Ireland Considers Transfer Pricing Changes | KPMG | CA

Ireland Considers Transfer Pricing Changes in 2018 Budget

Ireland Considers Transfer Pricing Changes

Ireland released its 2018 budget on October 10, 2017.

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Ireland released its 2018 budget on October 10, 2017. At the same time, the country also issued an update on its international tax strategy. In the budget, Ireland announced it will maintain its 12.5% corporate tax rate and re-introduce an 80% cap on the amount of annual capital allowances and related interest that may be deducted against related income for intangible assets. In addition, Ireland launched a public consultation on proposed tax changes to, among other things, extend Ireland's transfer pricing rules to domestic and cross border non-trading transactions.

Extending the transfer pricing regime to non-trading transactions, such as intra-group financing, could have significant consequences for Canadian multinationals with Irish financing structures. For example, if Ireland does implement these changes, additional transfer pricing policies, procedures and documentation may be required, as well as a requirement for arm's-length interest.

Corporate tax highlights
Among other changes, Ireland's 2018 budget announced tax measures to:

  • Re-introduce an 80% cap on the amount of annual capital allowances and related interest that may be claimed against related income for intangible assets acquired after October 10, 2017
  • Maintain the 12.5% corporate tax rate
  • Introduce a new share-based remuneration incentive for privately held small or medium-sized enterprises that is available to qualifying share options granted after January 1, 2018
  • Increase funding to help tackle complex tax avoidance and transfer pricing cases.

International tax strategy - Ireland seeking input on transfer pricing changes
As part of its updated international tax strategy, Ireland announced it is launching a public consultation to collect feedback on implementing recommendations from a recent report on the country's tax system. This report, which was issued in September 2017, recommends Ireland expand its transfer pricing regime and introduce measures to address hybrid mismatches and other foreign tax issues, among other things. Specifically, the report suggests extending Ireland's transfer pricing regime so that it would apply to:

  • Domestic and cross-border non-trading transactions
  • Capital transactions
  • Some or all small and medium sized enterprises (which are currently not subject to transfer pricing)
  • Transfer pricing arrangements in place before July 1, 2010 that are subject to existing grandfathering provisions.

The report also recommends that Ireland adopt the current OECD transfer pricing guidelines. As well, the report says that introducing a foreign branch exemption and foreign dividend exemption regime (in relation to connected company dividends) together with a Controlled Foreign Company (CFC) regime, to comply with the EU Anti-Tax Avoidance Directive. Alternatively, the report suggests that Ireland simplify its current approach to affording double tax credit relief for foreign taxes borne on foreign income and branch profits.

Consultation questions
Ireland's international tax consultation will run until January 30, 2018 and asks for input on:

  • Implementing the EU's Anti-Tax Avoidance Directive 
  • Implementing Actions 8-10 of the BEPS project to align transfer pricing outcomes with value creation
  • Changes to Ireland's domestic transfer pricing rules
  • The effects of moving to a territorial corporation tax base and the simplification of Ireland's foreign tax credit regime.

International tax update - Ireland commits to BEPS actions
Ireland's update on its international tax strategy discusses its progress on certain international tax compliance areas since 2016, including its progress on implementing measures based on the OECD's BEPS recommendations. Specifically, the update describes Ireland's progress in its commitments to:

  • A full exchange of tax information with tax treaty partners, including signing of the OECD BEPS multilateral instrument (MLI) in June 2017
  • Global automatic exchange of tax information, in line with existing and emerging EU and OECD rules
  • Actively contribute to OECD and EU efforts to tackle harmful tax competition
  • Constructively and respectfully engage with developing countries related to tax matters.

For more information, contact your KPMG adviser.

Information is current to October 17, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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