Following on from the Independent Review of the Irish Corporate Tax Code (the “Coffey Report”) published by the Department of Finance last month, The Minister announced in his Budget speech his intention to initiate a public consultation process relating to the measures announced in the Coffey Report, which include a number of key transfer pricing measures. The consultation period will run from 10 October 2017 to 30 January 2018. A separate consultation document was released as part of the Budget papers which includes specific questions pertaining to transfer pricing proposals contained in the Coffey Report.
Whilst Budget 2018 did not contain any specific transfer pricing related measures, the expectation is that a number of the recommendations included in the Coffey Report will be implemented into Irish law by 2020. Companies within the scope of Irish transfer pricing laws and also companies which are currently outside the scope of Irish transfer pricing laws have the opportunity to provide their views on the Coffey Report recommendations by the 30 January 2018 deadline.
The new international standard relating to transfer pricing is the 2017 OECD Transfer Pricing Guideline which was published in July 2017 and represent a significant refinement to existing transfer pricing rules that many jurisdictions base their domestic transfer pricing laws upon. While no changes to Ireland’s transfer pricing laws were announced in the Budget, companies need to be aware that several other jurisdictions now follow the new guidelines. Companies should review their transfer pricing policies and pricing to ensure that they are aligned to the latest guidance in those jurisdictions that now formally follow the new guidelines. We are now seeing more aggressive positions taken by tax authorities upon audit and companies need to be fully aware of how the new guidelines impact their businesses.
The Minister’s announcement of a public consultation period is welcomed. The Coffey Report contained a number of far-reaching measures which have the potential to materially impact Ireland’s transfer pricing landscape including:
- Implementing Action 8 to 10 and the remaining parts of Action 13 of the OECD BEPS reports;
- Extending transfer pricing rules to non-trading and capital transactions;
- Removal of the current exemption (SME exemption) for certain small and medium sized enterprises; and
- Repealing pre 1 July 2010 grandfathered arrangements and bringing them within the scope of transfer pricing law.
A number of measures including removal of the SME exemption and bringing pre 1 July 2010 arrangements within the scope of Ireland’s transfer pricing regime are likely to have a disproportionate impact on smaller corporate groups. In any decision to implement these changes, the impact on smaller taxpayers should be considered in terms of cost and time needed to implement such changes and balance any final decision on potential tax revenues that could be expected to be generated for the Exchequer.
With respect to the expansion of Ireland’s transfer pricing laws to non-trading and capital transactions, it is noteworthy that other parts of Ireland’s tax laws already include measures with comparable concepts to the arm’s length principle which deal with such transactions, in particular capital transactions, and therefore any consideration of whether additional measures are needed should form part of the review process.
In relation to the 2017 OECD Transfer Pricing Guidelines, it is likely that that these updated guidelines will be adopted into Ireland’s domestic transfer pricing laws in full by 2020 at the latest.