Continued growth in international TP disputes involving Ireland

Irish Revenue and the OECD released publications in April 2021 which provide insights in relation to dispute resolution activities – namely statistics in relation to transfer pricing audits, Mutual Agreement Proceedings (MAP), Advance Pricing Agreements (APA) and a review of how Ireland’s MAP regime operates.

Irish Revenue Annual Report

In late April 2021, Irish Revenue published their annual report for the year ended 31 December 2020 which provides details in relation to tax receipts in the period, their strategy in relation to compliance and non-compliance as well as details in relation to its organisational structure.

Transfer pricing has become an area of increased focus for Irish Revenue – both formal transfer pricing audits as well as other interventions (e.g. transfer pricing compliance reviews and aspect queries). At the end of the period, 31 transfer pricing audits had been initiated, 13 of which were finalised resulting in a yield of €82m and a restriction in trading losses of €32m (tax effect of approximately €4m). Amended corporation tax assessments were raised with total underpaid corporation tax identified of approximately €482m. Most of these amended tax assessments are currently under appeal. It is expected that the first transfer pricing appeals will be heard by the Tax Appeals Commissioner in early 2022.

In relation to Country-by-Country Reporting (CbC), the first exchanges of CbC information between tax administrations took place in June 2018. In 2020, Ireland exchanged CbC data with 64 jurisdictions.

Usefully, the annual report contains the 2020 statistics on APAs and MAPs and shows a big pick up in both processes. This indicates that taxpayers are increasingly engaging with Irish Revenue’s Competent Authority team to avoid double taxation.

In 2020, 38 MAPs were completed and agreed with Competent Authorities of other tax jurisdictions, of which 11 related to transfer pricing matters. However significant new MAP cases were initiated in 2020 meaning the closing inventory has almost doubled for both transfer pricing and non-TP cases. This will put (further) pressure on the Competent Authority team to meet OECD best practice for the resolution of MAP cases within two years.

Table: Mutual Agreement Procedures

  Opening Inventory 1 Jan 2020  Initiated Completed Ending Inventory 31 Dec 2020
Transfer pricing cases  43 48 11 80
Other non-transfer pricing cases 43 64 27 80
Total 86 112 38 160

Another notable feature of the 2020 statistics is the sizable increase in APA applications. In the period, 22 APA requests were made to the Irish Competent Authority and 5 APAs were concluded to prevent transfer pricing disputes.

Table: Advance Pricing Agreements

Opening Inventory 1 Jan. 2020 Requests Recieved in 2020 Granted in 2020 Withdrawn by Taxpayer in 2020 Ending Inventory 31 Dec. 2020 APAs in force as of Jan. 2020 APAs in force as of 31 Dec 2020
29 22 5 1 45 3 6

OECD MAP Peer Review (Stage 2) - Ireland

Earlier in April, the OECD announced the release of the third batch of Stage 2 peer review monitoring reports on the implementation of the base erosion and profit shifting project (BEPS) minimum standard on improving tax dispute resolution which focus on jurisdictions’ mutual agreement procedures. This batch included a review of the Irish regime.

The report indicates that Ireland has resolved almost all deficiencies identified in the Stage 1 peer review with identified highlights including:

  • The Multilateral Instrument (MLI) was signed by Ireland;
  • Ireland now has a documented bilateral notification/consultation process that they apply in cases where an objection is considered as being not justified by their competent authority;
  • Ireland has added more personnel to the competent authority function and made organisational improvements with a view to handle MAP cases in a more timely, effective and efficient manner;
  • Ireland has introduced domestic law changes in Finance Act 2018 to ensure that MAP agreements can always be implemented notwithstanding domestic time limits. MAP agreements reached from 19 December 2018 onwards will therefore not be obstructed by domestic time limits;
  • Ireland has issued guidance on the tax appeals process in Ireland and includes information on the relationship between proceedings under the tax appeals process and the availability of MAP where cases have been settled through that appeals process; and
  • Irish Revenue have updated MAP guidance (latest version issued by Irish Revenue contained in Tax and Duty Manual 35-02-08, updated December 2019).

In relation to the average timeframe required to resolve MAP disputes, the Stage 2 report outlines that the average time for Ireland has increased in comparison to the average time in the Stage 1 peer review. The report indicates that the average time was 32.86 months which exceeds the average 24-month timeframe sought by the OECD BEPS Action 14 minimum standard on dispute resolution. This will be concerning to taxpayers in light of the further increase in 2020 of the MAP inventory.

The peer review also outlines that Ireland has taken steps to resolving MAP cases in a timely manner including:

  • The appointment of an additional director role within the Competent Authority;
  • Additional resources added to the transfer pricing branch of the Competent Authority function with the increase in staff levels from 10 to 15 and for the entire Competent Authority function from 14 to 19;
  • Ongoing training and knowledge sharing within the Competent Authority function, both internally and externally;
  • Building and maintaining strong working relationships with other Competent Authorities.
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