Cyprus: Back-to-back loans | KPMG Global
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Cyprus: Back-to-back loans to require transfer pricing study

Cyprus: Back-to-back loans

Officials with the tax department of Cyprus have written to the Institute of Certified Public Accountants of Cyprus, advising that the minimum profit margins that the tax authorities would be willing to accept in back-to-back loan transactions—“the back-to-back finance regime”—will no longer apply, effective 1 July 2017.


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Instead of the back-to-back finance regime, all related-party financing transactions must be supported by a transfer pricing study as of 1 July 2017. Transfer pricing studies:

  • Will be required both for the purpose of issuing tax rulings and for corporate tax calculations
  • Will have to be prepared by independent professionals 
  • Will need to be based on the relevant OECD transfer pricing guidelines

All relevant tax rulings issued as of 1 July 2017 and that involve the back-to-back finance regime will cease to apply on 1 July 2017. Any back-to-back finance transactions remaining in place after 1 July 2017 will need to be supported by a transfer pricing study for the period from 1 July 2017 onwards.

KPMG observation

The change in the approach to the back-to-back finance regime stems from international tax developments, including the base erosion and profit shifting (BEPS) initiative of the OECD, as well as from a review of the current regime both under the Code of Conduct for Business Taxation and under an EU State Aid perspective. It is expected that the tax authorities will issue further guidance on what practice will need to be adopted.


Read a March 2017 report prepared by the KPMG member firm in Cyprus

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