Policy, trends and developments
Describe the general government/regulatory policy for transfer pricing in your jurisdiction. To what extent is the arm’s-length principle followed?
Formal transfer pricing legislation (the Irish Transfer Pricing Rules) was introduced for the first time in 2010 in respect of accounting periods commencing on or after January 1 2011 for transactions whose terms were agreed on or after July 1 2010.
Broadly, the Irish Transfer Pricing Rules require that trading transactions (whether domestic or international) between associated persons be entered into at arm's length. The arm's-length principle is to be interpreted in accordance with the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD) for Multinational Enterprises and Tax Administrators.
Trends and developments
Have there been any notable recent trends or developments concerning transfer pricing in your jurisdiction, including any regulatory changes or case law?
The OECD final reports on base erosion and profit shifting (BEPS) have triggered the implementation of a number of tax changes in Ireland that are relevant to transfer pricing:
- The updated OECD Transfer Pricing Guidelines were incorporated into Irish legislation;
- A formal advance pricing agreement programme was introduced by the Irish Revenue Commissioners in July 2016 to enhance certainty and transparency for taxpayers with multi-jurisdictional operations;
- The legislative framework required to implement country-by-country reporting has been established and enacted, with effect from January 1 2016. Irish Revenue published guidance on the interpretation of legislation and regulations on country-by-country reporting in Ireland, which is being updated periodically;
- Irish Revenue announced that Ireland's rules in relation to spontaneous exchange of information will apply to certain tax opinions issued by Irish Revenue to companies and other entities. The rules apply to relevant tax opinions issued from January 1 2010. The arrangements were adopted to comply with Ireland's obligations under EU Directive 2015/2376 on mandatory automatic exchange of information regarding tax and the OECD's framework for the compulsory spontaneous exchange of information in respect of rulings that was adopted as part of Action 5 of the BEPS project; and
- The Department of Finance published an independent report on Ireland's corporate tax code in September 2017, colloquially referred to as the Coffey Report. As part of the 2018 budget, a consultation was announced on the recommendations contained in the Coffey Report and five of the consultation questions relate to transfer pricing. One of the recommendations is to extend the Irish Transfer Pricing Rules to non-trading transactions. The consultation and ultimate implementation of any of the recommendations may lead to changes in the Irish Transfer Pricing Rules.
Domestic legislation and applicability
What primary and secondary legislation governs transfer pricing in your jurisdiction?
Part 35A of the Irish Taxes Consolidation Act 1997 provides for transfer pricing rules under Irish domestic primary legislation; the act also provides that the Irish Transfer Pricing Rules are to be construed in such a way as to ensure, as far as practicable, consistency with the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development.
Ireland's country-by-country reporting obligations are contained in Section 891H of the Taxes Consolidation Act and the Taxes (Country-by-Country Reporting) Regulations 2016.
Are there any industry-specific transfer pricing regulations?
No. However, satisfaction of a specific arm's-length test is a requirement for certain tax regimes (eg, for securitisation vehicles).
What transactions are subject to transfer pricing rules?
The Irish Transfer Pricing Rules apply to transactions involving the supply and acquisition of goods, services or intangibles:
- that take place between two associated persons where the profits, gains or losses arising from those transactions are within the charge to Irish tax under Case I or Case II of Schedule D (ie, ‘trading’ activities taxed at the 12.5% rate); and
- in circumstances where the actual pricing of the transaction differs from the pricing that would have been agreed at arm's length, and the actual pricing results in the taxable trading income of one of the persons being less (or the allowable trading loss being greater) than it would have been had arm's-length pricing been used.
The concept of ‘trading’ is not defined in Irish legislation, but in general trading presupposes a certain level of commercial activity entered into by a company with sufficient personnel in Ireland to carry out that activity and with a view to a profit.
How are ‘related/associated parties’ legally defined for transfer pricing purposes?
Broadly, transfer pricing applies where one of the parties participates in the management, control or capital of the other party, or both parties fall under the management, control or capital of another party.
The legislative definition of ‘associated’ is as follows:
(a) two persons are associated at any time if at that time—
(i) one of the persons is participating in the management, control or capital of the other, or
(ii) the same person is participating in the management, control or capital of each of the two persons, and
(b) a person (in this paragraph referred to as the “first person”) is participating in the management, control or capital of another person at any time only if that other person is at that time—
(i) a company, and
(ii) controlled by the first person.
