Finance Act 2010

Transfer pricing.

42.— (1) The Principal Act is amended by inserting the following after Part 35:

“PART 35A

TRANSFER PRICING

Interpretation.

835A.— (1) In this Part—

‘arrangement’ means any agreement or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable);

‘ authorised officer ’ means an officer of the Revenue Commissioners authorised by them in writing for the purposes of this Part;

‘ chargeable period ’ has the same meaning as in section 321(2);

‘Commission Recommendation ’ means Commission Recommendation 2003/361/EC of 6 May 2003 4 concerning the definition of micro, small and medium-sized enterprises;

‘double taxation relief arrangements ’ means arrangements having effect by virtue of section 826;

‘group’ means a company which has one or more 75 per cent subsidiaries together with those subsidiaries;

‘relevant activities’, in relation to a person who is one of the persons between whom an arrangement is made, means that person’s activities—

(a) which comprise the activities in the course of which, or with respect to which, that arrangement is made, and

(b) which are not activities carried on either separately from the activities referred to in paragraph (a) or for the purpose of a different part of that person’s business;

‘relevant person ’, in relation to an arrangement, means a person who is within the charge to tax under Case I or II of Schedule D in respect of profits or gains or losses, the computation of which profits or gains or losses takes account of the results of the arrangement;

‘tax’ means income tax or corporation tax.

(2) References in this Part to ‘control’, in relation to a company, shall be construed in accordance with section 11.

Meaning of associated.

835B.— (1) For the purposes of this Part—

(a) 2 persons are associated at any time if at that time—

(i) one of the persons is participating in the management, control or capital of the other, or

(ii) the same person is participating in the management, control or capital of each of the 2 persons,

and

(b) a person (in this paragraph referred to as the ‘first person’) is participating in the management, control or capital of another person at any time only if that other person is at that time—

(i) a company, and

(ii) controlled by the first person.

(2) (a) For the purposes of this section a company shall be treated as controlled by an individual if it is controlled by the individual and persons connected with the individual.

(b) For the purposes of this subsection a person is connected with an individual if that person is a relative (within the meaning of section 433(3)(a)) of that individual.

Basic rules on transfer pricing.

835C.— (1) Subject to this Part, this section applies to any arrangement—

(a) involving the supply and acquisition of goods, services, money or intangible assets,

(b) where, at the time of the supply and acquisition, the person making the supply (in this Part referred to as the ‘supplier’) and the person making the acquisition (in this Part referred to as the ‘acquirer’) are associated, and

(c) the profits or gains or losses arising from the relevant activities are within the charge to tax under Case I or II of Schedule D in the case of either the supplier or the acquirer or both.

(2) (a) If the amount of the consideration payable (in this Part referred to as the ‘ actual consideration payable ’) under any arrangement to which this section applies exceeds the arm’s length amount, then the profits or gains or losses of the acquirer that are chargeable to tax under Case I or II of Schedule D shall be computed as if the arm’s length amount were payable instead of the actual consideration payable.

(b) If the amount of the consideration receivable (in this Part referred to as the ‘ actual consideration receivable’) under any arrangement to which this section applies is less than the arm’s length amount, then the profits or gains or losses of the supplier that are chargeable to tax under Case I or II of Schedule D shall be computed as if the arm’s length amount were receivable instead of the actual consideration receivable.

(3) For the purposes of this section the ‘arm’s length amount’ in relation to an arrangement is the amount of the consideration that independent parties would have agreed in relation to the arrangement had those independent parties entered into that arrangement.

Principles for construing rules in accordance with OECD Guidelines.

835D.— (1) In this section—

‘Article 9(1) of the OECD Model Tax Convention’ means the provisions which, at the date of the passing of the Finance Act 2010, were contained in Article 9(1) of the Model Tax Convention on Income and Capital published by the OECD;

‘OECD’ means the Organisation for Economic Cooperation and Development;

‘transfer pricing guidelines’ means the guidelines approved on 13 July 1995 by the Council of the OECD (in this definition referred to as the ‘OECD Council’) as its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations—

(a) supplemented by—

(i) the report on intangible property and services noted by the OECD Council on 11 April 1996,

(ii) the report on cost contribution arrangements noted by the OECD Council on 24 July 1997, and

(iii) such additional guidance, published by the OECD on or after the date of the passing of the Finance Act 2010, as may be designated by the Minister for Finance for the purposes of this Part by order made under subsection (3),

and

(b) modified by updates approved by the OECD Council on 16 July 2009.

(2) For the purpose of computing profits or gains or losses chargeable to tax under Case I or II of Schedule D, this Part shall be construed to ensure, as far as practicable, consistency between—

(a) the effect which is to be given to section 835C, and

(b) the effect which, in accordance with the transfer pricing guidelines, would be given if double taxation relief arrangements incorporating Article 9(1) of the OECD Model Tax Convention applied to the computation of the profits or gains or losses, regardless of whether such double taxation relief arrangements actually apply,

but this section shall not apply for the purposes of construing this Part to the extent that such application of the section would be contrary to the provisions of double taxation relief arrangements that apply to the computation of those profits or gains or losses.

(3) The Minister for Finance may, for the purposes of this Part, by order designate any additional guidance referred to in paragraph (a)(iii) of the definition of ‘transfer pricing guidelines’ in subsection (1) as being comprised in the transfer pricing guidelines.

(4) Every order made by the Minister for Finance under subsection (3) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the order is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

Small or medium-sized enterprise.

