Update on domestic exemption from Irish transfer pricing rules

Due to the level of uncertainty surrounding its application, Finance Bill 2021 included draft legislation under s835E TCA1997, intended to provide clarity on the exemption for non-trading domestic (Irish to Irish) transactions.

It should be noted that trading transactions remain subject to transfer pricing rules. Finance Act 2021  rewrites s835E TCA1997, introducing a version of the legislation that appears to address some of the unintended consequences arising from the application of transfer pricing rules to certain Irish-to-Irish transactions for periods starting on or after 1 January 2022. Additional clarifying provisions are included to assist in the interpretation of the legislation. The updated legislation disapplies the basic transfer pricing rules in certain non-trading contexts, for the party to an arrangement who meets the conditions to be considered an eligible person under the legislation and where an eligible person is one party to a transaction involving two qualifying persons. 

The following conditions must be met by the supplier and acquirer in order to be considered to be a qualifying person: -

  • The supplier and acquirer must be chargeable to income tax or corporation tax under Schedule D (other than trading income under Case I or II in the case of a supplier) in respect of the profits, gains or losses arising from the arrangement under consideration;
  • For both the supplier and acquirer, to be resident in the State for the purposes of income tax for the relevant chargeable period; and
  • Both the supplier and acquirer must not be a qualifying securitisation company within the meaning of s110 TCA 1997.

There are also some enhanced anti-avoidance provisions in the updated version of s835E TCA1997 which require consideration.

Although there is an element of continued ambiguity, this version of the legislation should provide entities with a greater degree of confidence in the appropriateness of relying on the exemption for domestic transactions for chargeable periods beginning on or after 1 January 2022. 

If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars corporate tax team.

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