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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.

Penalties

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.

Adjustments

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.

Challenge

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. 

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