835E.— (1) This Part does not apply in computing for any chargeable period the profits or gains or losses of a person if that person is a small or medium-sized enterprise for that chargeable period.

(2) For the purposes of this section ‘small or medium-sized enterprise’ means an enterprise which would fall within the category of micro, small and medium-sized enterprises as defined in the Annex to the Commission Recommendation (in this section referred to as the ‘Annex’) if—

(a) in the case of an enterprise which is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) were left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Part whether—

(i) that enterprise, or

(ii) any other enterprise (including that of the liquidator or administrator),

is a small or medium-sized enterprise,

(b) Article 3 of the Annex had effect with the omission of paragraph 5 of that Article,

(c) the first sentence of Article 4(1) of the Annex had effect as if the data to apply to—

(i) the headcount of staff, and

(ii) the financial amounts,

were the data relating to the chargeable period referred to in subsection (1) (instead of the period described in the said first sentence of Article 4(1) of the Annex) and calculated on an annual basis, and

(d) Article 4 of the Annex had effect with the omission of the following provisions—

(i) the second sentence of paragraph 1 of that Article,

(ii) paragraph 2 of that Article, and

(iii) paragraph 3 of that Article.

Document-ation and enquiries.

835F.— (1) A relevant person in relation to an arrangement to which section 835C(1) applies shall have available such records as may reasonably be required for the purposes of determining whether, in relation to the arrangement, the income of the person chargeable to tax under Case I or II of Schedule D has been computed in accordance with this Part.

(2) The records referred to in subsection (1) shall be prepared on a timely basis and subsection (3) of section 886 shall apply to such records as it applies to records required by that section.

(3) Sections 900 and 901 shall apply to records referred to in subsection (1) as if they were books, records or documents within the meaning of section 900 and as if the reference to an authorised officer in section 900 were a reference to an authorised officer within the meaning of section 835A(1).

(4) Notwithstanding any other provisions of the Tax Acts, enquiries relating to compliance with this Part may only be initiated by an authorised officer.

Elimination of double counting.

835G.— (1) Where—

(a) the profits or gains or losses of a person (in this section referred to as the ‘ first-mentioned person’), that are chargeable to tax under Case I or II of Schedule D, are, by virtue of section 835C, computed as if, instead of the actual consideration payable or receivable under the terms of an arrangement, the arm’s length amount in relation to that arrangement were payable or receivable as the case may be, and

(b) the other party (in this section referred to as the ‘affected person’) to the arrangement is within the charge to tax under Schedule D in respect of the profits or gains or losses arising from the relevant activities,

then, subject to subsections (2) and (3), on the making of a claim by the affected person, the profits or gains or losses of the affected person arising from the relevant activities that are chargeable to tax under Schedule D shall be computed as if, instead of the actual consideration receivable or payable by the affected person under the terms of the arrangement, the arm’s length amount (determined in accordance with section 835C) in relation to that arrangement were receivable or payable as the case may be.

(2) (a) Subsection (1) shall not affect the credits to be brought into account by the affected person in respect of closing trading stocks, for any chargeable period.

(b) For the purposes of this subsection ‘trading stock’, in relation to a trade, has the same meaning as it has for the purposes of section 89.

(3) Subsection (1) shall not apply in relation to an arrangement unless and until the tax due and payable by the first-mentioned person for the chargeable period, in respect of which the profits or gains or losses are, by virtue of section 835C, computed as if, instead of the actual consideration payable or receivable under the terms of an arrangement, the arm’s length amount in relation to that arrangement were payable or receivable, as the case may be, has been paid.

(4) Where the profits or gains of an affected person are reduced by virtue of subsection (1) then the amount of foreign tax (if any) for which relief may be given under any double taxation relief arrangements or paragraph 9DA or 9FA of Schedule 24 shall be reduced by the amount of foreign tax which would not be or have become payable if, for the purposes of that tax, instead of the actual consideration payable or receivable under the terms of any arrangement to which subsection (1) applies, the arm’s length amount (determined in accordance with section 835C) in relation to that arrangement were payable or receivable by the affected person as the case may be.

(5) (a) Where, in relation to an arrangement—

(i) the persons, who apart from this paragraph would be the affected person and the first-mentioned person, are members of the same group,

(ii) the arrangement is comprised of activities within the meaning of paragraph (a) of the definition of ‘excepted operations’ in section 21A, and

(iii) the persons referred to in subparagraph (i) jointly elect that this section shall apply,

then section 835C and this section shall not apply in relation to that arrangement.

(b) An election under paragraph (a) shall be made by notice in writing to the inspector on or before the specified return date for the chargeable period (within the meaning of section 950) for the chargeable period of the person who, apart from paragraph (a), would be the first-mentioned person, and the notice shall set out the facts necessary to show that the persons referred to in paragraph (a)(i) are entitled to make the election.

(6) Any adjustments required to be made by virtue of this section may be made by the making of, or the amendment of, an assessment.

Capital allowances.

835H.— Section 835C shall not apply in computing any deductions or additions to be made in taxing a trade under the provisions of the Tax Acts which relate to allowances and charges in respect of capital expenditure.”.

(2) This section applies for chargeable periods beginning on or after 1 January 2011 in relation to any arrangement (within the meaning of section 835A(1) (inserted by this section) of the Principal Act) other than any such arrangement the terms of which are agreed before 1 July 2010.

4 OJ No. L124, 20.05.2003, p.36