Transfer pricing in Ireland

Global tax authorities are increasingly scrutinising intercompany transactions to ensure compliance with the arm’s length principle, aiming to prevent tax avoidance. Consequently, non-compliance with transfer pricing can expose businesses to significant risks, including tax adjustments, penalties and reputational damage.

Revenue’s focus on transfer pricing in Ireland mirrors global trends, creating a challenging environment for businesses to navigate. At Forvis Mazars, our dedicated transfer pricing team offers tailored support to help you stay compliant while optimising your tax position.

Overview of transfer pricing in Ireland

Transfer pricing refers to the pricing of transactions between associated parties. Under Irish legislation and the OECD Transfer Pricing Guidelines, these prices must align with those that would be agreed upon by independent parties operating at arm’s length.

While there are specific exemptions from Irish transfer pricing rules, there are significant documentation requirements and penalties for non-compliance.

Key features of transfer pricing in Ireland

• Alignment with OECD guidelines: Ireland’s transfer pricing rules adhere to global standards, applying to trading and non-trading intercompany transactions.
• Branch operations: Irish branches of foreign companies are subject to transfer pricing regulations under the Authorised OECD Approach (AOA) for attributing branch profits from 1 January 2022.
• Exemptions: SMEs and specific non-trading domestic transactions may qualify for exemptions, but these require careful analysis to avoid incorrect claims.
• Documentation requirements: Robust transfer pricing documentation is mandatory, following the Master File and Local File models prescribed by the OECD.

Transfer pricing documentation

Under Irish law, taxpayers are required to maintain documentation that enables the determination of whether their income has been calculated in accordance with transfer pricing regulations. Failing to maintain well-prepared documentation is typically deemed "careless" conduct, and any resulting adjustments are likely to incur penalties and interest.

• Local/Country File
  Multinational enterprise (MNE) groups that are not classified as SMEs and have consolidated global revenue of €50m or more during the chargeable period must prepare a Local File. This document must adhere to the details outlined in Annex II of Chapter V of the 2017 OECD Guidelines.
  
  Alternatively, taxpayers may choose to prepare a consolidated Country File covering all Irish entities or branches within the MNE group, instead of individual Local Files.
  
  The Local/ Country File should include:
  • A detailed account of intra-group transactions.
  • An analysis of functions performed, assets employed and risks assumed in these transactions.
  • Economic and benchmarking analyses, including an industry overview.

The purpose of the Local/Country File is to demonstrate to tax authorities that all material intra-group transactions comply with the arm’s length principle.

• Master File
  MNE groups that are not SMEs and have consolidated global revenue of €250m or more during the chargeable period must also prepare a Master File. This document must comply with the information requirements outlined in Annex I of Chapter V of the 2017 OECD Guidelines. 
  
  The Master File provides a high-level overview of the group’s operations, including:
  • Organisational structure and business activities.
  • Intangible assets and intercompany financial arrangements.
  • Financial and tax positions of the group.

Its primary goal is to help tax authorities assess potential transfer pricing risks in specific jurisdictions.

• Country-by-Country Reporting (CbCR)
  Ireland has country-by-country reporting rules mandatory for multinational groups with a consolidated turnover of €750m or more.

Deadlines
Both the Master File and Local/Country File must be prepared no later than the filing deadline for the tax return for the relevant chargeable period.

Risks of non-compliance

Failing to maintain or provide documentation can result in penalties ranging from €4,000 to €25,000, with additional daily penalties for continued non-compliance.

Additionally, transfer pricing adjustments may incur interest of 0.0219% per day, with tax-geared penalties of up to 100%, depending on the nature of non-compliance.

Careful transfer pricing approach

To ensure compliance and mitigate risks, businesses should adopt a cautious approach to transfer pricing in the following areas:

• Limited-risk distributor arrangements and contract-based services:
  Arrangements like contract R&D setups or limited-risk distributors may face scrutiny, especially if significant people functions and risk control activities are located in Ireland.
• Persistent losses for low-risk entities:
  Repeated losses reported by entities designated as “low-risk” can trigger red flags, potentially leading to deeper investigations by tax authorities.
• Cross-border financing transactions:
  When an Irish entity is the borrower, ensuring the interest rate aligns with the arm’s length principle is critical. Additionally, the entity must demonstrate sufficient debt capacity to support the financing.
• Intellectual Property (IP) transactions:
  Transactions involving IP are particularly sensitive due to complex valuation challenges and their significant tax implications.
• Business restructuring or model changes:
  Changes to existing transfer pricing models or restructurings can attract attention. If a previously applied transfer pricing method is no longer suitable due to business evolution, it should be reevaluated and adjusted accordingly. 

How Forvis Mazars can help

Our transfer pricing specialists combine local expertise with international experience to deliver solutions tailored to your business needs.

Forvis Mazars offers the following transfer pricing-related services: 

• Advisory & planning
  • Risk assessments and mitigation strategies.
  • DEMPE and value chain analysis.
  •  Transfer pricing policy design and year-end adjustments.
  • Review of inter-company agreements.
     
•  Documentation & compliance
  • Preparation of Local/Country Files, Master Files, country-by-country report documentation and benchmarking analyses.
  • Updates to existing documentation and strategic implementation of transfer pricing policies.
     
• Dispute avoidance & resolution
  • Assistance in transfer pricing compliance reviews.
  • Audit risk assessments and representation during interventions/ audits.
  • Support for appeals, Advance Pricing Agreements (APAs), and Mutual Agreement Procedures (MAPs).

Contact us

Forvis Mazars’ transfer pricing team is ready to help you navigate the complexities of Irish and international transfer pricing regulations. Contact us today to ensure compliance and optimise your tax position.