Ireland published Finance Bill 2019 on 17 October 2019. The Bill includes provisions to implement previously announced changes to Ireland's transfer pricing regime and the introduction of anti-hybrid rules. The Bill also introduces new provisions that apply to Irish real estate funds, real estate investment trusts and section 110 companies. We have outlined the key changes below.
The changes to Ireland's transfer pricing rules are in line with what was announced last month. For chargeable periods commencing on or after 1 January 2020, the transfer pricing rules will apply to non-trading transactions, save for certain Irish-to-Irish non-trading transactions. In addition, the grandfathering that existed for transactions agreed before 1 July 2010 will be removed. The transfer pricing legislation will incorporate by reference the 2017 OECD Transfer Pricing Guidelines, the OECD Guidance issued in 2018 on Hard to Value Intangibles and the OECD Guidance issued in 2018 on the Transactional Profit Split Method. In addition, the documentation requirements will be updated so that master files and local files will have to be prepared (subject to certain financial thresholds) and an express timeline for the preparation of supporting documentation is included in the legislation. You can read more about the changes announced last month in our client briefing.
The Bill also includes some transfer pricing changes that were not announced last month. Notably, the rules now provide that taxpayers who make a reasonable effort to comply with the transfer pricing rules can be protected from tax-geared penalties in the event of a transfer pricing adjustment. In addition, new penalty provisions provide for a 25,000 penalty if a request by Revenue for supporting transfer pricing documentation is not satisfied (daily penalties can also be applied).
In line with obligations under the EU Anti-Tax Avoidance Directives, the Bill implements anti-hybrid rules. The rules will apply to payments made or arising on or after 1 January 2020.
The anti-hybrid rules are designed to apply to arrangements made between associated enterprises. Parties can be associated if shareholding, voting rights or profit distribution thresholds are met, or if the entities are consolidated for accounting purposes, or if one entity has "significant influence in the management of the other". That final concept is defined to cover circumstances where an entity has the right to participate on the board of directors of another entity or in the "financial and operating policy decisions of that entity".
The anti-hybrid rules can apply to transactions between parties that are unconnected if the transaction is a 'structured...