835E Modification of basic rules on transfer pricing for arrangements between qualifying relevant persons

Summary

This section provides that the transfer pricing rules in section 835C will not apply in computing non-trading profits or gains or losses where they relate to a transaction between associated persons who are chargeable to tax in the State in respect of the results of that transaction or who would be chargeable to corporation tax in respect of those results but for the fact that Irish dividends are not chargeable to tax. (To note, this section is to be replaced in accordance with section 15 of the Finance Act 2020 once a commencement order for that section is made by the Minister for Finance).

Details

Subject to the exclusion in this section, transfer pricing rules in section 835C apply in computing profits or gains or losses of a relevant person relating to both domestic and cross border transactions. This section provides that transfer pricing rules in section 835C will not apply in computing profits or gains or losses chargeable to tax under Case III, IV or V Schedule D (non-trading income) where those profits or gains or losses arise from an arrangement between “qualifying relevant persons”.

Arrangements between qualifying relevant persons

(2) The section applies to an arrangement involving a supplier and an acquirer who are qualifying relevant persons. A “qualifying relevant person” is a relevant person (being a person who, in relation to an arrangement, is within the charge to tax in respect of the profits or gains or losses, the computation of which takes account of the results of the arrangement) -

• (1)(a) who is chargeable to income tax or corporation tax under Schedule D in respect of the profits or gains or losses arising from the relevant activities or who would be chargeable to corporation tax but for the fact that the only profits or gains arising from such activities are dividends received from a company resident in the State which, by virtue of section 129, are not chargeable to tax because they are paid out of profits that are already taxed in the State,
• (1)(b) who, where the person is within the charge to income tax, is resident in the State, and
• (1)(c) who is not a qualifying company under section 110.

To be a qualifying relevant person in relation to an arrangement, the supplier or acquirer must have profits or gains or losses chargeable to tax under Schedule D and the computation of those profits or gains or losses must take account of the results of the arrangement.

Exclusion

(3) The transfer pricing rules contained in section 835C will not apply in computing the amount of the profits or gains or losses of a supplier or acquirer who is chargeable to tax under Schedule D (other than under Case I or II) in respect of an arrangement involving qualifying relevant persons. Where the supplier or an acquirer in relation to an arrangement is a qualifying relevant person but is chargeable to tax under Case I or II of Schedule D in respect of the profits or gains or losses arising from the arrangement, the exclusion cannot apply to that particular supplier or acquirer. However, that does not prevent a counterparty to the arrangement, who is chargeable to tax under Case III, IV or V of Schedule D in respect of the results of the arrangement, from availing of the exclusion.

Anti-avoidance provision

(4) Subsection (4) contains an anti-avoidance provision which ensures that the exclusion in subsection (3) cannot apply in the case of an arrangement between qualifying relevant persons (“the first arrangement”) where it is entered into as part of a back-to-back arrangement involving the acquirer or a person associated with the acquirer entering into an arrangement with a person who is not a qualifying relevant person (“the second arrangement”) and the sole or main purpose of the first arrangement is to obtain a tax advantage in connection with the second arrangement.

(5) For the purposes of subsection (4), “tax advantage” has the same meaning as in section 811C.

Maintenance of records

(6) A relevant person is obliged to keep such records as may reasonably be required for the purposes of determining whether the requirements of the section are met.

Relevant Date: Finance Act 2021