Ireland: Guide To International Transfer Pricing

Last Updated: 17 February 2016
Article by Joe Duffy and Barry McGettrick

Formal transfer pricing legislation was introduced in Ireland for the first time in 2010. The transfer pricing regime applies for accounting periods commencing on or after 1 January 2011, for transactions the terms of which were agreed on or after 1 July 2010.

Whilst Ireland's transfer pricing rules are therefore still relatively new, transfer pricing is becoming an increasing important issue to consider for multinationals operating in Ireland.

Broadly speaking, Ireland's transfer pricing rules require domestic and international transactions between associated persons undertaken in the course of trading activities to be entered into at arm's length. Where an arrangement between associated entities is made otherwise than at arm's length, an adjustment may be made to the Irish company profits. An adjustment is only made where income is understated or expenses are overstated. The transfer pricing legislation specifically provides that the transfer pricing rules should be construed in accordance with the 2010 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the 'OECD Guidelines').

The Irish tax authorities (the 'Revenue Commissioners') have publicly stated that they would prefer a collaborative approach to transfer pricing. In this context, in November 2012, the Revenue Commissioners announced that transfer pricing compliance reviews ('TPCRs') would form the cornerstone of monitoring compliance with Ireland's transfer pricing rules. To date the TPCR process has run quite smoothly and taxpayers see it as a good opportunity to assist the Revenue Commissioners in understanding the taxpayer's business outside the pressure of a formal tax audit.

In October 2014, the Irish Department of Finance published 'Competing in a Changing World: A Road Map for Ireland's Tax Competitiveness'. This publication followed a public consultation on Ireland's approach to the OECD base erosion and profit shifting ('BEPS') project. One of the key goals identified by the Department of Finance is the necessity for Ireland to increase its competent authority resources to defend transfer pricing disputes. The Irish authorities specifically acknowledge that international transfer pricing disputes are likely to increase in number over the coming years and that Ireland needs to be ready to defend its tax base. Accordingly, Ireland has pledged to strengthen the capabilities of its transfer pricing competent authority by assigning new resources to the Revenue Commissioners to meet this growing priority need.


[A] Legal Authority

[1] Legislation

The Irish transfer pricing legislation is contained in Part 35A of the Taxes Consolidation Act 1997 ('TCA').

[a] Circumstances in Which the Transfer Pricing Rules Apply

Ireland's transfer pricing rules apply in the following circumstances:

  1. There must be an 'arrangement' involving the supply and acquisition of goods, services, money or intangible assets.1
  2. The supplier and acquirer must be "associated" at the time of the supply and acquisition. The circumstances in which two persons are associated is explored in further detail below.
  3. The profits, gains or losses arising from the relevant activities are in respect of 'trading' activities.2 'Trading' is defined in Irish legislation as including 'every trade, manufacture, adventure or concern in the nature of a trade'. This is a key unique characteristic of the Irish transfer pricing rules.
  4. For Irish capital gains tax purposes, transactions between connected persons are deemed to be otherwise than as a bargain at arm's length and are therefore deemed to be for a consideration equal to the market value.3

[b] Consequences of the Application of the Transfer Pricing Rules

The consequences of the application of the transfer pricing rules are as follows:

  1. Where an arrangement between associated entities is made otherwise than at arm's length, an adjustment may be made where the Irish company has understated income or overstated expenses. 'Arm's length amount' is defined as the amount of the consideration that independent parties would have agreed in relation to the arrangement had those independent parties entered into that arrangement.4
  2. The relevant person to which the transfer pricing rules apply must have available such records as may be reasonably required for the purpose of determining whether the trading profits have been computed on an arm's length basis in accordance with the transfer pricing rules.5

[c] Interpretation of the Irish Transfer Pricing Rules

Irish transfer pricing legislation specifically provides that the transfer pricing rules are to be construed in such a way as to ensure, as far as possible, consistency with the OECD Guidelines so far as they relate to trading transactions.6 Given that the OECD Guidelines are effectively incorporated into the Irish legislation, the TCA does not go into any detail about how to apply the arm's-length test, what transfer pricing methods to employ or what comparables can or should be utilized. The Irish transfer pricing legislation is primarily concerned with defining the extent of application of the legislation.

