Irish Transfer Pricing – The Future
Changes to the Irish Transfer Pricing Regime – Recent public consultation developments.
On 18 February 2019, Ireland’s Department of Finance launched a public consultation on Ireland’s transfer pricing regime. The proposed changes to the transfer pricing (TP) regime, to be contained in Finance Bill 2019, are due to be enforced in 2020.
These are likely to impact both Ireland's domestic and international tax landscapes significantly. Therefore, undertaking a public review is critical to ensure that the correct regime is introduced to allow Ireland to remain competitive, as well as counteracting any tax abusive transfer pricing measures.
Developments in this area are as a result of the recommendations contained in the Coffey Review (June 2017) and the ongoing BEPS project. Since their publication, there have been multiple exchanges on the best course of action.
Since April 2019, there have been multiple responses to the Department of Finance’s public consultation process. Set out below are some of the responses to the six primary questions raised.
1. Incorporation of the OECD 2017 Guidelines into Irish legislation
General recommendations suggest a transition time for the adoption of the OECD 2017 Guidelines with no retrospective application of rules, while providing sufficient time to assess the impact on business operations. A request has also been made for clear guidance. Other commentary has suggested the requirement for a sufficiently resourced Competent Authority to deal with international tax disputes.
Overall the recommendations have been welcomed.
2. Removal of grandfathering for pre-1 July 2010 arrangements
If grandfathering provisions are removed with effect from 1 January 2020, clear guidance must be provided by Revenue regarding the repricing of existing grandfathered transactions. A practical approach should be adopted for documentation requirements for such transactions where data availability is limited.
3. Extension of transfer pricing rules to SMEs
Continued exemption for SME’s is supported. It is noted that many other EU countries do not extend TP rules to SME’s as the risks identified in the BEPS project would not be outweighed by the additional taxpayer compliance requirements. If the general exemption is removed, the threshold for the application of TP rules should be set at a de minimis limit so that the compliance and documentation burden does not overwhelm SME’s.
4. Extension of transfer pricing rules to non-trading transactions
The proposed extension of TP rules to non-trading transactions, which has the potential to add significant layers of compliance, has warranted close attention. One suggestion is to align the existing legislation that applies market value to capital transactions with transfer pricing legislation, such that the use of accounting valuations for capital gains tax purposes could satisfy the documentation requirements for transfer pricing purposes. Further consideration should be given to the exemption of: -
- domestic non-trading transactions, in order to minimise the impact of varying corporate tax rates applying to parties to domestic transactions; and
- loans or other forms of debt provided by an Irish company to subsidiaries, which would reflect the economic reality of such funds as quasi-equity.
5. Transfer Pricing Documentation
Ireland should adopt the OECD’s set of common criteria in Annex I and II of the 2017 Guidelines for Master and Local Files, as the standard for transfer pricing documentation.
The Master File requirement should not apply to multinational groups of a medium or smaller scale, as the Local File should contain enough information to evaluate the reasonableness of their transfer pricing policies. Local File requirements in Ireland could consider a ‘Country File’ as a simplification measure and have de minimis thresholds for materiality purposes. The filing of Master and Local Files should be upon written request by Revenue, rather than imposed as a mandatory filing requirement.
Revenue guidance is essential once the new documentation requirements are introduced.
The timing for the preparation of transfer pricing documentation should remain in line with current practice, that is, available no later than when the Irish corporation tax return is due for the accounting period in which the transaction was reflected.
Penalty protection measures put forward in the OECD 2015 BEPS Action 13 Report could be considered to encourage transfer pricing documentation compliance.
6. Application of transfer pricing rules to branches, adoption of the Authorised OECD Approach
In principle, it is considered appropriate to adopt the Authorised OECD Approach(AOA) for the attribution of branch profits into Irish law. However, it is highlighted that there is a requirement for more time to consult with shareholders in the financial services industry and other relevant sectors, to ensure that there are no unintended consequences resulting from the proposed adoption of the AOA approach.
Detailed Revenue guidance regarding the application of the AOA in an Irish context would be required to provide certainty for businesses, given the differing views that have been taken by tax authorities around the world regarding aspects of the AOA.
In general, replies to the Department of Finance’s consultation process have been positive and constructive, though a common theme throughout has been the request for clear comprehensive guidance to be supplied by Revenue. This highlights the pace at which domestic and international tax policy is developing and tax-payers’ ability to keep up with developments.
Ireland intends to legislate for the new TP rules in Finance Act 2019, with a proposed implementation date of 1 January 2020.
In addition to the implementation of the new TP rules, the BEPS project has highlighted many risks and Ireland’s response has placed additional compliance requirements on taxpayers. Further challenges such as Brexit will also place additional pressure on enterprises. The EU’s ATAD interest implementation and the Multi-Lateral Instrument further add layers of complexity to our growing corporate tax code.
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 below:
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