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Current state of Irish Transfer Pricing documentation requirements – when are these relevant to you?

Ireland’s transfer pricing rules were updated recently in the Finance Act 2019, which applies for accounting periods from 1 January 2020. The updated rules require larger taxpayers to prepare a Master File and/or a Local File in accordance with the OECD Guidelines.

Documentation requirements

The requirements will be based on the revenue of the Group to which the entity pertains:

  • If Group revenue is equal to or exceeds €50 million then it will be necessary to prepare a Local File;
  • If Group revenue is equal to or exceeds €250 million then the Group will also be required to prepare a Master File; and
  • From €750 million, the Group will be obliged to prepare a CbC report, depending on whether the Irish entity is the ultimate parent or a subsidiary, it will either submit the report itself or notify the tax authorities that another entity is submitting the report.

On the tax return, Irish entities have to confirm via a tick box exercise whether the company qualifies for the Small and Medium Sized Entity (“SME”) exemption (discussed below), whether the company is required to prepare a Local File and whether it is required to prepare a Master File.

The Transfer Pricing documentation must be in place no later than the date on which the return for the chargeable period is due to be filed (usually 9 months after the fiscal year end). The documentation must be provided to the Irish Revenue within 30 days of a written request, failing which specific penalties apply. Documentation can be prepared in English or Irish.

Unlike other jurisdictions, if there are multiple Irish entities in the Group it will be possible to prepare a Country File for all the entities instead of a Local File for each Irish entity.

Exemptions

Currently SMEs are excluded from the scope of transfer pricing rules however legislation has been passed which would make it easier, in the future, to bring medium sized companies into scope although they would have simplified documentation requirements.

The SME criteria are based on EU standards:

  • 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.

For chargeable periods beginning on or after 1 January 2022, the legislation currently exempts non-trading domestic related party transactions from transfer pricing provisions subject to meeting certain conditions and the anti-avoidance measures.

Transfer pricing rules also apply to capital transactions subject to a threshold of €25 million.

Penalties

There are two types of penalty in relation to transfer pricing in the Irish system: fixed penalties for failure to keep or produce documentation and a tax-geared penalty in the case of an audit, the specific penalties are as follows:

  • Even when the entity is not obliged to prepare a Local File, a fixed penalty of €4,000 applies when the taxpayer fails to provide transfer pricing documentation from 30 days of date of request from the Irish Revenue.
  • If the taxpayer is required to prepare a Local File, a larger fixed penalty of €25,000 will apply for failure to provide the documentation within 30 days, plus €100 per day for which the failure continues.
  • The tax-geared penalty under a Revenue audit is dependent on whether there has been a qualifying disclosure, if it is the first offence, careless or deliberate behaviour and whether consequences are significant. The penalty can be up to a maximum of 100% of tax liability.
  • The provision of compliant transfer pricing documentation leads to a higher likelihood of falling under the careless behaviour category and reducing or entirely avoiding penalties.
  • Failure to file a CBCR is €19,045 plus €2,535 per day that the failure continues (total penalty over a year would be €944,320). If the CbCr is incomplete or incorrect then the penalty is €19,045 but no daily fine is applied.

For specific advice in relation to the transfer pricing obligations of your company in the Irish market, please do not hesitate to reach out to TPS.

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