Transfer Pricing Forum: Transfer Pricing For The International Practitioner, September 2016

Author:Mr Joe Duffy and Kathryn Stapleton
  1. What is the standard practice in selecting potential comparables? Are industry codes or key words used to accept or exclude comparables? What use is made of quantitative screens to exclude comparables?

    The primary Irish transfer pricing legislation is contained in Part 35A of the Taxes Consolidation Act 1997 (the ''TCA'') which applies to accounting periods commencing on or after January 1, 2011 for transactions the terms of which were agreed on or after July 1, 2010 (the ''TP Legislation''). The TP Legislation specifically endorses the 2010 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the ''OECD Guidelines'') and provides that the TP Legislation is to be construed ''to ensure, as far as practicable, consistency'' between the ''arm's length amount'' to be determined in accordance with Part 35A of the TCA and the OECD Guidelines. The OECD Guidelines have recently been revised to incorporate the BEPS amendments. It is expected that the Finance Act 2016 will implement the revised OECD Guidelines in Ireland and that Part 35A of the legislation will be amended accordingly.

    The TP Legislation does not contain specific commentary about the selection of potential comparables. The Irish Revenue Commissioners (the ''Revenue'') have not published guidelines and there is no stipulation that a comparability analysis must be confined to Irish or European comparables. There is also no published information or guidelines in relation to the use of quantitative screens to exclude comparables.

    The Revenue typically adopts a pragmatic approach to the evaluation of comparables. The Irish tax legislation and the Revenue practice places considerable emphasis on the commerciality of a transaction and whether it is bona fide in nature. In this regard, results which do not make commercial sense (i.e., if there is substantial deviation from the results generated by other compareables are typically investigated further, in order to ascertain the appropriateness of the comparables identified.

    The following factors are taken into account for the selection of potential comparable transactions:

    The economically relevant characteristics should be similar, and material differences between compared transactions should be taken into account. None of the differences between situations being compared should materially affect the condition which is being examined in the methodology. To eliminate the effect of any differences...

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