The global tax landscape has undergone seismic shifts in recent years, particularly with the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives reshaping international tax rules. For companies operating in or out of Cyprus, the pressure to align with global compliance standards has never been greater. As such, understanding how these changes impact transfer pricing in Cyprus is now essential for businesses looking to maintain transparency, avoid penalties, and stay competitive.
BEPS, short for Base Erosion and Profit Shifting, refers to tax avoidance strategies used by multinational enterprises (MNEs) that exploit gaps in tax rules to shift profits to low or no-tax jurisdictions. The OECD’s BEPS action plan includes 15 actions designed to close these loopholes and ensure profits are taxed where economic activity occurs.
For Cyprus, a country that serves as a hub for international business thanks to its strategic location and attractive tax regime, aligning with BEPS standards is not just a formality—it’s a necessity. Companies must now be vigilant in proving that their cross-border transactions reflect market value and economic reality. This brings transfer pricing documentation, benchmarking, and local file requirements to the forefront.
The implementation of BEPS Action 13, which introduced the three-tiered documentation approach (Master File, Local File, and Country-by-Country Report), marked a turning point for Cyprus. Since 2022, Cyprus has enforced stricter documentation thresholds, requiring companies engaged in intercompany transactions exceeding €750,000 annually to prepare a Local File.
Moreover, Cyprus tax authorities are paying closer attention to the functional substance of businesses. It’s no longer enough to have a company registered locally—the economic substance, real business operations, and decision-making processes must all be demonstrably based in Cyprus.
This evolution means companies can’t rely on outdated documentation or cookie-cutter reports. Instead, they need to customize their transfer pricing policies, perform robust benchmarking analyses, and align their strategies with both Cypriot regulations and international standards.
Non-compliance with transfer pricing obligations can lead to significant financial and reputational damage. The Cyprus Tax Department has ramped up its auditing activities, and businesses found to be non-compliant may face:
Financial Penalties: These include fines for not submitting documentation on time or for providing incomplete or inaccurate reports.
Transfer Pricing Adjustments: Tax authorities can adjust reported profits, leading to higher tax liabilities and possible double taxation.
Reputational Risks: Non-compliance can affect investor confidence and damage relationships with global partners or clients.
Given the tightening grip of international tax oversight, maintaining compliance isn’t just about avoiding penalties—it’s about building long-term credibility in the eyes of both regulators and the global market.
The first step is proactive engagement. Companies should conduct periodic risk assessments and internal audits to evaluate their transfer pricing policies. Working with advisors who specialize in transfer pricing in Cyprus can help businesses stay on top of both local and international developments.
Additionally, businesses should consider adopting technology to streamline their compliance process. Tools that automate data collection, documentation, and benchmarking can reduce errors, enhance consistency, and improve responsiveness to audits or regulatory requests.
Another smart move is scenario planning—running “what-if” analyses to forecast the impact of potential changes in tax laws or business models. This approach helps businesses stay agile and avoid surprises.
Looking ahead, Cyprus is expected to continue refining its tax laws to keep pace with global trends, including the OECD’s Pillar Two framework which introduces a global minimum tax. Companies that are prepared now will be better equipped to handle these shifts and continue growing with confidence.
The message is clear: The BEPS era demands a more sophisticated, transparent approach to cross-border taxation. By embracing compliance as a strategic asset—not just a regulatory requirement—Cyprus businesses can turn complexity into competitive advantage.
At TP Alfa, we help businesses like yours navigate the complexities of transfer pricing in Cyprus with clarity and confidence. Whether you need documentation support, risk assessment, or a full compliance overhaul, our expert team is here to guide you every step of the way.
Get in touch today and future-proof your transfer pricing approach.
TP Alfa is proud to be featured in the Chambers Global Practice Guides 2025 for Transfer Pricing, a prestigious publication that highlights leading contributors in international tax and compliance practices. This recognition reflects our commitment to excellence and our expertise in navigating complex global transfer pricing regulations.
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