Release of Feedback Statement on Ireland’s Transfer Pricing Rules


Release of Feedback Statement on Ireland’s Transfer Pricing Rules

On 2 September 2019, the Department of Finance issued “Ireland’s Transfer Pricing Rules Feedback Statement” which contains draft legislation to update Ireland’s domestic transfer pricing regime from 1 January 2020.

The document follows on from a period of public consultation launched in February 2019 to collate views regarding updating Ireland’s domestic transfer pricing law to align with the latest 2017 OECD Transfer Pricing Guidelines and other amendments to broaden the scope of transfer pricing law in Ireland.

The draft legislation contained in the feedback statement represents a fundamental rewrite of the existing domestic transfer pricing law and it is expected the contents of the feedback statement will materially be included in the forthcoming Finance Bill in October 2019.  The proposed changes, if implemented as set out in the draft legislation, should be effective from 1 January 2020.

Feedback Statement Details

The twenty-four page feedback statement issued on 2 September 2019 contains draft legislation amending Part 35A of the Taxes Consolidation Act 1997 (“TCA 1997”) which, in the words of the Department of Finance, “could apply for chargeable periods commencing on or after 1 January 2020”.  The relevant draft provisions are discussed in more detail below.

A – Basic Rules on Transfer Pricing

The current legislation as contained in Section 835C TCA 1997 is updated to broaden the applicability of transfer pricing rules to not only trading income and expenses for companies in Ireland but also to non-trading income and expenses taxed at 25%.  Also within scope of the proposed new legislation will be arrangements relating to the acquisition and disposal of chargeable assets (e.g. tangible and intangible assets).

Also included in Section 835C TCA 1997 are new provisions which allow recharacterisation of transactions for transfer pricing purposes.  The current transfer pricing law in Ireland can be interpreted to preclude recharacterisation but the new provisions make it clear that where the form of the financial or commercial arrangement is inconsistent with the substance of the relations between related parties transacting with each other, the arm’s length conditions may be determined by the actual commercial or financial arrangements in place between the parties.  It is interesting that the legislators decided to include specific clauses in this section to deal with recharacterisation bearing in mind the 2017 OECD Transfer Pricing Guidelines already contain updated guidance on this area in Chapter I, D2 – Recognition of the accurately delineated transaction.  Taxpayers will need to consider both the OECD and Irish domestic provisions in this area when determining the characterisation of intercompany transactions for transfer pricing purposes.

B – Incorporation of the 2017 OECD Transfer Pricing Guidelines into Irish Legislation

The current wording included in Section 835D TCA 1997 refers to 2010 version of the OECD Transfer Pricing Guidelines.  The proposed amendments of this section explicitly call out the relevant guidelines published by the OECD which will be applicable from 1 January 2020, including:

  • The 2017 OECD Transfer Pricing Guidelines as issued on 10 July 2017;
  • The Guidance for Tax Administrations on the Application of the Approach to Hard-To-Value-Intangibles as issued on 4 June 2018;
  • The Revised Guidance on the Application of the Transactional Profit Split Method as issued on 4 June 2018; and
  • Any additional guidance which the OECD may publish subsequent to the updating of the current domestic legislation which may be brought forward by Ministerial Order.

C – Removal of Exemption for Arrangements in Place since pre-July 2010 (“grandfathered” arrangements)

The existing domestic Irish transfer pricing rules allow for exemption from transfer pricing law of certain arrangements entered into before 1 July 2010 to the extent the terms and conditions of such arrangements did not subsequently change.  The proposed new legislation will remove this exemption for chargeable periods beginning on or after 1 January 2020.  It should also be noted that Section 835F TCA 1997 which contains documentation provisions, still exempts “grandfathered” transactions from documentation requirements where both parties to the transaction are Irish tax resident companies.  Such transactions between Irish tax resident companies will still need to be priced at arm’s length irrespective of the fact there will be no formal documentation requirements in place.

Where an Irish tax resident company has a “grandfathered” transaction with a foreign related party, no exemption will be available; i.e. transfer pricing documentation requirements will be applicable under Section 835F.

