Dáil Éireann Debate, Tuesday - 22 May 2018
162. Deputy Michael McGrath asked the Minister for Finance the legal and regulatory basis of the transfer pricing regime used by multinationals here; his plans for changes in this area; and if he will make a statement on the matter. [22559/18]
Amharc ar fhreagraIreland’s transfer pricing rules are set out in Part 35A of the Taxes Consolidation Act 1997. The rules apply the arm’s length principle to trading transactions between companies within a multinational group. The arm’s length principle is the international transfer pricing standard that OECD member countries have agreed should be used for tax purposes by multinational groups and tax administrations. For Irish tax purposes, ‘arm’s length’ is to be construed as far as practicable in accordance with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2010).
Under the arm’s length principle, the amount charged by one related party to another for a product or service must be the same as would be charged between unrelated parties. If, for example, an expense incurred by an Irish subsidiary company of a multinational group in dealings with a foreign member of that group is greater than the arm’s length price, or receipts are less than the arm’s length amount, the company’s profits will be understated for Irish tax purposes. The transfer pricing rules require this understatement of profits to be reversed so that the full arm’s length profits will be taxed.
The transfer pricing rules apply to accounting periods beginning on or after 1 January 2011 in relation to arrangements the terms of which were agreed on or after 1 July 2010. The rules do not apply to Small or Medium Enterprises (“SMEs”), being enterprises that, on a group basis, have less than 250 employees and either a turnover of less than €50m or assets of less than €43m. SMEs are however subject to general tax principles which can also operate to guard against abusive transfer pricing practices.
Companies are required to have documentation available for inspection by Revenue in relation to their transfer pricing policies in order to demonstrate compliance with the legislation. Revenue carries out risk-based transfer pricing compliance interventions.
In his Review of Ireland’s Corporation Tax Code, Mr. Seamus Coffey made a number of recommendations in relation to the Irish tax code, including the following recommendations in relation to transfer pricing:
1. Irish legislation should provide for the application of the 2017 update of the OECD Transfer Pricing Guidelines, incorporating Actions 8, 9 and 10 from the OECD’s Base Erosion and Profit Shifting (“BEPS”) project.
2. Transfer pricing legislation should be applied to arrangements the terms of which were agreed before 1 July 2010.
3. Consideration should be given to extending transfer pricing rules to SMEs and also to non-trading and capital transactions.
4. In order to ensure implementation of BEPS Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting), there should be a specific obligation on Irish taxpayers who are subject to domestic transfer pricing legislation to have available the transfer pricing documentation outlined in the OECD 2017 Transfer Pricing Guidelines.
In his review, Mr. Coffey recommended that if it is decided to implement any or all of these recommendations, this should take place no later than end-2020, being the year to which the OECD and G20 have agreed to extend their cooperation on BEPS.
Mr. Coffey also recommended that, in order to ensure certainty of our regime, there should be detailed consultation with relevant stakeholders in relation to his recommendations. Therefore, in October 2017, I launched a public consultation on the implementation of the Coffey recommendations. The consultation ran up to 30 January 2018 and over 20 submissions were received, many of which were detailed technical submissions. My Department is currently reviewing the responses received and these will inform my decisions on the development of future legislative change in the area of transfer pricing.