Are any safe harbours available?
The Irish Transfer Pricing Rules do not apply where the arrangement:
- was entered into before July 1 2010;
- is concluded within a small or medium-sized enterprise (ie, broadly, an enterprise with less than 250 employees and either a turnover of less than €50 million or assets of less than €43 million on a group basis, as set out in the Annex to the European Commission Recommendation concerning the definition of micro, small and medium-sized enterprises (OJ 2003 L124/36)); or
- are entered into by ‘qualifying companies’ for the purposes of Section 110 of the Taxes Consolidation Act (Ireland's securitisation regime). While such companies are treated as ‘trading’ for certain Irish tax purposes, they are not required to apply the Transfer Pricing Rules, although certain arm's-length requirements do apply.
Which government bodies regulate transfer pricing and what is the extent of their powers?
Irish Revenue, the Irish tax authority, is responsible for regulating transfer pricing in Ireland.
The Irish tax system permits Irish Revenue to carry out an inspection of tax returns filed under the self-assessment system. Ireland's general audit rules can also apply to transfer pricing issues. Auditors have wide powers of inspection in relation to transactions conducted during the period to which the audit relates, including powers to inspect original documents. If a taxpayer fails to submit documentation when requested, it may be subject to penalties.
In addition, under Ireland's transfer pricing compliance review programme, Irish Revenue officers can notify selected taxpayers that they have been invited to self-review their transfer pricing and report back to Irish Revenue within three months.
If Irish Revenue determines, as a result of an audit or assessment, that the amount of the consideration payable exceeded an arm's-length amount or was less than an arm's-length amount, the Irish Transfer Pricing Rules allow Irish Revenue to recompute the taxable profits or losses of the Irish taxpayer to impose the arm's-length requirements and effect any necessary adjustment.
As most double taxation agreements to which Ireland is party contain provisions allowing exchange of information between tax authorities, the information gathered by Irish Revenue in the context of such transfer pricing audits may be provided to the tax authorities of the tax treaty partners.
Which international transfer pricing agreements has your jurisdiction signed?
As set out above, the Irish Transfer Pricing Rules must be construed in accordance with the OECD Transfer Pricing Guidelines.
In addition, certain provisions of Ireland's double taxation agreements (72 currently in effect) may affect the application of the Irish Transfer Pricing Rules. In broad terms, the provisions contained in Ireland's double taxation agreements generally take precedence over Irish domestic law.
To what extent does your jurisdiction follow the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines?
As specifically provided in Section 835D of the Taxes Consolidation Act, the Irish Transfer Pricing Rules are to be construed in accordance with the OECD Transfer Pricing Guidelines. In practice, the Irish Transfer Pricing Rules will follow all current and future OECD guidelines, and discussions with Irish Revenue will always be by reference to the OECD guidelines.
Ireland will shortly implement the updated OECD guidelines contained in the final base erosion and profit shifting report on Actions 8 to 10, and these will apply to transfer pricing disputes arising under any of Ireland's double taxation agreements.
Transfer pricing methods
Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?
The Irish Transfer Pricing Rules specify neither any particular transfer pricing method nor any preferred one. However, the Irish Transfer Pricing Rules are to be construed in such a way as to ensure, as far as practicable, consistency with the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD).
Preferred methods and restrictions
Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?
No. Any transfer pricing method that is applied in compliance with the OECD Transfer Pricing Guidelines will be regarded as acceptable for the purposes of the Irish Transfer Pricing Rules and, where possible, the most appropriate method for the particular type of transaction should be chosen.
What rules, standards and best practices should be considered when undertaking a comparability analysis?
The Irish Transfer Pricing Rules do not include specific requirements or guidance in respect of comparability analysis, and Irish Revenue has not published any guidance on the evaluation of comparables. However, as set out above, the Irish Transfer Pricing Rules are to be construed in accordance with the OECD Transfer Pricing Guidelines. Ireland accepts EU comparables, in line with the EU Code of Conduct on Transfer Pricing Documentation.
When seeking to evaluate comparables, Irish Revenue will focus on the commerciality of a transaction and whether it is bona fide in nature.
Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?
Documentation and reporting
Rules and procedures
What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?
The Irish Transfer Pricing Rules impose an obligation on companies to whom those rules apply to have available such records as may reasonably be required for the purposes of determining whether the trading income of the company has been computed in accordance the Irish Transfer Pricing Rules. The main purpose of having transfer pricing documentation available is to enable a company, if requested, to establish readily to Irish Revenue’s satisfaction that its transfer prices are consistent with the arm's-length requirements.
