The Irish government has called for input on proposals designed to better harmonize domestic transfer pricing rules with OECD standards, including adoption of the authorized OECD approach (AOA) to profit attribution and enhanced documentation rules.
Currently, the OECD 2010 Guidelines is incorporated in Part 35A of the Taxes Consolidation Act 1997. As the OECD renewed the guideline in 2017 by adopting the BEPS action 8-10 (Value Creation) and 13 (Country by Country Report), the Irish government plans to amend its transfer pricing rule by incorporating this guideline. The incorporation aims to make transfer pricing regime consistent with international best practice for these rules as developed at the OECD.
As the current transfer pricing does not apply to non-trading income, the government plans to extend the rules to such transaction to reduce the risk of aggressive tax planning. Currently, Ireland’s capital gains tax and depreciation rules contain concepts similar to the arm's-length principle, but lack the explicit reference to the OECD transfer pricing guidelines and specific documentation rules included in the transfer pricing rules. Bringing capital transactions into the transfer pricing regime would apply the same concepts and administrative requirements to capital and noncapital transactions.
Although the consultation document says the government’s plan is to expand the transfer pricing rules’ scope to cover non-trading transactions, it also asks for views on whether capital transactions should remain subject to the existing market value requirement.
Besides extending the rule for non-trading income, the government also considers to extend the scope of transfer pricing rule to Small Medium Enterprises (SMEs). The logic for extending the transfer pricing rules to small and medium sized enterprises is to ensure that the rules are applied to all companies operating in Ireland. However, this must be balanced with the need to ensure that the onus of compliance is not overly burdensome and disproportionate to any risk of mispricing.
A potential path forward could be to extend the transfer pricing rules to cover SMEs but to introduce a tiered level of documentation necessary to comply with the rules. The documentary burden could potentially be linked with the size of the business.
The intention of amending Ireland’s transfer pricing rules is to implement OECD principles and ensure Ireland’s rules keep pace with the evolving international tax environment. In this light, it is appropriate to consider whether any change should be made to the taxation of branches in Irish law as part of the overall transfer pricing reform.
The interpretation of Ireland’s current profit attribution rules — or lack thereof — is one of the key issues raised in Ireland’s appeal of the European Commission’s 2016 state aid decision ordering Ireland to recover €13 billion from subsidiaries of Apple Inc. Although Ireland’s existing law on nonresident profit attribution does not refer to the AOA or the arm's-length principle, the Commission’s decision said the AOA could be used to assess selectivity in the absence of a specific attribution method.
Source: Irish Ministry of Finance
TPA Global provides solutions in the area of BEPS, Value Chain Analysis for multinationals along with variety of tax, business and educational technologies. Let us show you how to improve your operations and move from “staying out of trouble” to “being in control”.