International tax

Transfer pricing (TP)

Ireland has had formal transfer pricing legislation since 2011. The legislation provided that the relevant person is required to have certain documentation in place and available for review if requested by Revenue. Previously, Revenue accepted documentation that had been prepared in accordance with either the OECD Transfer Pricing Guidelines or the code of conduct adopted by the EU Council in relation to transfer pricing documentation. This was implemented to reduce the additional burden imposed on multi-national groups as there would already be documentation in place where the counterparty is resident in territory which already has transfer pricing legislation.

Changes were introduced in Finance Act 2019 and are in force for accounting periods beginning on or after 1 January 2020, effectively to legislate for the 2017 updated OECD Transfer Pricing Guidelines. The most significant changes for many groups are set out below:

  • Grandfathering provisions that had applied to certain pre 1 July 2010 transactions will no longer apply.
  • Extension of transfer pricing to non-trading transactions between group companies within the remit of TP legislation with the exception of non-trading transactions involving two parties both subject to Irish taxation, i.e. wholly domestic transactions, provided the arrangement has no tax avoidance motive or benefit.
  • Extension of the provisions to capital allowances and certain capital gains relating to transactions between associated companies. Intra-group sales and purchases of assets will also be subject to Ireland’s transfer pricing rules if the market value of the assets is more than €25 million.
  • Larger businesses operating in Ireland must prepare an OECD standard Master and Local Files to evidence their compliance with transfer pricing rules. It is no longer sufficient to rely on counterparty transfer pricing reports prepared. An Irish business of any size will have an annual obligation to prepare a Local File if it is a member of a global group that has a turnover greater than €50 million. An Irish business will have a further Master File obligation if it is a member of a global group that has a turnover greater than €250 million. The Master File is a group-wide document that introduces a tax authority to the business, its transfer pricing policies and capital structure. The files must be prepared by the due date for filing the relevant corporate tax return (i.e. within 9 months of the accounting year end).  

The Local File is a detailed document showing that all material intra-group transactions are executed using the arm’s lengths pricing. Businesses used to have 3 months to submit documentation to Revenue upon request. This has now been reduced to 30 days. Failure to prepare and submit the required documentation will attract penalties of €25,000 or greater for larger businesses; or €4,000 for those companies under the €50 million threshold.

  • Previously SMEs were exempt from the formal TP rules. However FA 2019 extended the TP rules to SMEs (subject to Ministerial Order). An SME is defined as an entity which on a group basis employs fewer than 250 people and has either: (i) turnover not exceeding €50 million, or (ii) balance sheet values of less than €43 million. Medium companies need only apply transfer pricing rules for cross-border arrangements above €1 million. Documentation obligations are also substantially reduced relative to the Master and Local File framework mentioned earlier. The date of implementation of TP rules for SMEs is subject to Ministerial Order.

Revenue have also ramped up their own internal transfer pricing expertise. It is clear that corporate groups can expect to see more activity from Revenue in this area than has heretofore been the case. Irish corporate groups should review their structures, their inter-company pricing and in particular any financing arrangements in place that involve the granting of interest free loans to related companies in other jurisdictions in order to determine whether the new legislation applies to them. Documentation is critically important.

Proposed Deferral of DAC 6 Reporting Deadlines

The EU Council Directive 2018/822 concerning cross-border tax arrangements, known as DAC 6 introduces an obligation on both intermediaries (i.e. lawyers, tax advisers & accountants) and tax payers to disclose potentially aggressive tax planning arrangements to their local tax authorities. It also requires tax administrations to subsequently exchange this information with the tax authorities in other jurisdictions. DAC6 mirrors many of the concepts and principles of the Irish domestic mandatory disclosure reporting requirements introduced in recent years and is designed to increase transparency across jurisdictions.

A DAC6 reporting obligation is triggered when a cross border transaction falls within one of the “hallmarks” which are detailed in the Directive. There are certain arrangements that will only become reportable where one of main benefits of the arrangement is obtaining a tax advantage. There are also some arrangements that are automatically reportable regardless of whether the main benefit of the transaction was to claim a tax advantage i.e. instances where double deductions have been claimed for tax depreciation or where double tax relief is claimed in more than one jurisdiction.

In light of COVID-19 the EU Commission has proposed the following deferrals:-

Reportable TransactionOriginal Reporting DateProposed Deferral Date
Introduction of reporting within 30 days of the reportable transactions taking place1 July 20201 January 2021
Historical transactions that took place between 25 June 2018 to 30 June 202031 August 202028 February 2021

Irish Revenue confirmed in an eBrief on 26 June that they have opted into the deferral.

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Ronan McGivern

Taxation Partner

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