The Revenue Commissioners (the Irish tax authorities) announced in late November that they are initiating TPCRs, initially targeted at taxpayers within the ambit of the Large Cases Division, towards the end of 2012 or early in 2013. A TPCR will not constitute a Revenue audit or investigation and therefore has no impact on a company’s ability subsequently to make an unprompted qualifying disclosure. However depending on the response received from a company/group to the review it could be escalated to a formal transfer pricing audit. As such it is important that a company/group has adequate transfer pricing controls in place to appropriately deal with the TPCR if, as and when, selected for review.

The Irish transfer pricing regime

The Finance Act 2010 introduced transfer pricing rules to the Irish tax code. The rules essentially require that where related parties enter into transactions in the course of a trade that the price for any services or goods provided under such an agreement comply with broad OECD determined arm’s length pricing rules. The rules are relatively benign in that they (i) only apply to trading transactions (ii) do not apply to small or medium sized companies (SMEs) and (iii) only apply where the result of the pricing might be such as to reduce the Irish tax base (i.e. increasing a deductible cost for an Irish taxpayer or reducing the taxable income of that taxpayer). SMEs, broadly speaking, are entities which on a group basis have less than 250 employees and either a turnover of less than €50 million or assets of less than €43 million. Ireland’s transfer pricing regime applies from 1 January 2011 with transactions agreed before 1 July 2010 being grandfathered.

TPCR process

The TPCR is a self-review to be carried out by a notified company/group to determine compliance with Ireland’s transfer pricing rules. Companies/groups will be selected by the Revenue Commissioners to undertake the self-review and will be notified of this in writing. Revenue consider the TPCR to be a substantial compliance check in its own right rather than a precursor to conducting an audit. Revenue will use the information obtained from the review to assist in risk assessment and to increase its understanding of transfer pricing methodologies being utilised by businesses. Where a company declines to complete a TPCR or the transfer pricing does not appear to be in accordance with arm’s length principles Revenue may escalate the review to an audit.

A selected company/group will have three months from the date the notification of the TPCR to provide Revenue with a copy of a report addressing as part of its self-review:

  • The group structure;
  • Details of the transactions by type and associated companies involved;
  • The pricing structure and transfer pricing methodology used for each type of transaction;
  • A summary of the functions, assets and risks of the parties;
  • A summary list of the relevant documentation available and reviewed, and
  • Details of the basis on which it has been established that the arm’s length principle is satisfied.
Where as part of the transfer pricing obligations in another country a transfer pricing report or study already exists Revenue agree such report/study will suffice to satisfy their requirements under the TPCR where it addresses the above information.
Once the report is submitted Revenue will follow up with a post-review letter indicating (i) that no further enquires are necessary for the covered period or (ii) issues for further consideration or discussion (still within the TPCR process) or (iii) an escalation of the review to a transfer pricing audit.
This announcement from the Irish tax authorities should be viewed as a timely reminder for taxpayers that while the Irish transfer pricing regime has not imposed overly onerous obligations on them there is a requirement for the timely preparation and retention of the relevant documentation to justify the pricing of inter-company transactions for taxpayers that come within the ambit of the rules.