Transfer Pricing With Cyprus

CBDT has now notified “CYPRUS” as a jurisdictional area under section 94A of the Income Tax Act, 1961.

It has become a matter of big concern for the companies involved in trade relations in CYPRUS. All these companies will now have to follow the provisions of Transfer Pricing while dealing with any party (whether or not “Associated Enterprises” under section 92A of Income Tax Act, 1961) in this country.

The immediate implications of the above Notification on investments routed through Cyprus are higher disclosure requirements, applicability of transfer pricing provisions and higher withholding of tax in India.

In particular:

·     All parties to a transaction with a person located in Cyprus will be treated as "associated enterprises" (i.e. related parties) and the transactions will be treated as international transactions that invoke the application of India's transfer pricing regulations (including the requirement to maintain documents, perform benchmarking analysis, etc).

·       Any payment made to a person located in Cyprus shall be subject to a withholding tax of 30%.

·       No deduction shall be allowed in respect of any expenditure or allowance arising from the transaction with a person located in Cyprus.

·     Every person dealing with any person located in “CYPRUS” will have to comply with the provisions of sections 92 to 92F of Income Tax Act, 1961 irrespective of the fact that whether they fall into definition of “Associated Enterprises” under section 92A of Income Tax Act, 1961.

·     All the persons dealing in “CYPRUS” will have to show their International Transactions at arm’s length price and comply with the requirement of furnishing report under section 92E of Income Tax Act, 1961 i.e. Form 3CEB through a Chartered Accountant, duly verified and certified by him, on or before 30th September of every year prescribed by the authority, furnishing all the required details.