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Transfer Pricing Introduced into Ireland
Prior to the publication of Finance Act 2010, Ireland did not have dedicated transfer pricing legislation. With its introduction, Ireland is now making a concerted effort to embrace the transfer pricing principles established by the OECD. The aim of the legislation is to codify working practice arrangements with many of Ireland's trading partners, who have already adopted the OECD principles. Companies trading or intending to trade in Ireland need to consider the effect of the regime on their organisation and business practices. Taxand Ireland identifies the key features of the new transfer pricing regime and the type of transaction it will apply to.
The key features of the new regime are:
- The regulations are effective for accounting periods beginning on or after 1 January 2011.
- Where related parties entered into arrangements prior to 1 July 2010, such arrangements will not come under the scope of the new regime (the "Grandfather" clause).
- The regime does not apply to small and medium sised enterprises ("SME"). The numerical test to meet the requirement of an SME is that the overall enterprise (i.e. group at a global level) must have:
- fewer than 250 employees and
- either a turnover of less than EUR50m
- or gross assets of less than EUR43m.
- The regulations apply to "arrangements" between associated companies that involve goods, services, money or intangible assets.
- Only arrangements involving a company (or companies) carrying on an Irish trade are affected. Typical examples of situations falling outside the scope of the regime are securitisation companies or mutual funds, as they are not considered to be carrying on a trade.
- Consistent with the "OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations", the regulations adopt the "arm's length" principle.
- The regime provides for a "one way" adjustment, as only understated profits will come under the scope of the regulations.
- Supporting documentation should be made available and should be prepared on a timely basis. The documentation may be maintained by the counterparty to a transaction, who may be outside of Ireland.
The new Transfer Pricing regime will only apply to trading transactions and will only be applicable to overstated expenses or understated receipts. As Ireland has a low corporate tax rate, multinational companies trading in Ireland generally try to realise as much profit in Ireland as possible and therefore the new rules should not be detrimental to those multinationals except for the administration cost of documentation procedures. The new rules should however provide the Irish Revenue with a stronger position when engaging in bilateral negotiations such as Advance Pricing Agreements and Mutual Agreement Procedures under the provisions of Ireland's double tax treaties.
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