Transfer pricing in Ireland: Reflections and outlook

This article provides a concise overview of the evolution of TP in Ireland since its inception and highlights key considerations for multinational groups as they prepare for the challenges and opportunities that lie ahead.

2010 – 2023: The evolution of the Irish transfer pricing landscape

Transfer pricing rules were first introduced in Ireland in 2010, marking the beginning of a structured approach to aligning Irish tax regulations with global TP principles. Before this, certain elements of TP and the arm’s length principle were already embedded in Irish tax law, including:

• The market value rule for capital gains tax.
• Recharacterisation of interest as a distribution.
• The calculation of manufacturing profits.

Formal TP regulations came into effect in 2011, focusing primarily on trading transactions while excluding those undertaken by small and medium enterprises (SMEs) – a provision that remains unchanged to this day.

2020: Expansion of regulations

Irish TP regulations underwent a significant overhaul, aligning with the 2017 OECD TP Guidelines. Key changes included:

• Introduction of DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation of intangibles).
• Guidance on hard-to-value intangibles and profit-split methodologies.
• Extension of TP rules to cover non-trading and capital transactions.
• Stricter TP documentation requirements.

2021: Clarifications and enhancements

Revenue introduced additional clarity on several critical areas, including:

• Irish-to-Irish non-trading transactions.
• Format and content of required TP documentation.
• Application of the substance-over-form principle and transaction characterization.
• Exemptions and profit attribution to permanent establishments (branches) under the Authorized OECD Approach.
• Correlative adjustments under Mutual Agreement Procedures (MAP).

2022: Alignment with revised OECD guidelines

• Irish TP regulations adopted the OECD 2022 Guidance, further strengthening Ireland’s alignment with international standards.

2023-24: Enhanced focus on compliance and Milestones in TP enforcement and policy

By the end of 2023, Revenue published updated guidance emphasising:

• The taxpayer's responsibility to maintain robust TP documentation.
• Criteria for selecting cases for Revenue intervention or audit.

Additionally, the 2023 annual report released in April 2024 highlighted:

• Statistics on TP adjustments.
•  Cases handled under Advance Pricing Agreements (APA) and Mutual Agreement Procedures (MAP).

2024 marked a significant milestone in Ireland’s TP landscape:

• The Tax Appeals Commission (TAC) delivered Ireland's first-ever judgment on a TP case.
• Introduction of Section 835DA into Irish TP legislation through the Finance Bill 2024, reflecting Ireland’s commitment to implementing Amount B under the OECD’s Pillar One framework.

In 2024, multinational enterprises demonstrated greater effort to comply with evolving TP requirements, including a deeper examination of their policies to ensure alignment with updated standards.

Updates from 2024

Revenue guidance on TP documentation

Revenue’s guidance, as outlined in Tax and Duty Manual (TDM) Part 35A-01-05, emphasises the need for timely and robust TP documentation:

• Compliance deadline: Documentation must be in place by the corporate tax filing date. Failure to meet this requirement may result in additional tax, penalties and interest if  subsequent TP adjustments imposed by Revenue.
• Documentation expectations: Reasonable TP documentation is required even if a formal "Local File" is not mandatory, particularly when the consolidated group turnover is below €50m.

The TDM also highlights the sources typically reviewed during TP audits, including:

• Data filed with Revenue: Taxpayer financial statements, consolidated group financials, tax returns, payroll data, Country-by-Country Reports (CbCR) and records of past Revenue interventions.
• Public domain information: Company websites, director details, the Companies Registration Office and subscription-based databases.
• Exchanged information: Data shared through mechanisms such as the Directives on Administrative Cooperation, EU intellectual property registries and CbCR exchanges.

Revenue Annual Report 2023 (published April 2024)

Key TP compliance statistics for the period 2015–2023 were reported:

• 58 TP compliance interventions were initiated.
• 33 interventions finalised, yielding a total of €748m, including €233m in interest and penalties
• Restrictions in trading losses of €952m (tax effect: €119m)
• Amended corporate tax (CT) assessments from TP interventions generated an additional €82m in tax revenue.

