Global transfer pricing guide

Transfer pricing - Ireland

01 Jan 202511 min read
This publication provides a high-level overview of Ireland's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents

Introduction to transfer pricing in Ireland

  • Ireland’s transfer pricing (“TP”) legislation is contained in the Taxes Consolidation Act 1997 (“TCA 1997”) Part 35A, Section 835. With Section 835C setting out the basic rules of TP regulations in Ireland.

  • The application of these rules applies to both domestic and cross-border transactions. Part 35A expands the scope of TP legislation (which earlier applied only to trading transactions) to non-trading transactions, previously “Grandfathered arrangements” (pre-July 2010), capital allowances and chargeable gains relating to transactions between associated persons, with certain exceptions. In relation to the computation of capital allowances and chargeable gains or losses, the TP rules apply in respect of transactions relating to assets that have a market value of over €25 million or where the capital expenditure incurred on an asset is over €25 million.

  • The current Irish corporation tax return (“CT1”) includes three questions relating to TP documentation.

  • A fund, including an Irish Real Estate Fund (“IREF”) and a Real Estate Investment Trust (“REIT”) are not within the scope of the TP rules.

  • Irish TP rules also apply to Irish branches of overseas companies. From 1 January 2022, section 25A TCA 1997 adopted the OECD’s Authorised OECD Approach (“AOA”) for attributing income to non-resident branches in Ireland. 
  • For accounting periods starting on or after 1 January 2023, Ireland follows the 2022 OECD TP Guidelines for Multinational Enterprises and Tax Administrations (“OECD TP Guidelines”) as the applicable standard for TP rules. These guidelines are integrated into Irish law under Part 35A of the TCA 1997 and establish the framework for applying the arm’s length principle per Article 9 of the OECD Guidelines.

  • Revenue Guidance allows the simplified approach for Low Value Intra-Group Services with OECD Guidelines i.e. applying 5% mark-up of cost-base, without the need for a benchmarking analysis. 
  • The most appropriate pricing method should be selected on a transaction-by-transaction basis, providing the most reliable measure of an arm’s length result in each case.

  • The current OECD methods, namely the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods are all accepted but the method used must be in line with the functional and risk profile of the entity. Other methods can also be used if justifiable and appropriate.

  • There is also no set hierarchy in application of the TP methods, which is consistent with the OECD TP Guidelines. 
  • Under the self-assessment system, the burden of proof in the event of a TP audit by Revenue will fall on the taxpayer.

  • Revenue may request a TP Compliance Review (“TPCR”), which is a self-review carried out by the company / MNE group of its compliance with the legislation and the application of arm’s length principle.  A TPCR is considered a Level 1 Compliance Intervention and therefore does not exclude the taxpayer from making an unprompted qualifying disclosure. Certain information will be requested by Revenue in the TPCR notification letter. Generally, the taxpayer will have 3 months to respond. A TPCR may escalate to a TP audit. 

Transfer pricing documentation

  • Ireland follows the three-tiered OECD TP documentation framework incorporating Country-by-Country Reporting (“CbCR”), Master File and Local File documentation.

  • Ireland has CbCR legislation, which is effective for groups with consolidated turnover ≥ €750m.

  • Public CbCR Regulations were signed into Irish law on 21 June 2023. The regulations require undertakings with ≥ €750m in each of the past two consecutive years to publicly disclose corporate tax information for each EU Member State, EU blacklisted jurisdictions, and aggregated data for other countries. Reports must be published on the company’s website or the Companies Registration Office (“CRO”) website, with a reference link on the company’s site.

  • Documentation should be prepared no later than the filing date for the CT1 for the chargeable period and must be made available within 30 days of a written request from Revenue. 
  • Ireland follows the guidance of Chapter V of the OECD TP Guidelines for the composition of both the Master file and Local file. These requirements are applicable for the accounting periods commencing on or after 1 January 2020.

