025, s. 17 (article 33) and s. 25 (in force 1 January 2026)	https://www.cylaw.org/nomoi/arith/2025_1_244.pdf	2026-10-23
Income Tax (Transfer Pricing Documentation File and Advance Pricing Agreement) Regulations 2022, K.D.P. 273/2022	https://www.cylaw.org/KDP/data/2022_1_273.pdf	2026-10-23
Tax Commissioner's notice under article 33(13), K.D.P. 314/2022 (file content, language, Summary Information Table template)	https://www.cylaw.org/KDP/data/2022_1_314.pdf	2026-10-23
Assessment and Collection of Taxes Law 4/1978, consolidated: article 50Z	https://www.cylaw.org/nomoi/enop/non-ind/1978_1_4/full.html	2026-10-23
Special Defence Contribution Law 117(I)/2002, consolidated: articles 3A and 3B	https://www.cylaw.org/nomoi/enop/non-ind/2002_1_117/full.html	2026-10-23
Administrative Cooperation in Taxation Law 205(I)/2012, consolidated: article 7C and Annex III	https://www.cylaw.org/nomoi/enop/non-ind/2012_1_205/full.html	2026-10-23
OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022, Chapter X (financial transactions), paras. 10.1 to 10.183	https://www.oecd.org/content/dam/oecd/en/publications/reports/2022/01/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-2022_57104b3a/0e655865-en.pdf	2026-10-23

Not yet confirmed: the Tax Department's 2023 circular on minimum documentation below the local file threshold and the optional simplification measures (reported elsewhere as a 5% mark-up for low value-adding services and a margin for back-to-back financing) could not be read from an official copy because the Tax Department website blocked access, and it is not confirmed whether that circular still applies after the 2026 threshold change; how the financing threshold is measured (principal or interest; the law says only that it is tested at arm's length value); whether payments and receipts in a category are added together for the threshold test (example 2 follows the Summary Information Table's "total per category" row); whether the Tax Department reads K.D.P. 314/2022, para. 5(a) ("those obliged to keep a file") as narrower than article 33(10) for persons below every local file threshold (the law, article 33(10), puts the duty on every article 33(7) person, and this skill follows the law); any fee for an APA application; any decree under article 33(14) changing the 2026 thresholds; the Tax Department's circular on intra-group financing (reported elsewhere as Circular 7/2023, naming the comparable uncontrolled price method for back-to-back financing), its margins and whether it still applies, because the Tax Department website blocked access and no copy was found on CyLaw; a later circular reported elsewhere as updating the simplified-measure rates in October 2026, and a reported financial transactions table from tax year 2026, neither read; whether a guarantee fee goes in the financing or the "other" column of the Summary Information Table.

Contributed by Ryan Duguid.