Finance bill 2021 transfer pricing

Perspectives

Transfer pricing 

Finance Bill 2021

Key amendments

Finance Bill 2021 includes two key amendments to Ireland’s transfer pricing regime.

The first amendment is contained in Section 27 of the Bill which amends Section 835E TCA 1997 which deals with the exemption of certain domestic related party transactions from transfer pricing provisions. 

The original legislation was introduced in Finance Act 2019 and subsequently amended in Finance Act 2020. The 2020 changes were subject to Ministerial Order and did not become operational and are now repealed.

The changes in Finance Bill 2021 expand on the original 2019 legislation
and provide more clarity in relation to the operation of the exemption in practice.  In particular, the new provisions make it clear that there does not need to be a consideration in order for the exemption to apply.  The legislation stipulates that the supplier (or lender) can avail of the exemption if any consideration, if receivable, would be chargeable to tax under Schedule D Case III to V.  From the perspective of the acquirer (or borrower), they can also avail of the exemption if any consideration, if payable, would be chargeable to tax under Schedule D Case I to V.

The new provisions are effective for chargeable periods beginning on or
after 1 January 2022.

The second amendment is contained in Section 28 and inserts new provisions to require the application of the Authorised OECD approach (AOA) in Irish domestic law. The AOA seeks to attribute profits to a branch or permanent
establishment that would have been earned at arm’s length as if it were a
separate and independent legal enterprise performing the same or similar
functions under the same or similar conditions. The new legislation introduces
some specific aspects, such as additional documentation requirements for
administration purposes, penalties for taxpayers who fail to comply with
requests from Irish Revenue and protection from tax-geared penalties where a
taxpayer prepares appropriate documentation and provides it to Irish Revenue on a timely basis. There are however, relieving provisions for companies that are
small or medium enterprises where the income attributable to their Irish branch
is less than €250,000.  No documentation requirements are required in such cases. 

The new legislation will apply to accounting periods commencing on or
after 1 January 2022. 

Our view

The amended legislation in relation to  Irish to Irish arrangements will be welcomed by Irish taxpayers as the existing law and guidance had caused considerable confusion.

The introduction of the AOA into domestic law aligns Ireland with international practice and was expected after a consultation earlier in 2021 (which itself had been well signalled).

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