D – Extension of Transfer Pricing Rules to SMEs

Small and medium sized groups (“SMEs”) are currently outside the scope of Irish transfer pricing documentation.  The exemption is based upon EU Recommendation 2003/361/EC, as issued by the European Commission on 6 May 2013.  The proposed amendments contained in the draft legislation in Section 835E TCA 1997 refine the operation of the SME Exemption under Irish law for transfer pricing purposes.

Companies classified as “small enterprises” will continue to fall outside the ambit of Ireland’s domestic transfer pricing documentation provisions from 1 January 2020.  However, companies classified as “medium enterprises” will be subject to domestic transfer pricing documentation provisions from 1 January 2020.  The applicable EU based thresholds are based upon monetary thresholds and staff numbers on a consolidated global group basis as contained in EU Recommendation 2003/361/EU:


Staff headcount


(Annual turnover


Balance sheet total)


< 50

≤ €10 million

≤ €10 million


< 250

≤ €50 million

≤ €43 million

The proposed changes dealing with medium enterprises as contained in the draft Irish legislation also go further in that transfer pricing documentation will only be applicable to certain “relevant arrangements”.  These are

  •  Arrangements that are within the charge to tax under Schedule D for the Irish company as either an expense or income item, the arrangement in place is with a “non qualifying relevant person” (e.g. foreign counterparty) and the aggregate consideration payable or receivable in the accounting period exceeds €1m;
  • Arrangements that involve the supply or acquisition of an asset (tangible and intangible) which constitutes a disposal or acquisition under Ireland’s Capital Gains Tax provisions where the counterparty to the transaction is not tax resident in Ireland and:
  • the asset immediately after it is acquired by the other person is not a chargeable asset (i.e. not within the charge to tax in Ireland) or
  • the asset immediately before it is acquired by the Irish company is not a chargeable asset for the other person (i.e. not within the charge to tax in Ireland) and
  •  the market value of the asset disposed of or acquired exceeds €25m.

The proposed legislative amendments also preclude transfers of assets between Irish tax resident companies from the scope of transfer pricing documentation provisions. Such transfers may also be subject to group relief under the relevant Irish Capital Gains Tax provisions to provide exemption from a tax liability.

Finally, the proposed amendments also outline that medium enterprises will be subject to reduced transfer pricing documentation requirements and will be required to provide the following details to satisfy documentation requirements

  • a description of the business of the medium enterprise including organisational structure, business strategy and key competitors; and
  • in relation to each relevant arrangement:
  •  a copy of all relevant agreements
  • a description of the transfer pricing method used and reasons for selection, together with supporting evidence that the price selected represents the arm’s length price
  • the amount of the consideration payable or receivable
  • a description of the functions performed, risks assumed and assets employed.

E – Enhanced Transfer Pricing Documentation Requirements

Section 835F TCA 1997 will be updated to provide for specific requirements for companies within scope to prepare transfer pricing documentation in accordance with Annex I and II of the 2017 OECD Transfer Pricing Guidelines (i.e. Master File and Local File approach).

The draft legislation provides for revenue based thresholds to apply before it is necessary to prepare the Master File and/or Local File as follows

  • Master File – Revenue Threshold €250m
  • Local File – Revenue Threshold €50m

The due date of completion of relevant documentation is contemporaneous with the filing the annual corporation tax return. The relevant documentation must be made available upon request in writing by Revenue within 30 days.  There is no requirement to file transfer pricing documentation with the corporation tax return.

The section also contains provisions dealing with arrangements that were in place before 1 July 2010 (i.e. grandfathered arrangements).  Section 835F(4) sets out that documentation is not required to be provided to Revenue for such arrangements where both parties to the arrangement are Irish tax resident companies.  However, as discussed in C above, the feedback statement indicates that exemption from transfer pricing for grandfathered arrangements will cease from 1 January 2020.  This means that while there will be no requirement to have transfer pricing documentation for domestic grandfathered arrangements, such arrangements will still need to be priced at arm’s length.

