Transfer Pricing Guidelines: Intangibles, Business Restructuring & Intra Group Financing | GBAF

Transfer Pricing Guidelines: Intangibles, Business Restructuring & Intra Group Financing | GBAF

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Home > Top Stories > A summary of transfer pricing (TP) guidelines

A summary of transfer pricing (TP) guidelines

Published by Gbaf News

Posted on July 3, 2018

8 min read

Last updated: January 21, 2026

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Introduction

Further to our newsletter of March 2018 we are now reverting with the second part for the summary of the transfer pricing guidelines as these are in place since July 2017. In short, transactions between related parties are reviewed under Transfer Pricing Guidelines in order to identify the tax treatment and compute any tax amounts.

Intangibles

Intangibles in terms of Transfer Pricing Guidelines have the following characteristics:

Not a physical or financial asset;
Capable of being owned or controlled for use in commercial activities;
Its use or transfer is being compensated, in case the transaction would be between independent parties.

In the case of intangibles, consideration as to the TP methods and arm’s length pricing application is required. Comparable uncontrolled price method (CUP) and transactional profit split method are the methods that most likely will prove to be useful in matters involving transfers of intangibles.

Other methods may be considered depending on each case. In cases where it is hard to value intangibles, i.e. there is no reliable comparable and the future cash projections are highly uncertain, then a possibility for “ex post” adjustment is expected to be included in the TP agreement.

Business Restructuring

Business Restructuring includes reallocation of functions, assets and risks within multinational enterprises (MNEs) with the profit potential attached to them.

Article 9 of the OECD model is discussing whether such business restructuring and hence reallocation of profits is in line with the arm’s length principle. In general, in such cases the arm’s length principle treats the entities in the group as separate members.

Intra Group Financing

The following criteria shall be met in order to qualify for intra group financing:

Financing should be out of funds raised from financial means and instruments;
It should be remunerated by interest;
The intermediary financing company shall be a Cyprus tax resident one; and
Back to back test should apply.

Approach to TP study (TPS) includes:

Identification of commercial or financial relations between related entities and determination of economically significant conditions and circumstances;
Analyse the contractual terms and the actual conduct of the parties;
Functional analysis;
Analysis of risks in financial relations;
Comparability analysis.

Simplification measures:

There are conditions for intra group financing transactions which include – (a) back to back loans, (b) loans made from third parties and provided to related persons, and (c) loans made from shareholders and given to related persons, in order for the simplification measures to apply.
There are two simplification measures – (a) the application of 10% return after tax on equity (11.43% before tax) and (b) the application of 2% return after tax (2.286% before tax) on the loan balance.
Provided that particular provisions are met, there is no need to proceed with a full TPS but only with a functional analysis is required showing that compliance.

Arm’s Length Financing Arrangements

Arm’s Length Financing Arrangements include:

Financing arrangements and arm’s length interest rate;

External information and aspects are influencing the interest rate:
CUP method is usually used to identify an arm’s length interest rate;
LIBOR, SIBOR, etc. provide a general guidance of the basic interest rates for the countries of the borrower.
Other conditions regarding a specific loan, should include the reason of the loan, the market conditions, amount, duration and other terms, currency, security and guarantees, etc.
Cost and other benefits over and above the interest are also factors to consider

Other financing transactions;

There are cases that the underlying economic element of a transaction aligns more with a different categorisation.
The actual nature of a transaction may be disregarded and replaced by an alternative transaction when it will be viewed in its totality.
For a Bona fide debt transaction certain factors need to be met. and

Other transactions in investment

One tier structure
Two tier structure
Guarantees on financing transactions of an associated company

Conclusion

As you understand, transfer pricing is a very big and complex chapter. During our first article we intended to provide a general knowledge of the requirements, and we briefly describe TPS requirements. TPS requires specialized knowledge and expertise in order to be prepared. This article intended to provide more information on specific type of transactions such as intangibles, restructuring and financing.

