| Tax Monitor |  |
Transfer pricing is now effectively live |
| Eoghan Quigley |
| Now that the 30 June transfer pricing grandfathering date has passed, Ireland now effectively has a formal transfer pricing regime. While the transfer pricing rules will only apply to accounting periods beginning from January 2011 onwards, the Irish transfer pricing implications now have to be considered in respect of all new commercial arrangements, writes Eoghan Quigley |
| This is a fundamental development in Irish taxation, particularly as the transfer pricing rules will not only apply to cross-border transactions, but they will also have to be considered in respect of domestic trading transactions. The EU anti-discrimination rules have effectively obliged the Irish authorities to impose the rules on trading transactions between related Irish companies. Consequently, while one might expect that the application of the rules in a domestic context might be neutral from an Irish perspective, as there is no offset mechanism within the legislation, where a transfer pricing issue arises between two Irish companies, it will be necessary to apply formal transfer pricing adjustments to both entities and this could have interest, penalty and cashflow implications. Therefore, while multi-nationals might be accustomed to considering transfer pricing issues in respect of their cross-border transactions, they will now have to consider the incremental Irish requirements and will have to consider the application of the new rules to transactions between domestic Irish companies where transfer pricing principles might never have been relevant in the past. The documentation requirements The Irish legislation that was initially published in February 2010 contains very vague provisions on the documentation requirements imposed by the new Irish transfer pricing regime. However the Revenue has supplemented the legislation with some guidelines on the documentation obligations in June 2010. The guidelines helpfully clarify that it is the Revenue’s view that following the EU Transfer Pricing Documentation code of conduct, the OECD Transfer Pricing Guidelines in respect of documentation will be seen as representing good practice. It is also helpful that they have specifically stated that if appropriate documentation has been prepared by an associated company for tax purposes in another jurisdiction, it will be sufficient that that documentation can be made available to the Irish Revenue. The Revenue state that for a company to be in a position to file a correct and complete tax return, they would expect that the documentation should exist by the time the tax return falls to be made. The core purpose of transfer pricing documentation is to demonstrate a company’s compliance with transfer pricing rules. The Revenue acknowledge that the actual documentation required will be dictated by the facts and circumstances of the relevant transactions and therefore that the manner of meeting the requirement for documentation may take account of the cost and administrative burden involved. Sensible approach Preparing transfer pricing documentation can be both a costly and time consuming exercise. By signalling that they accept that the cost should be commensurate with the risk involved, the Irish Revenue are indicating that a sensible approach will be applied to policing the Irish transfer pricing regime. If a transfer pricing adjustment is made during the course of a Revenue audit, the quality of the supporting documentation will be a key factor in determining whether the adjustment should be regarded as correcting an innocent error or as being a technical adjustment. Conclusion The Irish transfer pricing rules are now effectively live and companies operating within the scope of the rules now need to carefully consider their implications. In particular, it is necessary to determine an appropriate documentation strategy. |
Eoghan Quigley is a Tax Partner and Head of Transfer Pricing in KPMG Ireland. |