[d] Important Concepts

Some of the key concepts are:

[i] Arrangement

An 'arrangement' is defined broadly in section 835C TCA to mean 'any agreement or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable)'. It includes arrangements in respect of money.

[ii] Association

The Irish transfer pricing legislation only applies where parties to a transaction are 'associated'. The basic test for association is set out in section 835B TCA which states that two persons are associated where at the time of the making or imposition of the actual provision:

  1. one of the affected persons was directly or indirectly participating in the management, control or capital of the other; or
  2. the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.

This wording effectively mirrors the wording of the Associated Enterprises article7 of the OECD Model Tax Convention. The broad effect is that the arm's-length principle has to be applied to provisions between two persons where one of those persons controls the other person, or they are under common control by another person or persons.

[iii] Control

Control is an essential element of the test for 'association'. The legislation specifies at section 835A TCA that control is to be read in accordance with a general definition of control for tax purposes, which is set out in section 11 TCA.

(a) Company

In the case of a company, control is the ability of a person to direct that the affairs of the company are conducted in accordance with the wishes of that person. This ability may be evidenced by the person's holding of shares or possession of voting rights in the company or any other company or by the existence of any powers conferred by the articles of association or other document regulating the company or any other company.

A person will be treated as controlled by an individual if the individual together with relatives of that individual control it. For this purpose, relative means husband, wife, ancestor, lineal descendant, brother or sister.

(b) Partnership

In the case of a partnership, control is the right to a share of more than 50% of the assets, or of more than 50% of the income, of the partnership.

[iv] Trading

The Irish transfer pricing rules only applies to trading transactions. Irish legislation does not contain a useful definition of 'trade'. Generally, to be trading, the Irish company should be engaged in the key profit-making commercial activity and should have the necessary people resources in Ireland with the requisite skill and expertise to perform that activity.8 Whilst certain activities may be outsourced or subcontracted to third parties; the directors must be involved in managing the commercial activity and strategic direction of the company.

In the majority of cases, there will be little doubt about whether a company's activities constitute trading activities. Guidance as to what constitutes 'trading' is derived from case law and by reference to a set of rules known as the Badges of Trade. The Badges of Trade rules were drawn up in 1955 by the UK Royal Commission on the Taxation of Profits and Income and have been approved by Irish courts. The Badges of Trade, and matters to be considered in determining whether a particular activity constitutes a trade, include the following: (i) Subject matter; (ii) Length of ownership; (iii) Frequency of transactions; (iv) Supplementary work; (v) Circumstances for sale; and (vi) Motive for transaction. These issues have been considered extensively in the courts. In IRC v Livingston,9 the taxpayers acquired a cargo vessel and sold it at a profit and were held to be trading on the basis that even though it was an isolated transaction, substantial work was undertaken with a view to a subsequent disposal. In the UK High Court case of Noddy Subsidiary Rights Company Limited v CIR,10 a company was formed to exploit the name and image rights of a character from a children's book. It was held that, in certain circumstances, the exploitation of these rights could constitute a trade. In this case, considerable weight was placed in the evidence on the high degree of activity associated with trying to promote the brand in question, seeking out and evaluating licensees and dealing with third parties. In IRC v Fraser,11 the taxpayer bought and sold a large quantity of whiskey and was held to be trading on the basis that the whiskey acquired was more than he could personally use. In Leach v Pogson12, over the course of four years, the taxpayer set up and disposed of twenty-nine driving schools and was held to be trading.

The Revenue Commissioners have issued a guidance note on the classification of activities as trading which states that they may be prepared to express a view as to whether a particular transaction or operation amounts to a trade or will qualify for the 12.5% rate. In arriving at a decision, the Revenue Commissioners endorse the Noddy case referred to above and have stated that the key considerations in their view are:

  • Is there any commercial rationale for the type of situation proposed?
  • Is there any real value added in Ireland?
  • Are there employees in Ireland with sufficient levels of skills to indicate that the company is actively carrying on a trade?

