Here we explore the factors that shape the current transfer pricing landscape in Ireland.
Financial and non-trading transactions
The transfer pricing rules applicable from period starting on or after 1 January 2020 is extended to non-trading transactions (including Ireland to Ireland transactions, subject to certain exceptions).
The rules are applicable It is now important to review all intercompany non-trading transactions including financial transactions and intercompany balances to make sure they comply with the arm’s length principle.
The extended transfer pricing rules are applicable to historical intercompany debts as well. Therefore, it is now necessary to examine the quantum of debt in addition to other factors including the interest rate and terms and conditions of the debt even if it was borrowed prior to 1 January 2020.
The transfer pricing rules now apply to computation of capital allowances and chargeable gains or losses relating to assets that have a market value of over €25 million or where the capital expenditure incurred on an asset is over €25 million.
The Irish transfer pricing legislation has now adopted the 2017 OECD guidelines thereby moving its focus to substance than form which means the profit will now be allocated to the jurisdiction where value is created.
The transfer pricing legislation also made direct reference to guidance on hard-to-value intangibles and application of profit split method.
The transfer pricing documentation requirements has been enhanced for large tax payers.
- A local file should be prepared where the global turnover exceed €50 million
- A master file and local file should be prepared where the global turnover exceeds €250 million
- A master file, local file and CbCR should be prepared where the global turnover exceeds €750 million
The transfer pricing documentation should be prepared no later than the filing date for the tax return for that period and must be made available within 30 days of a written request from a Revenue officer.
SMEs are currently excluded from the scope of transfer pricing rules. SMEs will come within the scope of transfer pricing rules on the making of a commencement order by the Minister for Finance.
Given Ireland’s competitive corporate tax rate of 12.5% companies may consider and document an appropriate business model which is scalable and sustainable as the business grows.
Penalty for non compliance has now been introduced. It applies if the transfer pricing documentation is not provided within 30 days of a written request from the Revenue.
In case of large taxpayers, the penalty increases from €4,000 to €25,000 plus €100 for each day if failure continues.
How can RSM Ireland help?
We can assist with transfer pricing planning, policy and documentation requirements. To discuss your requirements under Ireland’s transfer pricing legislation and how we can help, please contact Ajay Singh, Transfer Pricing Senior Manager, or alternatively, please contact your usual contact at RSM.