October 23, 2019
Ireland publishes Finance Bill 2019 – Transfer pricing updates
On 17 October 2019, Ireland’s Department of Finance published Finance Bill 2019 which implements the tax elements of the 2020 Budget measures, clarifies aspects of the Budget announcements, and also provides for previously unannounced measures.
The Finance Bill introduces changes to the transfer pricing rules signaled in the Transfer Pricing Feedback Statement, issued in September 2019.
The Feedback Statement was part of the ongoing consultation process on the implementation of various commitments arising from the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) reports, related European Union (EU) Directives, and the recommendations set out in the Coffey Review1 as outlined in the Corporation Tax Roadmap published by the Irish Government on 5 September 2018.2 The September Feedback Statement followed a Public Consultation in February 2019.3
The Department of Finance has now provided certainty of its intentions by legislating for the following updates to the transfer pricing rules in Finance Bill 2019. These changes (except where specifically noted below) will be effective for accounting periods commencing on or after 1 January 2020.
The key changes are:
The application of TP rules to capital transactions, and capital allowances will be on a prospective basis, applying to capital expenditure incurred on or after 1 January 2020. Any capital allowances on capital expenditure incurred prior to 1 January 2020 shall continue to be outside the scope of transfer pricing.
The Department of Finance has indicated that the extension of TP rules to Small and Medium sized Enterprises (SMEs7) will be implemented in the future by way of Ministerial Commencement Order. Such rules would extend transfer pricing to SMEs where the aggregate consideration for the related-party cross-border transaction is more than €1m or value of assets is more than €25m. From a TP documentation perspective, small enterprises will be exempt and there will be simplified documentation requirements for medium sized enterprises.8
Multinational enterprises should review their TP documentation to ensure it is aligned with OECD master file/local file format. Companies should also review any intercompany transactions which may previously have fallen outside the scope of Irish transfer pricing and which may now be subject to the new Irish TP rules.
1. The Coffey Review was an independent review of Ireland’s corporation tax code published in September 2017. See EY Global Tax Alert, Ireland publishes Independent Review of Irish Corporate Tax Code, dated 14 September 2017.
4. Control of development, enhancement, maintenance, protection and exploitation of IP and associated risk management.
5. Guidance for Tax Administrations on the Application of the Approach to Hard-to-Value Intangibles – BEPS Actions 8 – 10, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris – approved by the Inclusive Framework on BEPS on 4 June 2018.
6. Guidance for Tax Administrations on the Application of the Transactional Profit Split Method: Inclusive Framework on BEPS: Actions 8 – 10, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris – approved by the Inclusive Framework on BEPS on 4 June 2018.
7. An SME is an enterprise with less than 250 employees and either (i) turnover less than €50m or (ii) assets less than €43m. This is an annual test, applied at group level.
8. A medium enterprise is defined as one with fewer than 250 but greater than 10 employees and either (i) annual turnover not exceeding €50m but greater than €2m or (ii) Assets not exceeding €43m but greater than €2m.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Ireland), International Tax & Transaction Services, Dublin
Ernst & Young (Ireland), International Tax & Transaction Services – Transfer Pricing, Dublin
Ernst & Young LLP (United States), Irish Tax Desk, New York
Ernst & Young LLP (United States), Irish Tax Desk, San Jose