As expected, Budget 2019 did not contain any specific transfer pricing related measures. The Minister in his Budget speech further reinforced the significance of Ireland’s Corporation Tax Roadmap that was published on 5 September. The roadmap discusses the timings and procedures of Ireland’s commitments made through EU directives, the OECD base erosion and profit shifting (BEPS) final reports, and the recommendations set out in the 2017 Coffey Review, which includes transfer pricing.
Although the roadmap does not commit to any definite transfer pricing changes in Ireland, the Minister clarified in his speech that through the roadmap he is committed to a review and update of Ireland’s transfer pricing rules in 2019 to ensure it is in line with new international best practice.
The roadmap is a useful tool for companies with cross-border operations and within the scope of Irish transfer pricing law to prepare accurately the resources needed and to plan ahead to ensure compliance with the proposed new standards. The enactment of some of the recommendations into Irish transfer pricing law is likely to increase the compliance burden and costs for companies and these would need to be assessed carefully.
The roadmap confirms that Ireland will update domestic transfer pricing rules in Finance Bill 2019 with effect from 1 January 2020. The updated transfer pricing rules are likely to be incorporated into Irish law in the Finance Act 2019.
A public consultation in early 2019 will be launched to allow stakeholders’ input on some of the complex transfer pricing issues recommended in the Coffey Review, ahead of the implementation of the new rules. The updated Irish transfer pricing rules will look to validate Ireland’s commitment to seek greater alignment of taxable profits with the location of economic substance and value creation.
While certain aspects of BEPS Action 13 were enacted in 2015 (Country by Country reporting), the remaining transfer pricing recommendations were not formally legislated for in Ireland. The roadmap concludes that it is important for changes to the Irish rules to be made in a careful and considered manner as one coherent package, rather than in a piecemeal approach over a number of years.
The transfer pricing changes as discussed in the roadmap and contained in the Coffey Review include:
I. With reference to adoption of the OECD’s 2017 Transfer Pricing Guidelines, Ireland is looking to introduce legislation in Finance Act 2019 to update Ireland’s transfer pricing rules with effect from 1 January 2020.
II. The changes that are intended to be launched to a public consultation in early 2019 include:
- extending Ireland’s transfer pricing regime to non-trading and capital transactions;
- application of transfer pricing rules to small and medium enterprises (removal of current SME exemption); and
- application of transfer pricing legislation to pre 1 July 2010 grandfathered arrangements and bringing them within the scope of transfer pricing law.
In our view, it is likely that most, if not all, of the above proposed changes will be implemented into domestic law. The next few years are likely to see fundamental changes to Irish transfer pricing and companies should review their current transfer pricing arrangements, both financial and non-financial transactions, and business models, to assess their readiness to deal with the changes in a timely manner. With more aggressive positions taken recently by tax authorities on transfer pricing audits, companies need to be well informed of the various tax reforms and be aligned with globally agreed transfer pricing standards.