Ireland: Transfer pricing included in recommendations for corporation tax
Ireland: Transfer pricing included in recommendations
Ireland’s government today released a report providing recommendations concerning Ireland’s corporation tax regime. The report does not recommend a change to Ireland’s 12.5% rate of corporation tax. However, there are recommendations for changes that would include broadening the scope of Ireland’s transfer pricing regime as well as changes to the tax regime for intangible assets.
The government announced that implementation of the report’s recommendations will be subject to a public consultation to be launched on Budget Day, 10 October 2017.
The report’s recommendations about transfer pricing include consideration of:
- Timing of adoption of changes to the transfer pricing regime. This is to be included in the public consultation with agreed changes recommended to be implemented no later than the end of 2020.
- Extending the scope of Ireland’s transfer pricing regime to non-trading transactions—domestic and cross border. There is a strong rationale if it reduces risk of aggressive tax planning and, in the case of capital transactions, improves existing provisions. Market value is imposed for tax purposes in a number of non-trading scenario, but arm’s length pricing requirements do not apply to impute arm’s length income to transactions conducted outside the course of a trade. This can lead to benefits arising from cross-border mismatches when the counterparty jurisdiction applies a one-sided transfer pricing adjustment for an expense currently not taxed in Ireland. For domestic intra-group transactions, applying an arm’s length price to non-trading transactions could result in a domestic tax rate mismatch between non-trading income currently taxed at 25% and trading expense deductible at 12.5%.
- Applying transfer pricing provisions to all corporate taxpayers, irrespective of size. Options presented for review consider whether the compliance burden for small and medium size entities (SMEs), currently excluded, is proportionate to the mispricing risk.
- Specific obligation for taxpayers in scope of transfer pricing rules to adopt OECD compliant standards for transfer pricing documentation.
- Ending the exclusion from transfer pricing of arrangements in place prior to 1 July 2010 under existing grandfathering provisions—having consideration to the commencement date.
- Formal adoption of 2017 OECD transfer pricing guidelines—timing of adoption uncertain.
- Preserve Ireland’s existing one-way transfer pricing adjustment approach.
Read a September 2017 report prepared by the KPMG member firm in Ireland
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