Ireland: The Transfer Pricing Law Review

Last Updated: 2 October 2018
Article by Joe Duffy and Catherine O’Meara


Formal transfer pricing legislation was introduced in Ireland for the first time through the Finance Act 2010 for accounting periods commencing on or after 1 January 2011 in respect of transactions, the terms of which were agreed on or after 1 July 2010. Ireland's transfer pricing legislation is set out in Part 35A of the Taxes Consolidation Act 1997 (TCA).2

Before the introduction of transfer pricing legislation in 2010, there were limited circumstances in which an 'arm's length' or 'market value' rule applied in Irish tax legislation. However, there was certainly some familiarity with the concept. For example, capital gains tax rules always required the imposition of 'market value' on certain transactions undertaken otherwise by means of a bargain and arm's length;3 interest in excess of a 'reasonable commercial return' may be reclassified as a distribution;4 and, historically, income or losses qualifying for the (no longer applicable) 10 per cent corporation tax rate for manufacturing operations were calculated as they would for 'independent parties dealing at arm's length'.5

The transfer pricing legislation introduced in 2010 certainly broadened the scope of application of transfer pricing in Irish tax legislation. As might be expected, where the transfer pricing rules apply, an arm's-length amount should be substituted for the actual consideration in computing taxable profits. The arm's-length amount is the consideration that independent parties would have agreed in relation to the arrangement in question.6 The transfer pricing legislation applies equally to domestic and international arrangements but does not apply to small and medium-sized enterprises.7

Irish tax legislation requires that the profits or gains of a trade carried on by a company must be computed in accordance with generally accepted accounting practice subject to any adjustment required or authorised by law.8 Therefore, Irish transfer pricing legislation may result in an adjustment to the accounting profits for tax purposes. Where a transaction is undertaken at undervalue this may be a deemed distribution by the company for Company Law purposes, and if the company does not have distributable reserves this may be an unlawful distribution by the company.

However, there are a number of unusual aspects to the Irish transfer pricing rules that are worth noting.

First, the transfer pricing legislation applies to any 'arrangement' involving the supply and acquisition of goods, services, money or intangible assets. For these purposes, 'arrangement' is very broadly defined and it captures any kind of agreement or arrangement whether it is, or is intended to be, legally enforceable. However, the transfer pricing legislation does not apply to any arrangement that was agreed before 1 July 2010.9 This grandfathering of existing arrangements is not limited by time and as long as the terms do not change then an arrangement in place before 1 July 2010 may be excluded from the Irish transfer pricing legislation, potentially indefinitely. Practically, the expectation of the Irish Revenue Commissioners (Irish Revenue) is that this grandfathering of pre-1 July 2010 transactions will be lost through the passage of time where actual trading relationships change, even where contractual terms may not.

Second, the transfer pricing legislation applies where the supplier and acquirer in question are 'associated'. Two persons are associated if one person participates in the management, control or capital of the other, or the same person participates in the management, control or capital of each of the two persons. However, the first person is participating in the management, control or capital of the other person only if that other person is a company controlled by the first person. The transfer pricing rules will, therefore, necessarily involve at least one corporate entity.10 However, the transfer pricing rules do not apply in a single corporate entity. Therefore the transfer pricing rules do not apply in determining the pricing as between the head office of a company and a branch of that company.

Third, the transfer pricing legislation will only apply to profits or losses arising from the relevant activities that are taxed as the profits of a trade or profession.11 This is an unusual aspect of the Irish transfer pricing rules that is worth considering in the context of the Irish corporation tax rates. In Ireland, corporate trading profits are taxable at 12.5 per cent while other non-trading or passive income (e.g., interest income) is typically taxed at 25 per cent. Rather unhelpfully, 'trading' is defined in Irish legislation as including 'every trade, manufacture, adventure or concern in the nature of a trade'. While there is extensive case law on the meaning of trading, the case law is typically very old and originates from a time when trading profits were taxable and non-trading profits were not taxable (in the absence of a capital gains tax). Typically, a trade in Ireland involves regular activity conducted in Ireland by persons engaged in the revenue generating part of that business. Very often, it is clear whether a particular activity constitutes a trade; however, it is not always clear in the context of intra-group loans or an intra-group licence arrangement which can have trading and non-trading characteristics depending on the facts. This means it is possible for an Irish company to make an interest-free loan or grant a royalty-free licence where the level of activity does not rise to the level of a 'trade'. The Irish transfer pricing rules will not apply to the non-trading arrangement and the Irish company is not obliged to charge interest on the loan or charge a royalty on the licence. However, where the company is making a number of loans or granting a number of licences, this may increase the likelihood that the company is actually trading and that the transfer pricing rules will apply requiring the imposition of an interest charge or royalty. Other noteworthy consequences of the rule, whereby transfer pricing legislation only applies to trading transactions, include the fact that capital transactions are not covered by the transfer pricing legislation (though the market value rule mentioned above may apply) and non-trading shareholder transactions are not captured either.

Fourth, the Irish transfer pricing legislation can only operate to increase the Irish taxable profit.12 Therefore the rules can only increase understated income or reduce overstated expenses.

Fifth, the Irish transfer pricing legislation should be construed to ensure, as far as practicable, consistency with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. However, the relevant OECD Transfer Pricing Guidelines referenced in the Irish transfer pricing legislation are the guidelines approved by the Council of the OECD on 13 July 1995, as modified by the updates of 16 July 2009 and the revision of 22 July 2010 (being the 2010 transfer pricing guidelines).13 The 2017 OECD Transfer Pricing Guidelines have not yet been incorporated into Irish law. This is more relevant in respect of dealings between Irish companies and persons resident in non-double tax treaty partner jurisdictions. The 2017 OECD Transfer Pricing Guidelines are considered to already apply to the interpretation of the arm's-length principle for the purposes of Ireland's double tax treaties.

These unusual aspects of the Irish transfer pricing rules have raised questions as to whether the rules are still fit for purpose. As a result, the transfer pricing rules are under review and changes to the transfer pricing rules can be expected over the coming years. Possible future changes to the transfer pricing rules are considered in Section X.


1 Joe Duffy and Catherine O'Meara are partners at Matheson.

2 Taxes Consolidation Act 1997 (as amended up to Finance Act 2017).

3 Section 547 TCA.

4 Section 130 TCA.

5 Section 453 TCA. Deleted by Finance Act 2012 section 54.

6 Section 835C TCA.

7 Section 835E TCA.

8 Section 76A TCA.

9 Section 42 Finance Act 2010.

10 Section 835B TCA.

11 Section 835C TCA.

12 Section 835C TCA.

13 Section 835D TCA.

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Originally published in The Transfer Pricing Law Review

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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