In this update, we discuss a number of key recent developments relevant to Ireland's transfer pricing regime.
Exemption for domestic transactions
In a welcome move, Finance Act 2021 has reformed the existing exemption from transfer pricing for certain domestic transactions. As discussed in our previous update, the application of this exemption had given rise to interpretive difficulties for practitioners and taxpayers alike, particularly in the context of transactions with nil consideration.
With effect for accounting periods commencing on or after 1 January 2022, the scope and application of the exemption from transfer pricing is now significantly clearer. In order for a transaction to be eligible to benefit from the exemption, the following main conditions must now be satisfied:
(i) each party's Irish tax computation must take account of any consideration payable/receivable;
(ii) where there is no consideration, each party's Irish tax computation would take account of the consideration if any were charged;
(iii) the supplier to the transaction (eg, a lender under a loan agreement) must not have entered into the transaction in the course of a trade; and
(iv) neither party to the transaction can be a 'section 110' company (ie, a securitization company qualifying for treatment under section 110 of Ireland's tax code).
Where an acquirer to a transaction (eg, a borrower under a loan agreement) cannot satisfy the hypothetical test in condition (ii), above, there is an additional carve-out which examines the activities of the acquirer in the course of entering into the transaction. The carve-out looks at whether such activities give rise to, or are capable of giving rise to, taxable profits, gains or losses (including tax-exempt dividends) for the acquirer, directly or indirectly. The precise parameters of this carve-out are slightly ambiguous but it is hoped that updated guidance to be published by the Irish Revenue Commissioners will provide additional clarity here.
Overall, the revised exemption is a welcome improvement on the prior position and should provide greater certainty to taxpayers going forward.
Incorporation of OECD financial transactions guidance
On 8 December 2021, Ireland's Minister for Finance signed a statutory instrument to formally incorporate into Irish law the OECD's 2020 guidance on the transfer pricing of financial transactions. Prior to this, the OECD's guidance had not yet been formally incorporated into the definition of "transfer pricing guidelines" for the purposes of applying Ireland's transfer pricing rules.
Although the signing of the statutory instrument brings certainty to the legal position, as noted in our previous article the Irish Revenue Commissioners had already advised that they would consider it "best practice" for taxpayers and practitioners to have regard to the guidance.
Following the signing of the statutory instrument, Ireland's transfer pricing legislation now requires that the arm's length principle be interpreted (by reference) in accordance with the OECD's 2017 Guidelines for Multinational Enterprises and Tax Administrations, as supplemented by their additional guidance on hard-to-value intangibles (2018), the transactional profit split method (2018) and financial transactions (2020).
New consolidated OECD Transfer Pricing Guidelines
On 20 January 2022, the OECD published a new consolidated version of its main Transfer Pricing Guidelines. This version incorporates all supplemental guidance issued by the OECD subsequent to the 2017 edition of their Guidelines, including the financial transactions guidance referenced above.
The consolidation of all existing OECD commentary in one single publication is a welcome development but it should be noted that no new commentary has been published. Given that all constituent parts of the Guidelines are effectively already incorporated by reference into Irish law, it is unclear whether Ireland's transfer pricing legislation will be further updated to formally refer to the 2022 edition.
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