TRANSFER PRICING: GENERAL OVERVIEW
1. WHAT ARE THE MAIN CHARACTERISTICS OF TRANSFER PRICING LAW AND POLICY IN YOUR JURISDICTION?
Ireland introduced formal transfer pricing legislation for the first time in 2010. The Finance Act 2010 introduced a new transfer pricing regime in Ireland for accounting periods commencing on or after 1 January 2011, for transactions the terms of which were agreed on or after 1 July 2010.
Broadly, the transfer pricing rules require domestic and international transactions between associated persons to be entered into at arm's length. Where an arrangement between associated entities is made otherwise than at arm's length, an adjustment can be made to the Irish company profits. An adjustment is only made where income is understated or expenses are overstated.
The transfer pricing rules only apply to trading activities. This is a key characteristic of the transfer pricing rules that is quite unusual. The meaning of "trading" in this context is discussed under Question 3.
The transfer pricing legislation specifically provides that the transfer pricing rules must be construed in accordance with the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010.
2. WHAT HAVE BEEN THE MAIN DEVELOPMENTS OF SIGNIFICANCE FOR TRANSFER PRICING LAW AND PRACTICE IN YOUR JURISDICTION IN THE PAST 12 MONTHS?
The Organisation for Economic Co-operation and Development (OECD) final reports on base erosion and profit shifting (BEPS) are having a significant impact on international tax policy in Ireland. A formal advance pricing agreement (APA) programme has been introduced by the Irish Revenue Commissioners (Irish Revenue) to enhance certainty and transparency for taxpayers with multi-jurisdictional operations. In addition, the legislative framework required to implement country-by-country reporting has been established and enacted, with effect from 1 January 2016. The updated OECD guidelines on transfer pricing have also been incorporated into Irish legislation. In June 2016, the Irish Revenue released guidance containing frequently asked questions and answers in connection with the interpretation of legislation and regulations on country-by-country reporting in Ireland. This guidance has been updated periodically, most recently in December 2016.
In July 2016, Ireland launched a formal regime in respect of bilateral and multilateral APAs. In the past, Ireland facilitated bilateral and multilateral APAs without having a formal regime in place. It will now be possible to initiate these agreements with the Irish tax authorities. However, entry into APAs is confined to complex transfer pricing transactions that could give rise to double taxation issues.
The Irish Revenue has confirmed that Ireland's spontaneous exchange of information regime will apply retroactively to certain tax rulings issued since 1 January 2010. The regime is based on a combination of:
- The framework proposed by the OECD under BEPS Action 5.
- Directive 2015/2376/EU amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.
The regime typically applies to rulings relating to transactions with a cross-border impact. Exchange of information applies to relevant rulings issued or amended on or after 1 January 2010 under the OECD framework, and 1 January 2012 under EU rules, and which were still in effect on 1 January 2014. All relevant rulings issued or amended by the Irish Revenue since 1 January 2014 will be subject to exchange of information, regardless of whether they remain in effect.
TRANSFER PRICING LEGISLATION
FEDERAL OR NATIONAL LEGISLATION
3. WHAT IS THE MAIN FEDERAL (NATIONAL) LEGISLATION REGULATING TRANSFER PRICING IN YOUR JURISDICTION?
Part 35A of the Taxes Consolidation Act 1997 (TCA) sets out the transfer pricing regime. The following paragraphs outline the:
- Circumstances in which the transfer pricing rules apply.
- Arrangements that are specifically excluded from the scope of the transfer pricing rules.
- Consequences of the application of the transfer pricing rules.
Scope of application of the transfer pricing rules
The transfer pricing rules apply if all the following conditions are met:
- There is an arrangement involving the supply and acquisition of goods, services, money or intangible assets. "Arrangement" is defined very broadly and means "any agreement or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable)".
- At the time of the supply and
acquisition, the supplier and acquirer 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; or
- the first person is participating in the management, control or capital of the other person, where that other person is a company controlled by the first person.
- The profits, gains or losses arising from the relevant activities are in respect of trading activities. "Trading" is defined in Irish legislation as including "every trade, manufacture, adventure or concern in the nature of a trade".
There is no definition of "trade" in Irish tax legislation. Generally, to be trading, the Irish company must:
- Be engaged in the key profit-making commercial activity.
- Have persons in Ireland with the requisite skills and expertise to perform that activity.
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Originally published in Thomson Reuters
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.