Irish transfer pricing compliance measures
Transfer pricing compliance reviews (“TPCRs”) will form the cornerstone of the Irish Revenue Commissioners (“Irish Revenue”) approach to monitoring compliance with the Irish transfer pricing rules. Our transfer pricing team met with Irish Revenue in advance of the publication of the formal guidance by Irish Revenue on these new measures where it was confirmed that notifications under the TPCR system are set to issue to Irish taxpayers over the next couple of weeks. The initial focus of Irish Revenue will be on those taxpayers who are within the Large Cases Division.
Main features of TPCRs
The main features of the TPCR are as follows:
- Taxpayers will be selected on a risk assessment basis to conduct a self-review on their transfer pricing for a specified period. A formal written notification is likely to be preceded by an informal call by the taxpayer’s Large Cases Division contact.
- The first periods to be examined under the TPCR are accounting periods beginning on or after 1 January 2011 and it is likely that initial TPCR requests will issue in the coming weeks.
- Companies will have three months to conduct the self-review and to provide a report to Irish Revenue (see further below).
- TPCRs are not formal audits and adjustments may be agreed under the TPCR without the imposition of any penalties.
- If Irish Revenue are satisfied with the results of the TPCR a letter will issue confirming that they have no further enquiries, giving taxpayers comfort that their transfer pricing policy for that period has been accepted by Irish Revenue.
- Where Irish Revenue are not satisfied with the level of information received, or with the transfer pricing, TPCRs may be escalated to more formal audit procedures (with the related risk of penalties). However, Irish Revenue considers the TPCR to be a substantial compliance check in its own right and not normally a precursor to a transfer pricing audit.
- The grandfathered status of arrangements will be respected but it remains to be seen what level of information Irish Revenue will require in the TPCR report in order to satisfy themselves that arrangements are grandfathered.
The TPCR Report
The report to Irish Revenue under the TPCR should provide the following information:
- the group structure;
- details of transactions by type and associated companies involved;
- pricing and transfer pricing methodology for each type of transaction;
- the functions, assets and risks of parties;
- a list of documentation available / reviewed; and
- the basis for establishing how the arm’s length standard is satisfied.
The information does not have to be provided in a particular format and Revenue have confirmed that where a transfer pricing study or report already exists, that study will suffice provided it contains the information listed above.
Just more compliance or an opportunity?
Monitoring of compliance with the Irish transfer pricing rules is not unexpected, and clearly indicates Irish Revenue’s intention to ensure full compliance with the Irish transfer pricing rules. However, in our discussions with Irish Revenue, they have re-emphasised their desire to not create additional compliance burdens as a result of the Irish transfer pricing rules and the TPCR process. Irish Revenue’s hope is that the TPCRs will be the foundation for a co-operative transfer pricing compliance framework leading to enhanced relationships with taxpayer companies.
From a taxpayer perspective, Irish Revenue’s willingness to not provide for a specific format of report is to be welcomed and should lessen the compliance burden. More importantly, the TPCR creates an opportunity for those selected taxpayers to have their existing transfer pricing policies and documents reviewed and accepted by Irish Revenue in a non-audit and co-operative environment.