The Irish Department of Finance published a Feedback Statement to modify the transfer pricing rules applicable to businesses in Ireland. It summarizes the proposed updated TP legislation and provides a final short window to seek input from stakeholders.
Corporation Tax Roadmap
The Feedback Statement is part of the ongoing consultation process on the implementation of various commitments arising from the OECD Base Erosion and Profit Shifting (BEPS) reports, related European Union (EU) Directives, and the recommendations set out in the Coffey Review as outlined in the Corporation Tax Roadmap published by the Irish Government on 5 September 2018.
Ireland’s Corporation Tax Roadmap also indicates an intention to have a public consultation in early 2019 to allow for the necessary changes to the tax code to be introduced in Finance Bill 2019 and to come into force from the beginning of 2020.
Some of the key changes are as follows:
- Adoption of the 2017 OECD Transfer Pricing Guidelines (TPG). Notably, this brings into Irish law the DEMPE concept, an updated framework to align profits with value creation. Implementation of the Approach to Hard-to-value Intangibles and the Revised Guidance on the Application of the Transactional Profit Split Method which were released after the updated 2017 OECD TPG. This highlights Ireland’s commitment to implementing international best practice from a TP perspective.
- Inclusion of language which expressly applies the substance over form provisions in the 2017 OECD TPG. The sample legislation would require taxpayers to consider not just the arm’s-length pricing of related-party transactions, but also whether independent parties “would” have entered into the particular related-party transactions in the first instance. The legislation further allows for the re-characterization of transactions by Irish Revenue. Where the consideration is in excess of the arm’s-length amount, the excess will be treated as a distribution.
- Applying transfer pricing rules to arrangements the terms of which were agreed prior to 1 July 2010 and which are currently outside the scope of transfer pricing legislation, which was almost universally supported, with some suggesting that there should be reduced or simplified documentation requirements for such arrangements.
- Obliging taxpayers to have available the transfer pricing documentation outlined in Annex I and II of Chapter V of the 2017 OECD Transfer Pricing Guidelines (Master file and Local file), which was welcomed by many respondents, with some suggesting that there should be a revenue threshold for the documentation;
- Applying transfer pricing rules to small and medium enterprises (SMEs), which was not supported by a majority of the respondents, with some suggesting that if SMEs are brought within the scope of the transfer pricing rules, there is a need to be proportionate in relation to the documentation requirements;
- Extending transfer pricing rules to non-trading income and capital transactions, which was generally not supported by respondents, although the policy intent was recognized. The capital transaction includes the draft legislation pertaining to anti-avoidance provisions to prevent taxpayers from artificially separating transactions into a series of transactions to avoid reaching capital expenditure/market value thresholds; and
- Extending the transfer pricing rules to branch profit attribution, which was broadly supported with some calls for further consultation on certain issues, including sector-specific impacts, interaction with tax treaties, and interaction with other areas of legislation.
Source: Government of Ireland