The Irish tax authorities, on March 15, provided new guidance (Tax and Duty Manual Part 35A-01-03) to taxpayers on Ireland’s simplified transfer pricing approach to low-value intra-group services (“LVIGS”). LVIGS are services, performed by one or more entities within an MNE group for one or more recipient entities within the same MNE group, which typically exhibit the following features:
- LVIGS are of an administrative or routine nature, often consisting of “backoffice” support-type services.
- LVIGS are supportive in nature and not part of the core business of the MNE group, i.e. the services are ancillary to the business of the MNE. The services provided may, however, be the principal activity of the entity providing the services, for example where the entity is a shared-services centre for the group.
- LVIGS do not use or create unique and valuable intangible assets. Where intra-group services use or generate such intangible assets, those services will not constitute LVIGS.
- LVIGS do not involve significant risk for the service provider.
There is no definitive list of services which are LVIGS. The facts and circumstances in each case must be considered in determining whether the services are LVIGS. However, by way of example, services which are generally likely to constitute LVIGS include human resource, accounting, auditing, information technology support and legal services. The guidance applies equally to taxpayers who receive LVIGS from other group members of the same multinational enterprise and to taxpayers who are performing LVIGS for other group members of the same MNE.
The guidance, is applicable to situations where a cost-based method is the most appropriate transfer pricing method for determining an arm’s length price among related parties for LVIGS, with the Irish tax authorities confirming it is prepared to accept a markup of 5% of the relevant cost base, without the need for a benchmarking study. This practice is in line with previous guidance released by the EU in respect of LVIGS.
The guidance also sets out the documentation requirements taxpayer that avail of this simplified approach for low-value intra-group services.
Should you have any queries in respect of this update, please contact Seán McCarthy ([email protected]), or your usual contact at RSM Ireland.