Cyprus: FAQs on intra-group back-to-back financing transactions

FAQs clarifying certain provisions of the Interpretive Circular 3 regarding intra-group back-to-back financing transactions

FAQs on intra-group back-to-back financing transactions

The Cyprus tax department on 24 January 2022 published a set of “frequently asked questions” (FAQs) clarifying certain provisions of Interpretive Circular 3 ("Tax treatment of intra-group back-to-back financing transactions" 30 June 2017).

Circular 3 applies to Cyprus tax resident companies and permanent establishments of foreign companies conducting intra-group back-to-back financing transactions and sets out requirements for the transfer pricing analysis of such transactions.


The following matters are covered by the FAQs:

  • The transfer pricing study for back-to-back financing arrangements is to be prepared by a transfer pricing expert. Clarification on the definition of the transfer pricing expert is also included. (Questions 2 and 3).
  • A company that opts to apply the simplification measure (2% after tax margin) for the back-to-back financing arrangement is required to prepare a functional analysis. (Question 4).
  • In the absence of a transfer pricing study, the tax department may assess the company's taxable profits on the basis of available information and at its own discretion. (Question 5).
  • A transfer pricing study is to be prepared when an intra-group financing arrangement is initiated and updated when: (1) new loans are provided or received by the company, (2) significant terms of the existing loans change or amended, (3) the functional profile of the company changes, or (4) the market and economic conditions change significantly (if applicable), or in other cases. (Question 6).

The FAQs will apply to all transactions that fall within the scope of Circular 3 from the publication date (i.e., 24 January 2022 for currently published questions), and also to all transactions concluded prior to the publication date that have not been examined by the tax department by that date.

Read a January 2022 report prepared by the KPMG member firm in Cyprus


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