  • Where the taxpayer forms part of a multinational group of enterprises (“MNE group”) with a total consolidated global revenue ≥ €50 million in the chargeable period, the taxpayer is required to prepare a Local file containing the information specified in Annex II to Chapter V of the OECD TP Guidelines.

  • Where the total consolidated global revenue of the MNE group is ≥ €250 million in the chargeable period, the taxpayer is also required to prepare a Master file containing the information specified in Annex I to Chapter V of the OECD TP Guidelines.

  • The Master file and Local file should be prepared no later than the date on which the CT1 for the chargeable period is due to be filed.

  • As an alternative to individual Local files, companies may choose to prepare a consolidated ‘Country file’ for all Irish entities of an MNE group. The Country file will contain essentially the same content as a Local file. However, it must also include entity level qualitative and financial information. Where financial information is consolidated in the country file, companies will not be treated as having complied with their TP documentation obligations.

  • The Master file documentation should contain an organisational structure, description of MNE’s business(es), MNE’s intangibles, MNE’s intercompany financial activities, MNE’s financial and tax positions. In principle, a Master file should provide a high-level overview of the business, including the nature of its global operations and general TP policies on widely implemented transactions. The Master file is intended to assist tax authorities in evaluating whether significant TP risk may exist in a particular jurisdiction.

  • The Master file will contain information for the group as a whole. For larger multinationals, the Master file may instead be more appropriately described by line of business. Typically, the Master file will be made available to the tax authorities in all countries where the multinational has a taxable presence.

  • Local file and / or Country-specific document should contain information on the Local entity, its controlled transactions and financial information. In contrast to the Master file, which is a broad-based narrative of the group, the Local file is a report containing detailed information relating to specific intra-group transactions related to taxpayers in a specific jurisdiction. The intent of the Local file is to provide assurance to a specific tax authority that the Local entities have complied with the arm’s length principle for material intra-group transactions.
  • Limited risk distributor and contract services / contract R&D arrangements could potentially be affected, especially where significant people functions are in Ireland;

  • Cross-border financing transactions;

  • Transactions involving Intellectual property (IP);

  • Persistent losses in a “low risk” entity;

  • Business restructurings or TP model changes can prompt challenges, but as businesses evolve, TP methods should be reviewed rather than maintained solely for consistency;

  • Permanent Establishments.
  • Penalties in relation to TP documentation are derived from the general record-keeping requirements. Two main types of penalties may apply; a fixed penalty for failure to keep or produce documentation and a tax-geared penalty in the case of a Revenue audit.

  • Where a taxpayer fails to provide records that determine whether profits or gains have been computed in accordance with TP rules within 30 days of date of request, a fixed penalty of €4,000 applies.

  • When a taxpayer is a person to which the Local file and Master file thresholds apply, fails to provide relevant information requested by the Revenue authorities within 30 days, the fixed penalty is increased to €25,000. Further penalty of €100 per day applies when failure to comply with request continues.

  • The tax-geared penalty under a Revenue audit is dependent on whether there has been a qualifying disclosure, it is the first offence, it is careless behaviour or deliberate behaviour and whether consequences are significant. The penalty can be up to a maximum of 100% of tax liability.

  • The penalty for a failure to file a CbCR is €19,045 plus €2,535 for each day the failure continues. The penalty for filing an incomplete or incorrect CBCR is €19,045.

Economic analysis and how to demonstrate an arm’s length result

  • Revenue will expect to see that a search for potential internal comparable has taken place before using an external database search for comparable.

  • For a TNMM benchmarking, Revenue will expect a full benchmarking study every three years and for the financials of the accepted comparable to be updated or refreshed on an annual basis. Pan-European comparable may be acceptable depending on the facts and circumstances. However, if there are Local factors that clearly differentiate the tested party’s geographic market, they should be factored into the benchmarking exercise, where possible.

  • Note that where databases are used, contrary to popular understanding, there is no specific requirement that the interquartile range be used (however, it will often be calculated as means to eliminate outliers, given that incomplete information will always be an issue in external database searches).

