Ireland: Transfer pricing compliance reviews
Irish taxpayers will be requested to perform a self-review of their compliance with the Irish transfer pricing rules under a new initiative announced by the Irish Revenue Commissioners.
The self-review process, to be called a transfer pricing compliance review (TPCR), announced on November 26, will require selected taxpayers to provide certain information on their transfer pricing policy to Irish Revenue.
The Irish Revenue is conscious of the compliance burden that can be placed on taxpayers and has helpfully acknowledged that the report provided to them does not have to be in a particular format - a transfer pricing study prepared for the purposes of another jurisdiction may well contain all of the information required by them.
The following information will need to be provided:
(a) the group structure;
(b) details of transactions by type and associated companies involved;
(c) pricing and transfer pricing methodology for each type of transaction;
(d) the functions, assets and risks of parties;
(e) a list of documentation available / reviewed; and
(f) the basis for establishing how the arm’s-length standard is satisfied.
TPCRs will not be formal audits, with the potential for no penalties should an adjustment be agreed during the process. This approach is welcome, and it is an indication of Irish Revenue’s general willingness to engage with Irish taxpayers to discuss their tax policies. It will also provide Irish Revenue with some time to become familiar with the transfer pricing models used by Irish taxpayers in a more co-operative environment and to build their transfer pricing experience.
One of the more interesting aspects of the TPCR is that taxpayers have the opportunity to receive effective sign-off on their transfer pricing methodology and documentation.
If satisfied with the information received in a TPCR report, Irish Revenue will issue a letter confirming that they have no further enquiries in relation to the transfer pricing for that period. Of course, if Irish Revenue is not satisfied with the information received or the transfer pricing adopted, the TPCR process could end by the initiation of a formal transfer pricing audit with the attendant potential for penalties.
The introduction of a process to monitor compliance with the Irish transfer pricing rules was inevitable and the choice of a more informal review process, as the initial contact with taxpayers, is a good starting point.
For the taxpayer, obtaining comfort from Irish Revenue on their transfer pricing policy is an attractive opportunity.
With notifications under the TPCR process set to issue in the coming weeks, Irish taxpayers should be prepared to look in the mirror and examine their compliance with the Irish transfer pricing rules.