The legislative requirement is that a company have transfer pricing documentation available. There is no requirement for documentation to be kept in any particular form.
Where requested by Irish Revenue, documentation must be prepared in a timely manner. The Irish Transfer Pricing Rules do not specify any submission deadlines, but in a standard audit scenario documentation is typically required to be submitted within 28 days of request.
What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?
The documentation must be sufficient to demonstrate a company's compliance with the Irish Transfer Pricing Rules and the level required will be dictated by the facts and circumstances of the transactions.
The relevant transfer pricing documentation should clearly identify:
• associated persons for the purposes of the legislation;
• the nature and terms of transactions within the scope of the legislation;
• the method or methods by which the pricing of transactions were arrived at, including any study of comparables and any functional analysis undertaken;
• how that method has resulted in arm’s-length pricing or, where it has not, what computational adjustment was required and how this has been calculated. This will usually include an analysis of market data or other information on third-party comparables;
• any budgets, forecasts or other papers containing information relied on in arriving at arm’s-length terms or in calculating any adjustment made in order to satisfy the requirements of the new transfer pricing legislation; and
• the terms of relevant transactions with both third parties and associates.
Irish Revenue's Tax Briefing 07- 2010 provides that both the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD) and the EU Code of Conduct on Transfer Pricing Documentation will be acceptable as representing good documentation practice.
Ireland requires the provision of a country-by-country report consistent with Annex III to Chapter V of the Transfer Pricing Guidelines under Section 873H of the Taxation Consolidation Act and the Irish Country-by-Country Regulations. Country-by-country reports must be filed within 12 months of the end of each fiscal year (eg, by December 31 2017 for the fiscal year ending December 31 2016).
However, in line with the OECD model legislation, these requirements apply only to an Irish resident ultimate parent company of a multinational group with annual consolidated group revenue of at least €750 million in the preceding fiscal year. A secondary filing mechanism is also available whereby a multinational group can designate an Irish resident constituent entity of the group to act as a 'surrogate parent' entity to file a country-by-country report with Irish Revenue on behalf of the group. If the ultimate parent or surrogate parent cannot file a country-by-country report, there is a requirement for a local country filing with Irish Revenue.
What are the penalties for non-compliance with documentation and reporting requirements?
Failure to comply with an Irish Revenue request for documentation required to be kept under the Irish Transfer Pricing Rules will trigger the imposition of a penalty of €4,000. Irish Revenue may also seek an order before the High Court of Ireland to compel a taxpayer to submit records or documentation.
Failure to provide a country-by-country report will render the party liable to a penalty of €19,045 and where such failure is made without reasonable excuse, a further penalty of €2,535 will apply for each day on which the failure continues.
What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?
The documentation must be prepared on a timely basis. Irish Revenue Tax Briefing 07- 2010 provides that both the OECD Transfer Pricing Guidelines and EU Code of Conduct on Transfer Pricing Documentation will be acceptable as representing good documentation practice. In addition, the Tax Briefing notes that best practice would require preparation of the documentation at the time that the terms of the transaction were agreed. Complex, high-value transactions are likely to require more detailed documentation than simple, high-volume transactions.
Advance pricing agreements
Availability and eligibility
Are advance pricing agreements with the tax authorities in your jurisdiction possible? If so, what form do they typically take (eg, unilateral, bilateral or multilateral) and what enterprises and transactions can they cover?
Ireland has introduced a formal bilateral advanced pricing agreement programme and published guidelines in September 2016.
The bilateral advance pricing agreement programme is intended to apply only in respect of transactions where the transfer pricing issues involved are complex. The following types of company can apply for a bilateral advance pricing agreement:
- companies that are tax residents in Ireland for the purposes of a relevant double taxation agreement; and
- permanent establishments of non-resident companies in accordance with the provisions of the relevant double taxation agreement.
Where the relevant issues involve more than two tax jurisdictions, Irish Revenue will consider entering into a series of bilateral advance pricing agreements to deal with multilateral situations. Ireland will not enter into unilateral advance pricing agreements. There must be a double taxation agreement in place in order for a bilateral advance pricing agreement application to be considered and the process is conducted under the mutual agreement procedure of the relevant double taxation agreement.
