Transfer pricing governs the prices charged between connected persons — companies and individuals under common control that trade, lend or licence with one another. The principle is simple: those prices must be set as if the parties were independent, at arm's length, so profit is not artificially shifted to where tax is lowest. Cyprus codified this in Article 33 of the Income Tax Law and, since 1 January 2022, has operated a full OECD-aligned documentation regime. From the 2026 tax year the documentation thresholds were raised — the amending rules were published in the Official Gazette on 31 December 2025 — easing the burden on smaller intra-group flows while keeping the core obligations firmly in place.
If your company lends to, borrows from, buys from, sells to, or licenses IP to a connected company — domestic or foreign — transfer pricing applies to you. This guide explains the arm's-length principle, the Local File and Master File, the raised 2026 thresholds, the Summary Information Table that almost everyone must file, the safe harbours, the deadlines and the penalties. It sits alongside our guide to corporate tax in Cyprus 2026 and our note on economic substance in Cyprus.
The arm's-length principle
Under Article 33 of the Income Tax Law, transactions between connected persons must reflect the terms that independent parties would have agreed. If a Cyprus company charges a related party too little — or pays too much — the Tax Department can adjust the taxable profit to the arm's-length amount. The analysis follows the OECD Transfer Pricing Guidelines: identify the commercial and financial relations, select the most appropriate of the five recognised pricing methods, benchmark against comparable independent transactions, and document the reasoning. The arm's-length principle is the foundation of the whole regime, and every Local File ultimately exists to demonstrate that the principle has been respected.
The five OECD methods fall into two families. The traditional transaction methods — the comparable uncontrolled price (CUP), resale price and cost-plus methods — compare the price, margin or mark-up directly against independent dealings. The transactional profit methods — the transactional net margin method (TNMM) and the profit-split method — compare net profitability or allocate combined profit between the parties. Cyprus does not impose a rigid hierarchy: the rules require the most appropriate method for the facts, judged on the functions performed, assets used and risks assumed by each party. In practice the TNMM is widely used for routine services and distribution, the CUP for commodities and many financing transactions, and the profit split for highly integrated operations or uniquely valuable intangibles.
Controlled (or related-party) transactions are dealings between connected persons — broadly, companies and individuals connected by more than 25% common participation in capital, voting rights or profits, directly or indirectly. They include intra-group loans and financing, sales of goods, provision of services, and licensing of intellectual property.
Who is caught by the Cyprus transfer pricing rules?
Any Cyprus tax resident company — and any permanent establishment in Cyprus — that has controlled transactions with connected persons is within the rules. The "more than 25%" relationship test means most genuine group structures are caught: a parent and subsidiary, sister companies, or a company and an individual shareholder who controls it. What matters is not the size of the company but the value of its related-party dealings. A small Cyprus holding company with a single large intra-group loan can be caught for financial transactions, while a substantial trading company with only modest related-party service charges may sit below the services threshold. Each category is tested separately, so you can be over the line for one and under it for another.
A common misconception is that transfer pricing only bites on cross-border arrangements. It does not. The Cyprus rules apply to controlled transactions with connected persons whether the counterparty is in Cyprus or abroad, because Article 33 is concerned with the correct allocation of taxable profit within Cyprus, not only with profit leaving it. Purely domestic intra-group charges between two Cyprus companies are therefore in scope and must be priced at arm's length, even though the overall Cyprus tax effect may net to nil. That said, the documentation and audit risk is naturally greater on cross-border flows, where a mispricing genuinely shifts profit out of the Cyprus tax net.
The documentation: Local File, Master File and the table
Cyprus's documentation regime has three components, and it is important to keep them distinct because they are triggered differently:
- the Local File — a detailed analysis of the Cyprus entity's own controlled transactions, with the functional analysis, the chosen pricing method and the benchmarking study;
- the Master File — a group-level overview of the multinational's structure, business, intangibles and financing; and
- the Summary Information Table (SIT) — a return listing the entity's controlled transactions, filed electronically with the income tax return.
The Local File and Master File are only required where their respective thresholds are met; the Summary Information Table is required from every taxpayer with controlled transactions, regardless of size. Below the Local File thresholds, the minimum-documentation rules under Circular 6/2023 still apply (see below).
The 2026 Local File thresholds (old vs new)
A Cyprus entity must prepare a Local File where its controlled transactions in a category exceed the relevant annual threshold. These thresholds were raised with effect from 1 January 2026 (the 2026 tax year onwards), removing many smaller groups from the full Local File obligation. The previous figures, which applied up to and including the 2025 tax year, are shown for comparison:
| Category of controlled transaction | Threshold to 2025 | Threshold from 2026 |
|---|---|---|
| Financial transactions | €5,000,000 | €10,000,000 |
| Goods | €1,000,000 | €5,000,000 |
| Services | €1,000,000 | €2,500,000 |
| Royalties / IP and other intangibles | €1,000,000 | €2,500,000 |
| Other transactions | €1,000,000 | €2,500,000 |
The thresholds are applied per category and per year, so a group can be over the line for financial transactions but under it for services. Even where you are below all of them, you are not off the hook entirely — see the Summary Information Table and minimum documentation below.
