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Ireland Sets Out Plans For Transfer Pricing Regime Changes

Thursday, September 5, 2019

Ireland has released a responses document on an ongoing consultation on an update to the country's transfer pricing rules.

In February 2019, a public consultation was launched to gather the views of stakeholders regarding a proposed update of Ireland's transfer pricing rules.

The Coffey review

The update is intended to respond to recommendations from the Coffey review and is also intended to incorporate the 2017 OECD Transfer Pricing Guidelines into Irish legislation.

The Coffey review recommended:

  • Applying transfer pricing rules to arrangements the terms of which were agreed prior to July 1, 2010, and which are currently outside the scope of transfer pricing legislation;
  • Applying transfer pricing rules to small and medium enterprises (SMEs);
  • Extending transfer pricing rules to non-trading income and capital transactions; and
  • Obligating taxpayers to have available the transfer pricing documentation outlined in Annex I and II of Chapter V of the 2017 OECD Transfer Pricing Guidelines (a Master File and Local File).

Ireland's current rules

Ireland's current transfer pricing rules are provided for in Part 35A of the Taxes Consolidation Act 1997. Part 35A sets out the requirement that transfer prices must be in accordance with the arm's length principle and directly incorporates the OECD 2010 Transfer Pricing Guidelines into Irish law.

The 2010 OECD guidelines have been superseded by the revised 2017 guidelines.

The current Irish legislation is limited in scope in that it does not apply to small and medium enterprises, non-trading transactions, or intra-company transactions all the terms of which were agreed before July 1, 2010.

Responses to the consultation

According to the Government's newly released responses document, on feedback to the February 2019 consultation, 15 responses were received on seven distinct areas.

The Government reported that there was broad agreement that the 2017 OECD Transfer Pricing Guidelines should be incorporated into Irish legislation with some suggesting a proportionate approach to documentation requirements depending on company size.

There was almost universal support for the application of transfer pricing rules to pre-July 2010 transactions with some calling for relaxed documentation requirements.

The extension of transfer pricing rules to SMEs was not favored by respondents with a number suggesting if rules were to be extended it should be done with reduced documentation requirements.

Proposals to extending the rules to non-trading and capital transactions brought almost universal calls for caution, the Government said. There was however broad recognition of the rationale for extending transfer pricing rules to cross-border non-trading transactions. The majority of submissions called for capital transactions to remain outside the scope of transfer pricing rules, with respondents citing that the existing provisions are sufficient. Some respondents suggested this extension to non-trading transactions could potentially be delayed until 2021.

Many of the respondents welcomed the suggestion that an obligation should be introduced for companies to maintain a Master and Local file starting from January 1, 2020. However, in view of the significant additional compliance burden this would place on companies, some respondents suggested that there should be a revenue threshold for the application of the enhanced documentation requirements.

"One possible way to address these concerns is to tailor transfer pricing documentation requirements for SMEs depending on their size," the Government said, "with an exemption from transfer pricing documentation requirements for small enterprises and reduced and simplified transfer pricing documentation requirements for medium enterprises."

It was also suggested by some respondents that transfer pricing documentation requirements should be relaxed in certain cases, including in relation to arrangements the terms of which were agreed before July 1, 2010.

The public consultation also sought stakeholder feedback on the possible application of transfer pricing principles in connection with the attribution of profits to branches.

While this was reportedly broadly supported, stakeholders raised a number of significant issues which would have to be addressed to ensure its practicality. Some of these issues are sector specific impacts, interaction with tax treaties, and interaction with other areas of legislation, the Government said. Some stakeholders called for further consultation on this issue.

The Government has said that given the already extensive changes being brought forward to transfer pricing legislation in 2019, coupled with the need for further consideration of the potential implications of applying transfer pricing principles to branches, the issue should be considered and addressed at a later time.