Rules and procedures
What rules and procedures apply to advance pricing agreements?
Ireland's advance pricing agreement programme adheres to the detailed guidelines for concluding such agreements contained in Annex to Chapter IV: Advance Pricing Arrangements of the Transfer Pricing Guidelines. When negotiating a bilateral advance pricing agreement with an EU member state, Irish Revenue will also adhere to the best practices for the conduct of such procedures as set out in the Guidelines for Advance Pricing Agreements within the European Union, which have been published by the EU Joint Transfer Pricing Forum.
Transparency is fundamental to Ireland's advance pricing agreement programme. All bilateral agreements are negotiated on the basis of identifying an arm's-length remuneration for the transactions covered by the agreement using any of the transfer pricing methodologies contained in the Transfer Pricing Guidelines.
The advance pricing agreement process itself is conducted over a number of stages:
- Pre-filing – contact with Irish Revenue and informal discussions;
- Formal advance pricing agreement application;
- Evaluation of the application and negotiation of the agreement;
- Formal agreement; and
- Annual reporting.
How long does it typically take to conclude an advance pricing agreement?
Irish Revenue will endeavour to conclude advance pricing agreement cases within 24 months of the formal agreement application from the taxpayer.
What is the typical duration of an advance pricing agreement?
An advance pricing agreement will generally be granted for a fixed period, typically between three and five years (excluding any roll-back years).
What fees apply to requests for advance pricing agreements?
Ireland does not charge any fees in respect of advance pricing agreement applications.
Are there any special considerations or issues specific to your jurisdiction that parties should bear in mind when seeking to conclude an advance pricing agreement (including any particular advantages and disadvantages)?
From January 1 2017 Directive (EU) 2015/2376 on the mandatory automatic exchange of information will apply and Irish Revenue will be obliged to exchange automatically certain information in relation to advance pricing agreements with other EU member states, and to inform the European Commission of that information. In addition, certain basic information will have to be provided in relation to advance pricing agreements with non-EU jurisdictions.
Review and adjustments
Review and audit
What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?
Under Ireland's self-assessment system, the burden of proof in the event of an audit by Irish Revenue will fall on the taxpayer.
Ireland has also introduced a transfer pricing compliance review programme that allows authorised Irish Revenue officers to send out notifications to selected taxpayers inviting them to self-review their transfer pricing and report back to Irish Revenue within three months.
The reviews apply to particular accounting periods and address specific aspects of the taxpayer’s transfer pricing, including the group structure, details of transactions by type (including the associated companies involved) and the transfer pricing method applied for each transaction or group of transactions. Irish Revenue may undertake a formal audit (with the risk of penalties being imposed) should it be dissatisfied with the response provided by the taxpayer to its request.
The same rules, standards and procedure that apply in respect of Irish Revenue's power to review a company's compliance with corporation rules also apply in respect of their compliance with transfer pricing rules. Irish Revenue may undertake an audit of the company's tax return within four years of the end of the accounting period in which the return is submitted.
Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?
A transfer pricing audit is conducted in the same manner as a regular tax audit, as discussed above.
What penalties may be imposed for non-compliance with transfer pricing rules?
There is no separate statutory regime for transfer pricing penalties. However, Irish Revenue may apply to transfer pricing assessments standard tax-geared corporate tax penalties that apply to the Irish self-assessment regime.
The amount of penalties due is generally calculated by the Irish Revenue auditor.
The applicable penalties set out in the Irish tax legislation are tax-geared penalties and can vary depending on:
- the category of default giving rise to the penalty;
- whether the taxpayer has made voluntary qualifying disclosure of the underpayment of tax; and
- whether the taxpayer cooperates during the course of the audit.
There are three categories of default: deliberate behaviour, careless behaviour with significant consequences and careless behaviour without significant consequences. The category of default affects the level of penalties to be paid, as does cooperation or non-cooperation with the Irish Revenue auditor.
What rules and restrictions govern transfer pricing adjustments by the tax authorities?
Pricing adjustments may be made in compliance with Section 835 of the Taxes Consolidation Act where the amount of the consideration payable under any arrangement subject to the transfer pricing rules exceeds or is less than the arm's-length amount. The pricing adjustment will require the trading profits or gains or losses of the acquirer that are chargeable to tax be computed as if the arm's-length amount were payable instead of the actual consideration payable.
How can parties challenge adjustment decisions by the tax authorities?
