Transfer Pricing

Updated Provisions

Finance Act 2019 substitutes a new Part 35A of the Taxes Consolidation Act 1997 for the existing Part 35A (Transfer Pricing). The existing Part 35A sets out transfer pricing rules that apply the arm’s length principle to trading transactions between associated persons. The new Part 35A updates existing transfer pricing rules and extends their scope and application.

The new Part 35A makes the following changes—

• It extends, subject to certain exceptions, the application of the arm’s length principle to the computation of non-trading income, capital allowances and chargeable gains relating to transactions between associated persons.
• There is an exclusion from the application of transfer pricing rules to the computation of non-trading income where it relates to a transaction between certain associated persons who are chargeable to tax in the State on the profits or gains or losses arising from the transaction.
• In relation to the computation of capital allowances and chargeable gains, transfer pricing rules will only apply in respect of transactions relating to assets that have a market value of over €25 million.
• It updates the rules to require that “arm’s length” be construed as far as practicable in accordance with the 2017 version of the OECD Transfer Pricing Guidelines. The rules previously referred to the 2010 version of the OECD Transfer Pricing Guidelines.
• It enhances transfer pricing documentation requirements, including requiring companies that are members of larger groups to prepare, and to provide to the Revenue Commissioners upon request, a local file and a master file in line with Annex I and II of Chapter V of the 2017 OECD Transfer Pricing Guidelines.
• It provides for a higher rate of penalty for larger taxpayers who fail to comply with a request to provide transfer pricing documentation to the Revenue Commissioners.
• To encourage full and timely compliance with transfer pricing documentation requirements, it provides for protection from tax-geared penalties, in the careless behaviour category, where a taxpayer prepares transfer pricing documentation and provides it to the Revenue Commissioners on a timely basis and the documentation demonstrates reasonable efforts to comply with transfer pricing legislation.

The updated transfer pricing rules apply for chargeable periods commencing on or after 1 January 2020 and, in respect of claims for capital allowances, where the related capital expenditure is incurred on or after 1 January 2020.

Small and medium enterprises are to come within the scope of transfer pricing rules in the future on the making of an order by the Minister.

Pre-2010 Arrangements

Finance Act 2019 removes, with effect for chargeable periods commencing on or after 1 January 2020, the existing exclusion from transfer pricing rules that applies for arrangements that were entered into before 1 July 2010.

It  also provides for the removal of the exclusion from transfer pricing rules that currently applies for small and medium enterprises but sets out that these enterprises will either be fully exempt from transfer pricing documentation requirements or will have significantly reduced transfer pricing documentation requirements.

S.110 Companies

Finance Act 2019 amends section 110 of the Taxes Consolidation Act 1997 which deals with the taxation of securitisation companies. Revised transfer pricing rules are being introduced in Finance Act 2019, however the profit participating note in section 110 companies cannot be made subject to the new transfer pricing rules without introducing a direct conflict in legislation.

They are therefore being carved out from transfer pricing rules, but additional anti-avoidance provisions are being introduced in the Act in tandem with this provision in order to strengthen the existing protections against abuse of the regime. These amendments broaden the definition of a specified person to increase the number structures that will be subject to section 110 anti-avoidance provisions. The amendments also place the tax avoidance main purpose test on an objective basis.

Extension of Scope 2020

Finance Act 2020 provides for two amendments to Part 35A (Transfer Pricing) of the Taxes Consolidation Act 1997. The purpose of these amendments is to ensure that certain aspects of the transfer pricing legislation operate as intended.

The definition of ‘relevant person’ is amended to ensure that, in relation to an arrangement, a supplier or acquirer, whose profits or gains or losses within the charge to tax would take account of any results of the arrangement, will be regarded as a ‘relevant person’ for the purposes of documentation requirements.

There is an amended definition of ‘qualifying relevant person’ to clarify that a relevant person must have profits or gains or losses chargeable to tax under Schedule D, the computation of which directly takes account of the actual results of the arrangement. In addition, the definition is amended to clarify when a party to certain loan arrangements will be regarded as a ‘qualifying relevant person’.

Finance Act 2020  sets out the circumstances in which profits or gains or losses will be regarded as “taking account of the actual results of an arrangement”. These amendments apply for chargeable periods commencing on or after 1 January 2021.

Extension of Scope 2021

Finance Act 2021  provides for amendments to Part 35A (Transfer Pricing) of the Taxes Consolidation Act 1997. These amendments apply for chargeable periods commencing on or after 1 January 2022.

The definition of ‘relevant person’ is amended to ensure that, in relation to an arrangement, a supplier or acquirer, whose profits or gains or losses within the charge to tax would take account of any results of the arrangement, will be regarded as a ‘relevant person’.

The 2021 Act provides for an exclusion from the application of transfer pricing rules to the computation of non-trading income in certain circumstances. Provided certain conditions are satisfied, the exclusion will apply in respect of a transaction between certain associated persons who are both chargeable to tax in the State on the profits or gains or losses arising from the transaction, or who would be so chargeable if there were any.

Where the supplier meets this requirement but the acquirer does not, the exclusion will only apply where the acquirer is chargeable to tax on any profits or gains or losses arising from its relevant activities, or would be so chargeable if there were any, and is resident in the State.
Contains anti-avoidance provisions to ensure the section operates as intended.

OECD Guidelines

Finance Act 2022, by updating the definition of “transfer pricing guideline, updates the transfer pricing rules to be construed, as far as practicable, in accordance with the 2022 version of the OECD Transfer Pricing Guidelines.

The rules previously referred to the 2017 version of the OECD Transfer Pricing Guidelines.This applies to chargeable periods commencing on or after 1 January 2023.