A comparison with the 2022 Report indicates that seven new compliance interventions were initiated during 2023.

According to Revenue’s 2023 Annual Report, notable updates on TP cases under MAP and APA were as follows:

• MAP Cases: During 2023, Revenue completed 16 MAP cases and initiated 29 additional cases, bringing the total MAP inventory to 90 by the end of 2023.
• APAs: One APA was resolved, while 16 new APA requests were submitted, increasing the total APA inventory under process to 68 by the end of 2023.

An interesting observation from the report highlights that Revenue exchanged CbCR data with 62 jurisdictions. This data included details on revenue, profits, taxes paid, and other economic activity indicators of large multinational enterprises (MNEs). Revenue stated that it leverages this information to conduct high-level TP risk assessments and evaluate risks related to base erosion and profit shifting.

Ireland’s first TP Case: A milestone ruling

In June 2024, the Irish TAC delivered their determination in the first-ever Irish TP case (59TACD2024).

Case summary

Revenue raised assessments against an Irish subsidiary providing services to its US parent company. Revenue contended that the subsidiary failed to include cost related to the stock-based awards (SBAs), provided directly to Irish employees by the US parent, in its marked-up cost base. Despite no actual cost incurred by the subsidiary for these SBAs, Revenue argued that the accounted cost should be considered for computation of mark-up.

TAC decision

• The TAC ruled in favor of the taxpayer, agreeing that SBAs are notional costs under FRS 102 and should be excluded from the cost base for mark-up purposes.
• The ruling underscored that the economic cost of SBAs was borne by the US parent, not the Irish subsidiary.

This landmark ruling highlights the importance of meticulous documentation, expert testimony, and adherence to the arm’s length principle. It also sets a precedent for how TP issues related to SBAs may be addressed in Ireland and beyond.

Interestingly, the position taken by the TAC deviates from the generic approach taken by HMRC as well as the courts in Israel. The issue related to SBAs has been a matter of dispute in many jurisdictions including the United States (cases such as Abbott Labs and Altera).

Future outlook

Ireland’s TP landscape is set to become increasingly dynamic, driven by a substance-focused economic model that attracts significant foreign direct investment (FDI). While Ireland’s tax authorities may not adopt the aggressive stance seen in some developing countries, they are expected to maintain a strong framework to defend the tax base and enforce compliance with arm’s length pricing. A strong TP audit framework will likely be central to this strategy.

Revenue’s key focus areas – Top priorities for taxpayers

• Debt capacity of Irish borrowers and cross-border financing transactions.
• Justification of losses for Irish subsidiaries engaged in high-end R&D for group entities.
• Global value chains, particularly DEMPE functions in Ireland.
• Management cost recharges and the benefit test.
• Persistent losses in low-risk entities.
• Changes to TP models and business restructurings.

Best practices for MNEs

• Maintain comprehensive documentation with thorough functional, comparability, and economic analyses demonstrating compliance with the arm’s length principle.
• Engage experts to provide objective analyses and testimonies that strengthen the taxpayer’s position.
• Align TP practices with economic substance to reflect the risks and activities of the entities involved.
• Stay updated on regulatory changes and case law developments.
• Conduct proactive risk assessments to address potential issues and identify optimisation opportunities.

How Forvis Mazars can help

Our Irish transfer pricing team has extensive experience across a wide range of industries, delivering tailored, sector-specific, and sustainable TP solutions that not only comply with increasingly stringent legislation but also align with your unique business needs.

We have the relevant experience in relation to TP planning, compliance, litigation and also in areas for preventing disputes from arising or resolving them through APAs/ MAPs. We work closely with the global Forvis Mazars network of TP specialists to deliver consistent, pragmatic and effective solutions and advice that transcend international borders.

If you have questions or would like to discuss related matters, please do not hesitate to contact us.