Transfer Pricing
Budget 2025
Key measures
There were no specific transfer pricing related measures in Budget 2025, although other broader tax developments (including Ireland’s commitment to the OECD’s two-pillar solution and ongoing active engagement with the OECD on technical matters such as ‘Amount B’) will have overarching effects in the transfer pricing landscape in 2025. Given that the first-year payment thresholds for R&D tax credits have been increased from €50,000 to €75,000 in Budget 2025, it will be critical for groups to ensure they have the requisite substance in Ireland for any locally owned IP, and that transfer pricing policies commensurately reward any R&D functions undertaken.
Who will be affected?
Although formal documentation is mandated for taxpayers forming part of a Group with consolidated revenues in excess of €50Mn, smaller groups are also required to conduct intercompany transactions at arm’s length and have sufficient records that are commensurate to the size and complexity of the transactions.
When? What to do now?
Taxpayers are advised to keep transfer pricing high on their agenda, given the increased compliance burden introduced in recent years. Additionally, the 2022 OECD Guidelines have been adopted in full into Irish law, mandating an assessment of any intercompany quantum of debt from a transfer pricing perspective. Irish Revenue in recent years have raised a number of TP inquiries, and these are reflected in the TP yield generated as a proportion to the total annual tax yield (circa 30%). Recent issues within transfer pricing audit activity in Ireland have centred around loss-making Irish principals, treatment of stock-based compensation and valuations of any intellectual property (IP) on-shored or exited from Ireland, however we expect these to broaden out to debt-quantum assessments and responses to Local Files in upcoming audit inquiries. Timely and complete transfer pricing documentation with a detailed narrative on the value-chain and decision-making processes (as part of a regularly updated functional analysis) can help taxpayers achieve ‘tax-geared’ penalty protection under audit. Contemporaneous documentation of this nature would include detailed appendices evidencing the taxpayers’ controls to manage the “implementation” of intragroup pricing policies, typically by way of a reconciliation statement that ties the statutory accounts of the Irish taxpayer to the transfer pricing policies.
Our view
Transfer pricing remains an overarching area of focus and scrutiny from Irish as well as foreign tax authorities. This is reflected in taxpayers increasingly seeking tax certainty through Mutual Agreement Procedures (MAPs) and Advanced Pricing Agreements (APAs), and this trend is expected to continue in the coming period. Recent statistics from Irish Revenue show a greater use of MAP to ensure relief from double tax, indicative of taxpayers’ desire to have the Irish Competent Authority defend the transfer pricing arrangements in bilateral processes as well as the increased challenge in achieving unilateral correlative relief in Ireland for overseas assessments. Irish Revenue continue to promote APAs as a means to achieve certainty.
