On 24 February 2021, the Irish Revenue issued eBrief No. 37/21 regarding updated guidance on transfer pricing. On the similar day, the Revenue also published a Tax and Duty Manual-Part 35A-01-01, providing updated guidance on the operation of the transfer pricing rules in Part 35A Taxes Consolidation Act 1997 as updated by Finance Act 2019. Part 35A of the Taxes Consolidation Act 1997, as substituted by Finance Act 2019, applies for chargeable periods commencing on or after 1 January 2020 and, in relation to the computation of certain capital allowances where the related capital expenditure is incurred on or after 1 January 2020. The Part 35A-01-01 includes the following amendments:
(a) Part 35A is to be construed, as far as practicable, in accordance with the 2017 OECD Transfer Pricing Guidelines (“2017 OECD Guidelines”) and certain other supplementary OECD guidance. The 2017 OECD Guidelines reflect the outcome of OECD work on transfer pricing as part of the Base Erosion and Profit Shifting (“BEPS”) project;
(b) The arm’s length principle applies, subject to certain exceptions, to the computation of trading income, non-trading income, capital allowances and chargeable gains relating to transactions between associated persons. There is an exclusion from the application of transfer pricing rules to the computation of non-trading income in certain circumstances. In relation to the computation of capital allowances and chargeable gains or losses, the transfer pricing rules apply in respect of transactions relating to assets that have a market value in excess of €25 million or where the capital expenditure incurred on an asset is more than €25 million;
(c) Transfer pricing documentation requirements are enhanced. Larger companies are obliged to prepare, and have available upon written request by a Revenue officer, a master file and local file in line with Annex I and II of Chapter V of the 2017 OECD Guidelines;
(d) A higher rate of penalty applies for larger taxpayers who fail to comply with a request to provide transfer pricing documentation to Revenue;
(e) Protection from tax-geared penalties, in the careless behaviour category, applies where a taxpayer prepares transfer pricing documentation on time and provides it on a timely basis to Revenue when requested by a Revenue officer and the documentation demonstrates reasonable efforts to comply with Part 35A;
(f) The rules apply to previously grandfathered arrangements in respect of chargeable periods commencing on or after 1 January 2020.
Also, it is notified though this Manual that SMEs are currently excluded from the scope of transfer pricing rules. Provision was made in Finance Act 2019 to bring SMEs within the scope of transfer pricing rules. Depending on their size SMEs will either be fully exempt from or have significantly reduced transfer pricing documentation requirements. SMEs will come within the scope of transfer pricing rules in the future on the making of a commencement order by the Finance Minister.
Again, Tax and Duty Manual Part 35A-01-02 regarding transfer pricing documentation obligations has also been updated to reflect that it does not apply for chargeable periods commencing on or after 1 January 2020. For chargeable periods commencing on or after 1 January 2020, the documentation requirements are outlined in Tax and Duty Manual Part 35A-01-01.