Minimum profit margins on Back to Back Loans abolished
The Cyprus Tax Department (CTD), in order to streamline its policies and adhere with the latest OECD guidelines and the Code of Conduct for Business Taxation and under an EU State Aid perspective, has withdrawn its guidance on the minimum profit margins it accepts on back to back loan transactions as of 1st July 2017. Currently a minimum profit margin of 0.35% was acceptable for back to back unsecured loans below 50 million euro.
From the 1st of July all related party back to back loan transactions will have to be supported by transfer pricing studies based on the OECD transfer pricing guidelines. This will apply for corporate tax computations and tax rulings.
Any rulings issued prior to 1st of July 2017 will cease to apply. The CTD is expected to provide further guidance in due course.
Profit Margin between unrelated parties (arm’s length) will not be affected.