Transfer pricing was introduced into the Irish tax code in 2010. The key features of the TP rules are as follows:
- The TP rules apply to trading transactions only (i.e., they do not currently apply to passive or capital transactions);
- The TP rules determine arm’s-length pricing based on the 2010 OECD transfer pricing guidelines;
- The TP rules do not apply to transactions agreed before July 1 2010;
- The TP rules do not apply to small and medium enterprises (i.e., an enterprise with less than 250 employees and either (i) turnover below €50 million ($50 million) or (ii) assets less than €43 million, on a group basis); and
- The TP rules require relevant taxpayers to prepare on a timely basis such records as may reasonably be required to determine whether the taxpayer’s trading income has been computed in accordance with the TP rules.
The report makes a number of recommendations which will, if adopted, significantly alter the application of the TP rules. In particular, the recommendations will expand the scope of application of the TP rules and will enhance the administrative burden imposed on taxpayers subject to the TP rules.
The recommendations made by the report are as follows:
- The TP rules should be amended to incorporate for the application of the 2017 OECD transfer pricing guidelines into domestic Irish law;
- The application of the TP rules should be expanded to apply to transactions agreed before July 1 2010;
- The expansion of the application of the TP rules to SMEs should be considered;
- The expansion of the application of the TP rules to non-trading transactions, including for example interest-free loans granted by Irish companies, should be considered;
- The expansion of the application of the TP rules to capital transactions should be considered; and
- The TP rules should be amended to include a specific statutory obligation on taxpayers to comply with BEPS Action 13 documentation obligations.
The report indicates that the implementation of any of the proposed changes to the TP rules should take place before the end of 2020. The report recommends that the proposed changes to the TP rules should be subject to proactive public consultation in advance of implementation. The consultation process is expected to be formally launched with the delivery of Budget 2018 on October 10 2017.
Significant impact on TP policy
In publishing the report the Minister importantly welcomed the emphasis in the report on certainty, which is core to Ireland’s corporate tax offering, noting that the “12.5% corporation tax rate remains the bedrock of our competitive corporation tax regime and that is not going to change”.
Although it remains to be seen whether all or any of the changes proposed in the report to the TP rules will be adopted, it is clear that the report will have a significant impact on transfer pricing policy in Ireland over the coming years. Proactive business engagement during the consultation process will therefore be crucial to protect against unintended consequences arising.