The Revenue Commissioners have also published details of cases submitted and opinions issued in the period from December 2002 to December 2013 on the classification of activities as trading activities.13 The Revenue Commissioners have stated that opinions on the classification of activities as trading are arrived at with reference to the specific facts and circumstances of each case. The key issues in the decision-making process are the activity, authority and skill levels within the company.

[v] Domestic Transactions

The Irish transfer pricing rules and arm's-length test apply to domestic trading transactions and crossborder transactions alike.

[vi] Exemptions from the Transfer Pricing Rules

(a) Small- or Medium-Sized Enterprises Exemption

Arrangements concluded within small or medium sized enterprises ('SMEs') are excluded from the scope of Ireland's transfer pricing rules.

The definition of SME for the purpose of Irish transfer pricing legislation is closely based on the definition of enterprises which fall within the category of micro, small and medium-sized enterprises as defined in the Annex to the European Commission Recommendation of 6 May 2003.14

In order to qualify as an SME, the group must meet both the following conditions:

(1) it has fewer than 250 employees; and (2) either (or both) its turnover is less than EUR 50 million or its assets are less than EUR 43 million.

The thresholds are measured on the basis of the size of the group of which the enterprise forms a part, rather than the size of the Irish taxpayer enterprise itself. The European Commission definition specifies which other companies and entities must be taken into account to calculate size.

The exemption for SMEs is set out in section 835E TCA. Where the exemption applies, the enterprise is not subject to the Irish transfer pricing rules.

(b) Grandfathered Transactions

Arrangements which were agreed before 1 July 2010 and remain unchanged are not subject to Irish transfer pricing rules.15 The view of the Revenue Commissioners, although not published officially, is that for an arrangement to remain grandfathered the arrangement existing as at 1 July 2010 should be able to 'deliver the terms' of the ongoing arrangement. For example, a licence agreement entered into before 1 July 2010 which provides 'such arms' length rate as the parties shall determine' is unlikely to be grandfathered. However, a licence agreement entered into before 1 July 2010 which states the royalty to be '10% of sales' should be grandfathered.

The arrangements to be grandfathered need not be documented.

(c) Section 110 Securitization SPVs

Section 110 TCA contains a specific legislative requirement that the transactions entered into by a qualifying special purpose vehicle ('SPV') should be by way of bargain at arm's length except in respect of profit participating loan notes ('PPLs') issued by a qualifying company. Accordingly, certain transactions or arrangements entered into by section 110 TCA SPVs are exempt from Irish transfer pricing rules.

Interest paid on PPLs (i.e., interest which is dependent on a company's results)16 is generally reclassified as a distribution and is not tax deductible. For example, an Irish company (IreCo) borrows from a group finance company (FinCo) at an interest rate of Euribor plus 3% plus an amount equal to 2% of IreCo's pre-tax profits. Because the interest payable by IreCo to FinCo includes an element which varies with the profits of IreCo the combined interest and profit share element is treated as a distribution. The notable exception is for securities issued in the course of securitization transactions to which section 110 TCA applies. Where the conditions of section 110 TCA are satisfied, then interest paid by the securitization SPV will be fully tax deductible, including where the interest is paid on PPLs.


1. Section 835C TCA.

2. Section 835C TCA.

3. Section 547 TCA.

4. Section 835C TCA.

5. Section 835F TCA.

6. Section 835D TCA.

7. Article 9 of the OECD Model Tax Convention.

8. This is based on relevant case law in the area as well as the Revenue Guidance on the Classification of Activities as Trading (19 Aug. 2010); available at:

9. 11 TC 538.

10. 43 TC 458.

11. 24 TC 498.

12. 40 TC 585.

13. Revenue Guidance on the Classification of Activities as Trading (19 Aug. 2010); available at:

14. Recommendation 2003/361/EC of 6 May 2003 (OJ L124, 20 May 2003, p. 36), available at

15. Section 42 of Finance Act 2010.

16. Section 130(2)(d)(iii) TCA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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