In a fast-paced business world, with constantly evolving group operational structures and trading relationships, how long does an arrangement really remain unchanged?
The Irish transfer pricing rules were introduced in Finance Act 2010. To ease concerns that business in Ireland would suddenly face a nightmarish review of all existing trading structures, the transfer pricing rules provided that arrangements (the terms of which w ere agreed before July 1 2010) would be excluded.
Unhelpfully, arrangement is defined as "any agreement or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable)". The concept of an arrangement is not something that existed previously in Irish tax or contract law. It is potentially a very broad concept, meaning that all sorts of arrangements, existing since July 1 2010, are grandfathered, whether or not they were reduced to writing or even constituted a binding legal agreement.
The Irish Revenue Commissioners have tempered a very broad interpretation by stating that, to be grandfathered, the pre July 1 2010 arrangement must clearly envisage the transaction. For example, an intercompany royalty that is calculated on a fixed percentage of sales can be grandfathered because, while the annual sales will vary, the agreement delivers the price. However, an agreement to agree the royalty on an annual basis would not qualify for grandfathering.
These pre July 1 arrangements are grandfathered potentially indefinitely, as long as the terms of the arrangement do not change.
Perpetual grandfathering for existing arrangements: What more could you ask for?
Of course the broad definition of arrangement works both ways. A variation after July 1 2010, of any aspect of an arrangement between connected parties, potentially means that the entire arrangement is no longer grandfathered. For example, if the parties to an arrangement changed the pricing calculation mechanism it would seem clear that the arrangement should no longer be grandfathered. But it is less clear when a new product is added to a list of products licensed under an existing arrangement, without any change in the pricing mechanism. Similarly, what if there had just been a change in the governing law clause in an agreement? Such a change hardly warrants losing grandfathered status. In this sense an overly...