Transfer pricing assessments made by Irish Revenue may be appealed within 30 days. An appeal is made to the Tax Appeals Commission in the first instance. Thereafter, an Appeals Commission decision can be appealed on a point of law to the High Court and the Supreme Court.
Mutual agreement procedures
What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?
In August 2017 Irish Revenue issued guidelines for requesting mutual agreement procedure assistance in Ireland to resolve matters of double taxation under the terms of the relevant double taxation agreement and/or the EU Arbitration Convention. Irish companies may seek mutual agreement assistance under the relevant article of a double taxation treaty or under the EU Arbitration Convention.
The guidelines set out the minimum information that should be provided to the competent Irish authority as part of the process, together with the procedure that should be followed when seeking correlative adjustment in Ireland where a foreign company has entered into a transaction with an associated Irish company. Claims for correlative adjustment are treated separately by Irish Revenue, compared to a request for mutual assistance procedure assistance, and will be considered to the extent that the foreign tax adjustment is found to be at arm's length. The guidelines also contain a list of information and documentation that is required to be submitted with a request for correlative adjustment.
What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?
Ireland is committed to address tax avoidance through:
- a long-standing statutory general anti-avoidance rule (GAAR) and considerable specific anti-avoidance legislation;
- Irish Revenue's wide ranging powers of investigation;
- a mandatory disclosure regime for ‘tax promoters’;
- the recent introduction of the Tax Appeals Commission, which is an independent statutory body responsible for dealing with appeals against assessments and decisions of the Irish Revenue;
- wide-ranging exchange of information arrangements with other jurisdictions; and
- significant monetary penalties for tax avoidance transactions.
To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?
Ireland has committed to adopt minimum standard measures to counteract base erosion and profit shifting as recommended by the Organisation for Economic Cooperation and Development (OECD). The measures being taken by Ireland include:
- Implementation of the EU Anti-tax Avoidance Directives I and II including the following measures:
- Adoption of a controlled foreign company (CFC) regime from January 1 2019;
- Undertaking a consultation process to establish whether Ireland's current GAAR meets the minimum standard required by the EU Anti-tax Avoidance Directives I and II;
- Implementing a revised exit tax regime from January 1 2020; and
- Becoming a signatory to the OECD Multilateral Convention to Implement Tax Treaty Measures to Prevent Base Erosion and Profit Shifting (MLI) and taking the first steps to implement the MLI in the Finance Act 2017.
Is there a legal distinction between aggressive tax planning and tax avoidance?
The Irish tax legislation does not provide for a specific distinction between aggressive tax planning and tax avoidance. However, the introduction of a mandatory disclosure regime in respect of certain transactions that give rise to a tax advantage (where the main or one of the main benefits expected from the transaction is a tax advantage) has provided guidance as to what transactions may be regarded as undesirable by Irish Revenue.
A transaction is disclosable where:
- there is an intention to keep the scheme confidential from other promoters or from Irish Revenue;
- it would be reasonable to expect that a premium fee for the scheme be charged on the basis of how it secures the expected tax advantage;
- the arrangement is a standardised tax product that does not require tailoring to the client's specific circumstances to any material extent;
- schemes that create a tax loss that can be used by more than one individual client and the main outcome of the transaction, to an informed observer, is the provision of tax losses or creates a loss-buying scheme for corporates;
- employment schemes that generate a tax advantage for an employer, employee or any other person, with the exclusion of routine schemes that already involve Irish Revenue oversight (eg, share ownership trusts); and
- schemes that convert income into capital with a view to attract tax at a lower rate.
Irish Revenue has clarified that routine, day-to-day tax advice and the routine use of statutory exemptions and reliefs for good-faith purposes are not disclosable for these purposes.
What penalties are imposed for non-compliance with anti-avoidance provisions?
Non-compliance with the GAAR triggers the application of penalties under the Taxes Consolidation Act. For example, a 30% surcharge will be payable on the tax avoided in respect of tax avoidance transactions (under Sections 811A and 811D of the Taxes Consolidation Act), with the additional possibility of fines or imprisonment for the most serious tax offences.
By making a protective notification to Irish Revenue in respect of a transaction within 90 days of beginning a transaction, a taxpayer can seek protection from the possibility of such interest or surcharge arising in the event of Irish Revenue successfully challenging the transaction under the GAAR.
Where serious tax evasion is suspected, criminal proceedings may be initiated against a taxpayer.