Will your inter-company arrangements be able to benefit from the transfer pricing "grandfathering" arrangements contained in the Irish Finance Act 2010?

Now that the Finance Act 2010 containing the new Irish transfer pricing regime has become law, the clock has begun to tick in relation to the "grandfathering rules" contained in the Act. Under those provisions, the new transfer pricing rules do not apply to arrangements the terms of which were agreed before 1 July 2010.

Groups intending to rely on these rules should now be reviewing the arrangements they have in place governing intragroup transactions to ensure these are adequately documented and that the actual commercial practices applying to the relevant intercompany services or goods are reflected in those documents.

While the grandfathering provisions may appear broad, it would be prudent to review current documentation in light of these provisions and identify any risk that the grandfathering may not be able to be relied on. This is legal question. It is significant that this grandfathering provision was amended in the course of the legislative process to narrow the circumstances in which it could be relied on. We have been analysing in detail the extent of this provision and would strongly recommend that all existing arrangements are examined in light of it. Some typical arrangements may not qualify and the opportunity to amend such agreements should now be availed of.

In the course of such a review the factors that should be examined include the specificity of the pricing methodology (in particular, as to whether there is a risk that variable elements in the methodology might be regarded as "new" arrangements after 1 July 2010), the appropriateness of provisions that give flexibility to amendments after the contract date, and whether there are any provisions that have an expiry date. As a simple example, an existing agreement might say that the contract has a three year term. This would obviously limit the grandfathering applicable to this arrangement and it should be considered whether it is necessary to have such a time constraint.