Savva & Associates aims to work with clients to ensure their Cyprus, international and personal structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.

For further information please contact Mr Charles Savva at c.savva@savvacyprus.com who will be happy to further assist you.

Introduction

Further to our newsletter of March 2018 we are now reverting with the second part for the summary of the transfer pricing guidelines as these are in place since July 2017. In short, transactions between related parties are reviewed under Transfer Pricing Guidelines in order to identify the tax treatment and compute any tax amounts.

Intangibles

Intangibles in terms of Transfer Pricing Guidelines have the following characteristics:

Not a physical or financial asset;
Capable of being owned or controlled for use in commercial activities;
Its use or transfer is being compensated, in case the transaction would be between independent parties.

In the case of intangibles, consideration as to the TP methods and arm’s length pricing application is required. Comparable uncontrolled price method (CUP) and transactional profit split method are the methods that most likely will prove to be useful in matters involving transfers of intangibles.

Other methods may be considered depending on each case. In cases where it is hard to value intangibles, i.e. there is no reliable comparable and the future cash projections are highly uncertain, then a possibility for “ex post” adjustment is expected to be included in the TP agreement.

Business Restructuring

Business Restructuring includes reallocation of functions, assets and risks within multinational enterprises (MNEs) with the profit potential attached to them.

Article 9 of the OECD model is discussing whether such business restructuring and hence reallocation of profits is in line with the arm’s length principle. In general, in such cases the arm’s length principle treats the entities in the group as separate members.

Intra Group Financing

The following criteria shall be met in order to qualify for intra group financing:

Financing should be out of funds raised from financial means and instruments;
It should be remunerated by interest;
The intermediary financing company shall be a Cyprus tax resident one; and
Back to back test should apply.

Approach to TP study (TPS) includes:

Identification of commercial or financial relations between related entities and determination of economically significant conditions and circumstances;
Analyse the contractual terms and the actual conduct of the parties;
Functional analysis;
Analysis of risks in financial relations;
Comparability analysis.

Simplification measures:

There are conditions for intra group financing transactions which include – (a) back to back loans, (b) loans made from third parties and provided to related persons, and (c) loans made from shareholders and given to related persons, in order for the simplification measures to apply.
There are two simplification measures – (a) the application of 10% return after tax on equity (11.43% before tax) and (b) the application of 2% return after tax (2.286% before tax) on the loan balance.
Provided that particular provisions are met, there is no need to proceed with a full TPS but only with a functional analysis is required showing that compliance.

Arm’s Length Financing Arrangements

Arm’s Length Financing Arrangements include:

Financing arrangements and arm’s length interest rate;

External information and aspects are influencing the interest rate:
CUP method is usually used to identify an arm’s length interest rate;
LIBOR, SIBOR, etc. provide a general guidance of the basic interest rates for the countries of the borrower.
Other conditions regarding a specific loan, should include the reason of the loan, the market conditions, amount, duration and other terms, currency, security and guarantees, etc.
Cost and other benefits over and above the interest are also factors to consider

Other financing transactions;

There are cases that the underlying economic element of a transaction aligns more with a different categorisation.
The actual nature of a transaction may be disregarded and replaced by an alternative transaction when it will be viewed in its totality.
For a Bona fide debt transaction certain factors need to be met. and

Other transactions in investment

One tier structure
Two tier structure
Guarantees on financing transactions of an associated company

Conclusion

As you understand, transfer pricing is a very big and complex chapter. During our first article we intended to provide a general knowledge of the requirements, and we briefly describe TPS requirements. TPS requires specialized knowledge and expertise in order to be prepared. This article intended to provide more information on specific type of transactions such as intangibles, restructuring and financing.

Savva & Associates aims to work with clients to ensure their Cyprus, international and personal structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.

For further information please contact Mr Charles Savva at c.savva@savvacyprus.com who will be happy to further assist you.