Revenue Note for Guidance

PART 35A

TRANSFER PRICING

Overview

This Part contains transfer pricing rules that apply the arm’s length principle to transactions between associated persons.

Transfer pricing describes the process by which parties to a transaction set a price at which they pass goods, services, finance, assets or anything else of commercial value between each other. Transfer pricing rules concern transactions between associated persons and ensure that taxable profits or gains cannot be understated, or allowable losses overstated, because the prices charged in such transactions are not at arm’s length.

In computing profits or gains or losses that are chargeable to tax, transfer pricing rules require that transactions between associated persons are priced in accordance with the arm’s length principle. The arm’s length principle is an internationally agreed standard which requires that related party transactions are priced as if they were carried out by unrelated parties dealing at arm’s length. In practice, the application of this principle is based on guidance contained in the OECD Transfer Pricing Guidelines.

Transfer pricing rules were first introduced by section 42 of Finance Act 2010 and originally applied only in relation to the computation of profits or gains or losses chargeable to tax under Case I or II of Schedule D (trading income) and only in respect of arrangements the terms of which were agreed on or after 1 July 2010. The scope and application of the rules was expanded by Finance Act 2019, with section 27 of that Act substituting this new Part 35A.

This Part, as substituted by Finance Act 2019, applies for chargeable periods commencing on or after 1 January 2020 and, in relation to the computation of capital allowances (other than balancing allowances), where the related capital expenditure is incurred on or after 1 January 2020. The main features of the transfer pricing rules are as follows—

1. The rules are 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;
2. The arm’s length principle applies, subject to certain exceptions, to the computation of 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 profits or gains or losses (but not chargeable gains) where they relate to a transaction between certain associated persons who are chargeable to tax in the State on the profits or gains or losses arising from the transaction (or would be so chargeable but for the fact that Irish dividends are not chargeable to tax). In relation to the computation of capital allowances and chargeable gains, the transfer pricing rules apply in respect of transactions relating to assets that have a market value of over €25 million;
3. Larger companies are obliged to prepare, and have available upon 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;
4. A higher rate of penalty applies for larger taxpayers who fail to comply with a request to provide transfer pricing documentation to Revenue;
5. 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, and the documentation demonstrates reasonable efforts have been made to comply with this Part;
6. The rules apply to previously grandfathered arrangements, being arrangements the terms of which were agreed before 1 July 2010, in respect of chargeable periods commencing on or after 1 January 2020.