Important update – significant changes to Irish transfer pricing regime, including from 1 January 2020, alignment of Irish transfer pricing legislation with OECD 2017 Transfer Pricing Guidelines.
We have summarised below the key changes and businesses need to do to remain compliant within the new legislative framework.
Who does transfer pricing apply to?
Very broadly, the Irish transfer pricing rules apply to arrangements entered into between associated persons (companies) on or after 1 July 2010, involving the supply or acquisition of goods, services, money or intangible assets.
While SMEs are currently outside the scope of Irish transfer pricing, Finance Act 2019 provides for the extension of transfer pricing to SMEs, but subject to a Ministerial Order (not yet in place).
Key changes in Finance Act 2019
Irish transfer pricing regime is being brought in line with 2017 OECD Guidelines. Broadly, this means that OECD concepts such as DEMPE (Development, Enhancement, Maintenance, Protection and Exploitation of intangibles) are now on a legislative footing in Ireland, with a focus on value creation as a driver of profit allocation, not simply contractual entitlements. This focus on substance will require a review of existing arrangements.
Activities that are deemed to be non-trading or ‘passive’ in nature and which are taxable at the higher rate of 25% are now within the scope of the transfer pricing regime. This means that intra group financing arrangements that were previously outside the scope of Irish transfer pricing will now need to be reviewed. Non trading transactions between Irish companies will generally be outside the scope of Irish transfer pricing, but the position needs to be reviewed on a case by case basis.
Other changes include:
- the extension of transfer pricing to capital transactions with a market value of over €25 million (although market value will often regardless apply under existing CGT rules);
- the removal of grandfathering exemption for arrangements in place at 1 July 2010 (not expected to have adverse implications for the vast majority of companies);
- future extension of transfer pricing to SMEs, subject to Ministerial Order; and
- more onerous documentation requirements.