A Cyprus financing company on-lends €8,000,000 to a connected company and separately receives €3,000,000 of management services from its parent during the 2026 tax year. Under the old rules it would have breached both the €5m financing threshold and the €1m services threshold, requiring a Local File covering both categories. From 2026 the financing flow (€8m) is below the new €10m threshold, and the services (€3m) exceed the new €2.5m threshold. The company therefore needs a Local File only for the services category — but it must still file a Summary Information Table covering both the financing and the services, and keep minimum documentation for the financing flow. The arm's-length margin on the loan should follow the financing safe harbour or a benchmarking study.
When the Master File applies
The Master File is required where a Cyprus tax resident is the ultimate parent entity — or the surrogate parent entity — of a multinational group that falls within country-by-country reporting (CbCR) scope: broadly, a group with consolidated revenue of at least €750 million. For most owner-managed and mid-market Cyprus structures the Master File will not apply, but the Local File and the Summary Information Table frequently will. Where a Master File is required, it gives the Tax Department the group-wide picture — global business lines, intangibles strategy and financing arrangements — against which the Cyprus Local File is read.
The Summary Information Table, safe harbours and minimum documentation
The Summary Information Table is the universal obligation: every entity with controlled transactions must prepare it and submit it electronically together with the income tax return. Entities that fall below the Local File thresholds are exempt from the full Local File, but must still file the table and maintain minimum transfer pricing documentation in line with the Tax Department's Circular 6/2023 — enough to show that their related-party prices are reasonable.
Circular 6/2023 also recognises safe harbours for two common, low-risk flows. For qualifying back-to-back and intra-group financing transactions, and for low-value-adding services, the Tax Department accepts a defined minimum margin without a full benchmarking study, provided the conditions are met. Where a taxpayer applies a safe harbour, this should be disclosed and the eligibility conditions documented. Safe harbours simplify compliance for routine arrangements, but they are optional and do not remove the need for the Summary Information Table.
The quality of a Local File rests on comparability. A benchmarking study searches commercial databases for independent companies or transactions performing similar functions under similar conditions, then derives an arm's-length range — typically the interquartile range — against which the tested party's result is measured. If the related-party outcome falls inside the range, it is treated as arm's length; if it falls outside, an adjustment to the median (or another appropriate point) is expected. Comparable sets should be refreshed periodically, and the functional analysis kept current, because a study that no longer reflects what the Cyprus entity actually does is the weakest point in any defence. This is precisely why the rules require a Local File to be quality-reviewed by a licensed professional before the return deadline.
The Local File must be prepared by the income tax return deadline and quality-reviewed by a licensed professional (an ICPAC-licensed accountant, auditor or tax adviser). On a request from the Tax Department, the Local File and Master File must be produced within the period stated in the request. Because the documentation timeline follows the return deadline, the benchmarking work should be planned well ahead rather than left to the filing date.
Penalties
The penalties are designed to make compliance the cheaper option, and they escalate the longer documentation stays outstanding once the Tax Department asks for it:
| Failure | Penalty |
|---|---|
| Late / non-submission of the Summary Information Table | €500 |
| Local / Master File not produced within 61–90 days of request | €5,000 |
| Not produced within 91–120 days | €10,000 |
| Not produced after 120 days, or not at all | €20,000 |
Advance Pricing Agreements
For significant or complex related-party dealings, a company can seek an Advance Pricing Agreement (APA) with the Tax Department — unilateral, or bilateral/multilateral with other tax authorities — fixing the transfer pricing methodology in advance and removing uncertainty. An APA typically provides certainty for a defined future period, after which it can be renewed. For groups with large or contentious intra-group flows — for example, the pricing of high-value IP licences or substantial intra-group financing — an APA can be well worth the effort, because it converts an audit risk into agreed treatment.
Getting transfer pricing right
Transfer pricing is no longer just a large-multinational concern in Cyprus: any company with intra-group loans, service charges or IP licences needs, at minimum, a Summary Information Table and supporting documentation — and a Local File once the (now higher) thresholds are crossed. The raised 2026 thresholds genuinely reduce the burden on smaller groups, but they do not switch the rules off, and the arm's-length principle continues to apply to every controlled transaction whatever its size. The benchmarking and functional analysis take time and expertise, and the penalties for ignoring them are real. Transfer pricing also interacts with how you build a group — see our Cyprus holding company guide — and with substance, covered in economic substance in Cyprus.
If your business has related-party transactions, talk to us before the return deadline. Our tax advisory and tax compliance teams scope your obligations, prepare or coordinate the documentation, apply any available safe harbour, file the Summary Information Table, and — where it helps — pursue an APA.