Irish Revenue published a new tax and duty manual Part 35a-01-05 – Requests for TP Documentation (‘TDM’) in December 2023. The TDM serves as a policy document to ensure that the Transfer Pricing Audit Branches (‘TP Audit Branches’) take a consistent approach when requesting TP documentation from taxpayers for risk assessment.
To provide a bit of background - since the overhaul of the Irish TP regime by the Finance Act 2019, Irish taxpayers have been required to maintain adequate TP documentation, by the corporate tax (‘CT’) return filing deadline. Failure to do so will result in the penalties set out in the table below.
|Group global turnover
If a TP adjustment results in additional tax obligation, the taxpayer may face penalties (up to 100% of additional tax liability) on failure to file a return, providing an erroneous return, or making an improper claim.
Where such a tax breach is the result of careless (rather than deliberate) behaviour, the taxpayer can be shielded from such tax-geared penalty, provided the taxpayer has (a) prepared and submitted complete and accurate documentation on timely basis; and (b) made reasonable efforts to determine appropriate transfer pricing.
However, such protection is not available if the tax breach is due to taxpayer’s deliberate behaviour.
|€50m - €250m
|€25,000 plus €100 for each day of failure
|Local file and master file
The TDM clarifies that TP Audit Branches generally review numerous sources of information for TP risk assessments, including:
- Data filed with Revenue [financial statements of taxpayer including consolidated financials of the Group, tax returns and calculations, payroll data, Country-by-Country Reports (‘CbCR’), past revenue interventions, etc.]
- Data available in the public domain [websites, director information, Companies Registration Office (CRO) and subscription databases, etc.]
- Information exchanged via the Directives on Administrative Cooperation (DAC), Intellectual Property Registries, CbCR, etc.
However, these sources of information may not provide adequate detail on several critical aspects of inter-company transactions, such as their nature and context, details of related parties, quantum, functional analysis and entity characterisation, pricing policy, etc. As a result, the TP Audit Branches may seek TP documentation, which would provide the information that enables them to identify TP risks appropriately, to make informed decisions, and facilitate targeted risk-based TP interventions.
The TDM states that such requests for TP documentation will be treated as “Level 1 compliance intervention, whether or not they are part of a TP Compliance Review (‘TPCR’)”. A TPCR normally requires the taxpayer to produce a list of information (including TP documentation) within three months of the date of request. The TDM has emphasised that the required TP documentation must still be filed within 30 days of request, and the three-months term applies exclusively to the remaining information.
The TDM sets out the basis for TP Audit Branches to request TP documentation from taxpayers for risk assessment purposes. It does not expand the list of TP documents that taxpayers must compile or retain.
However, it emphasises the importance of the following, which will mitigate the risk of penalties and help avoid TP risk reviews or audits:
- Establishing appropriate TP policies ahead of entering into intra-group transactions;
- Preparing robust TP documentation by the CT return filing deadline; and
- Maintaining adequate and reasonable records, even when a Master file or Local file is not applicable.
It also makes clear that taxpayers are unlikely to be able to obtain any extension beyond 30 days of request for submitting the TP documentation, which should be prepared by the CT return filing deadline.
As noted above, the TDM specifically indicates the extensive array of information sources that the TP Audit Branches routinely uses to obtain insights into a taxpayer’s business. As a result, it is essential for taxpayers to ensure that their TP practices and policies are presented “accurately” and “consistently” across all information sources (including TP documentation).
Furthermore, in recent years, there has been an upsurge in TP issues both in Ireland and across the globe. In order to address the challenges in the international tax environment, Irish Revenue have been proactively carrying out risk driven TP audits and TPCRs. Revenue have progressively increased their TP compliance capability and activities, and yield from these cases has made a meaningful contribution to Ireland’s overall tax receipts.
According to the Annual Report of the Revenue Commissioners for the year ended 31 December 2022 , from 2015 to 2022:
- 51 TP compliance interventions were initiated;
- 25 were finalised resulting in yield of €676m and a restriction in trading losses of €949m (tax effect €119m); and
- Following TP compliance interventions, amended CT assessments have been made, bringing in an additional €82m Tax.
Based on this level of success, Revenue have recruited a number of additional TP specialists.
In summary, even though the TDM’s primary aim is to provide an administrative structure for requesting TP documentation, it acts as a very clear reminder to taxpayers of the significance of having appropriate TP policies as well as up-to-date TP documentation in place.
In the current Irish TP landscape, by adhering to the TP guidelines, taxpayers may not only avoid penalties but also demonstrate a commitment to responsible and transparent TP practices, as part of a more compliant business environment.
How Grant Thornton can help
We have a dedicated team of transfer pricing specialists who can help you prepare or review your TP documentation to ensure compliance with Irish TP requirements, as well as respond to correspondence from TP Audit Branches and represent you in any discussions with them.
If you have any queries about the contents of this article, or would like to discuss any related matter, please do not hesitate to contact us.
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