Transfer Pricing

Overview

Transactions between related parties have to be priced as they would be between independent ones. That principle is straightforward. What causes difficulty is that the arrangements are real, ongoing and often undocumented: a parent charges management fees, a group entity lends to another, a licence lets one company use another's software, and nobody has written down why the rate is what it is.

For Cyprus structures there is an additional dimension. The IP Box requires income attributable to the qualifying asset, and for a subscription business separating software income from hosting, support and brand is a transfer pricing exercise rather than an accounting one. The nexus fraction also turns on whether development was bought from a related party, which makes the classification of intercompany development spending directly consequential.

The work is to establish positions that are supportable, document them while the facts are current, and keep them consistent across every jurisdiction that will see them.

What is included

• Functional analysis identifying which entity performs which functions, holds which assets and bears which risks
• Selection and application of the appropriate transfer pricing method for each transaction
• Benchmarking against comparable independent arrangements
• Cyprus local file preparation against the 2026 thresholds, and master file coordination where required
• Intercompany agreements drafted to reflect the arrangement actually in place
• Independent valuation coordination for intangibles being transferred between related parties
• Income attribution analysis where the IP Box applies to part of a revenue stream
• Review of intercompany financing terms, including interest rates and thin capitalisation exposure
• Annual refresh as the group's functions and flows change

How Doviandi approaches this

The analysis follows the facts rather than the intended answer. A functional analysis that describes the group as the client would like it to be is worse than none, because it creates a document that contradicts the evidence. We describe what the entities actually do, and where that produces an unwelcome conclusion we say so.

Documentation is contemporaneous. A file prepared at the time the arrangement begins, and refreshed annually, carries weight. One assembled after a query arrives is visibly retrospective and is treated accordingly.

Agreements match reality. Intercompany contracts frequently describe an arrangement that stopped being accurate two years ago. We align the paperwork with what is happening, or change what is happening to match the paperwork, rather than leaving the two apart.

The thresholds are checked first. The 2026 reform raised the local file thresholds to 5m for goods, 10m for financing and 2.5m for other categories. Groups below them still need defensible pricing, but the documentation burden is lighter, and knowing which side of the line a group sits on shapes the scope before any work begins.

Both sides are considered. A price that is defensible in Cyprus can still attract an adjustment in the counterparty jurisdiction. The analysis takes both perspectives, because a one-sided position simply relocates the exposure.

Related knowledge

Background reading on the questions this service answers:

• How qualifying profit is calculated on income attribution and why it is the step most often missing.
• Where should a founder own software IP? on how related-party development affects the nexus fraction.
• Economic Substance on the functions and risk allocation that the functional analysis has to reflect.