Advance Pricing Agreements (APAs), dispute avoidance and resolution

  • An APA is an arrangement between one or more tax authority and a taxpayer that determines in advance of controlled transactions an appropriate set of criteria (i.e., TP method, critical assumptions, etc.) for the determination of the TP for those transactions over a fixed period of time.

  • Ireland’s bilateral APA program has been in effect since 1 July 2016.

  • An application for a bilateral APA may be made by a company which is tax resident in Ireland for the purpose of the relevant double tax treaty and also by a PE in Ireland of a non-resident company in accordance with the provisions of the relevant treaty.

Exemptions

  • A MAP is the process which allows competent authorities to interact with the intent to resolve international tax disputes involving cases of double taxation (juridical and economic) as well as inconsistencies in the interpretation and application of a double tax convention.

  • The objective of the MAP process is to negotiate an arm’s length position that is acceptable to both tax authorities and seek to avoid double taxation for taxpayers. Taxpayers have a right to enter the MAP process for TP disputes.

  • The EU Dispute Resolution Mechanism (“DRM”) came into force in 1 July 2019. This is an EU Directive ensuring swift resolution of tax treaty disputes, including double taxation. It mandates clear deadlines for EU Member States to reach binding agreements, enhancing legal certainty for businesses and citizens.

  • Revenue guidelines outline the process for claiming a correlative adjustment (“CA”) under Ireland’s tax treaties. If an associated enterprise pays additional foreign tax due to a TP adjustment, the taxpayer can claim a CA to adjust Irish profits, provided a Double Taxation Agreement exists. To avoid timing issues, a protective MAP request can be submitted while Revenue reviews the claim.

 

Exemptions

  • Currently SMEs are excluded from the scope of TP rules. The legislation makes provision to bring SMEs within the scope of TP rules subject to Ministerial Commencement Order. Depending on their size, small companies will be fully exempt from TP documentation requirements while medium companies will have significantly simplified documentation requirements.

  • The exemption criteria are based on European Union (EU) recommendation 2003/361/EC as follows:
    • Small: less than 50 employees, and either turnover or gross assets not exceeding €10 million;

    • Medium: less than 250 employees and either turnover not exceeding €50 million or gross assets of less than €43 million.
  • The legislation currently exempts non-trading domestic related party transactions from TP provisions subject to meeting certain conditions and the anti-avoidance measures. This amendment applies to chargeable periods beginning on or after 1 January 2022.

  • For computations of capital allowances and chargeable gains or losses, the TP rules apply in respect of transactions relating to assets that have a market value of over €25 million or where the capital expenditure incurred on an asset is over €25 million. 

Related developments

  • Pillar Two is an OECD-led framework designed to enforce a global minimum tax rate of 15%, preventing profit shifting to low or no tax jurisdictions. If an entity’s effective tax rate, as determined by specific rules, is below 15% then additional tax measures are applied to bring it up to the required minimum rate. These rules introduce the Income Inclusion Rule (“IIR”) and the Undertaxed Profits Rule (“UTPR”), ensuring that large multinational groups pay a minimum effective tax rate of 15% on a jurisdictional basis.

  • Under Part 4A of the Taxes Consolidation Act 1997 (TCA 1997), the legislation establishes three types of taxes:
    • IIR top-up tax;
    • UTPR top-up tax;
    • Domestic top-up tax.
  • Revenue has recently placed a great focus on improving the standards of TP documentation and economic analyses via reviews of taxpayer and agent “behaviour”. It will expect Local reviews of functions, assets and risks, accurate characterisation, and high-quality TP documentation, otherwise penalties may be imposed. 

Contact us

For further information on transfer pricing in Ireland please contact:

Peter Vale

T 0035316805952

E Peter.Vale@ie.gt.com


Sasha Kerins

T 00353868039474

E Sasha.Kerins@ie.gt.com


Lochlainn Coyne

T 0035314182087

E Lochlainn.Coyne@ie.gt.com

 

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