F – Special Transfer Pricing Rules to Non-Trading Income

A new Section 835CA TCA 1997 is inserted into Part 35A which is to be considered in conjunction with Section 835C TCA 1997 (Basic Rules on transfer pricing). Subsection 3 of Section 835CA indicates that transactions between two Irish tax resident companies that are not taxed under Case I or II of Schedule D for either company are exempt from transfer pricing requirements.  This means that two Irish tax resident companies that transact with each other and the underlying arrangement is a non-trading transaction which is taxed under Case III to V rules (e.g. interest income, rental income) for both companies, there will be no requirement to apply transfer pricing principles.   However, if the arrangement involves an Irish tax resident company which is taxed under Case III to V rules and the counterparty entity is a foreign company outside the Irish tax net, this exemption will not apply (i.e. the basic transfer pricing rules as contained in Section 835C TCA 1997 will continue to apply for the Irish company).

In addition, the above principles will not apply (i.e. transfer pricing rules will be applicable) where:

·       One of the Irish tax resident companies is subject to tax under Case I or II of Schedule D; or

·       The arrangement between the two Irish tax resident companies is part of a scheme involving a second arrangement (presumably with a foreign related party) and the main purpose of the first arrangement between the two Irish tax resident companies is to obtain a tax advantage in connection with the second arrangement.

The above complex anti-avoidance provisions contained in the draft legislation appears to be aimed at certain interest-free loan transactions involving Irish tax resident companies with foreign related parties.

G – Extending Transfer Pricing Rules to Capital Transactions

With the proposed extension of transfer pricing rules to capital transactions, certain provisions in the existing transfer pricing law dealing with capital allowances and the interaction with the broader tax acts that deal with chargeable gains on dealings involving capital assets needs to be considered.

Section 835H TCA 1997 deals with the interaction of transfer pricing and capital allowances.  The section is rewritten and confirms that the application of transfer pricing law will not apply in certain circumstances, including

  •   In the determination of capital allowances on capital expenditure where the total expenditure incurred on the asset does not exceed €25m
  •  In the determination of certain balancing charges to be levied under the tax amortisation regime for qualifying intangible assets under Section 291A TCA 1997
  •  In the determination of a balancing allowance or charge where the market value of the asset at the time of the event giving rise to the balancing adjustment, does not exceed €25m;
  •  Other circumstances apply where the acquirer and supplier of the asset make certain joint elections for capital allowances purposes, certain transfers governed by other sections of the Irish tax acts (e.g. company reconstructions and amalgamations, mergers, farm buildings and conversions).

A new Section 835I TCA 1997 is inserted which deals with the applicability of transfer pricing rules in computing arm’s length chargeable gains or allowable losses on the transfer of assets between related parties. The section indicates that transfer pricing rules will not apply in computing the chargeable gain or allowable loss where certain circumstances apply, including

  • Where the market value of the asset does not exceed €25m upon disposal or acquisition
  • Where disposal or acquisition occurs where certain other sections of the tax acts apply (e.g. company reconstructions and amalgamations, certain intragroup transfers, etc.).

The €25m amount referred to in the section is to include the value of any other asset which had at any time formed part of the asset being disposed/acquired and the value of any asset subject to any scheme in place to avoid reaching the €25m threshold in order to disapply transfer pricing rules.

Deloitte Comments

The draft transfer pricing legislation as contained in the feedback statement is likely form part of the finalised legislation which will be introduced as part of Finance Act 2019.  The issues addressed in the document are open for further consideration and feedback by interested stakeholders until 13 September 2019.

The rewrite of Ireland’s transfer pricing law represents a substantial change to existing laws not only in terms of aligning Ireland’s law with the latest OECD principles but also broadening of the regime to non-trading and capital transactions with associated implications with regard to related parts of Ireland’s tax law which need to be considered.  Certain changes including enhanced language dealing with recharacterisation and anti-avoidance clauses aimed at certain perceived tax planning structures provides Revenue with increased tools to apply transfer pricing principles to certain transactions.

A noteworthy item which has been deferred relates to extending transfer pricing rules to branch profit allocations.  The public consultation had sought stakeholder feedback on the introduction of the OECD Authorised Approach into domestic law but it has been decided to defer any changes until further consultation takes place.

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