Ireland Proposes Transfer Pricing
The Irish Finance Bill for 2010 has introduced transfer pricing rules based on OECD Transfer Pricing Guidelines.
The legislation will apply in 2011 to any intercompany trading transactions entered into on or after 1 July 2010. All transactions entered into before 1 July 2010 will be wholly exempt. This grandfather clause provides a one off planning opportunity for multinationals to ensure that their arrangements fall outside the scope of the new rules.
Key features
• Applies only to transactions by a taxpayer engaged in a trade or business attracting the 12.5% tax rate.
• Passive income that is subject to tax at 25% will fall outside the scope.
• The effective date is accounting periods commencing on or after 1 January 2011 in relation to any arrangement entered into on or after 1 July 2010.
• Purely domestic arrangements will also be caught.
• Adjustments will apply only where profits of an Irish taxpayer are understated as a result of non arm’s length transfer pricing practices. Where the transaction is between domestic companies, a corresponding adjustment can be claimed by the counter party.
• Documentation is required although the exact nature and timing is to be classified further.
• Small and medium sized enterprises (“SME”) will be exempt. A group will be considered a SME if it has:
- less than 250 employees, AND
- either turnover of less than Euros 50m or assets of less than Euros 43m.
• There are no specific transfer pricing penalty provisions but it is likely that the general corporation tax penalties will apply.
Planning
Due to the grandfathering provisions, multinationals should review their Irish transactions and ensure they are adequately documented before 1 July 2010.