Revenue Note for Guidance

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Revenue Note for Guidance

835HA Interaction with capital allowances provisions

Summary

This section deals with the interaction between the transfer pricing rules contained in section 835C and capital allowances provisions. The section provides that transfer pricing rules apply only in respect of transactions relating to assets that have a market value of over €25 million. For assets with a market value up to the €25 million threshold, the market value/open market price rules contained in provisions dealing with capital allowances will continue to apply instead of transfer pricing rules. The section also sets out a number of other exclusions from the application of transfer pricing rules in connection with capital allowances.

Details

In general, transfer pricing rules in section 835C apply in computing the amount of any deductions or additions to be made in respect of capital expenditure on an asset (capital allowances) where they relate to transactions between associated persons. The section sets out a number of circumstances in which the transfer pricing rules will not apply in computing the amount of allowances due to an acquirer of an asset or in computing the amount of any balancing allowance or balancing charge to be made to, or on, a supplier in respect of the supply and acquisition of an asset.

Circumstances where transfer pricing rules do not apply

Transfer pricing rules do not apply in computing the amount of allowances due to an acquirer in respect of the acquisition of an asset where -

  • (1)(a) the amount of capital expenditure incurred on the asset does not exceed a materiality threshold of €25 million;
  • (1)(b) the asset is a specified intangible asset to which section 291A applies and, by virtue of section 288(3C), the amount of allowances due to the acquirer is based on the amount still unallowed;
  • (1)(d)(i) – (vi) the asset is acquired (and supplied) in such circumstances that, in accordance with a relief in the Act, the asset is regarded as having been supplied and acquired for an amount other than market value (or equivalent) or the arm’s length amount. These include –
    • (1)(d)(i) where the acquirer and supplier make a joint election under section 289(6) or section 312(5)(a) to treat an asset as having transferred at the lower of the amount of expenditure still unallowed and the open market value of the asset,
    • (1)(d)(ii) where the supply and acquisition of the asset occurs as part of the transfer of the whole or part of a trade to which section 308A(3), section 310(3), section 400(6), section 631(2) or section 670(12) applies and under the relevant provision a balancing allowance or a balancing charge does not arise for the supplier and/or unallowed allowances may be made to the acquirer,
    • (1)(d)(iii) where the supply and acquisition of the asset occurs in the course of a merger to which section 633A applies and under that provision a balancing allowance or a balancing charge does not arise for the supplier and any unallowed allowances may be made to the acquirer SE or SCE,
    • (1)(d)(iv) where the supply and acquisition is of an interest in farm land to which section 658(9) applies and under that provision the acquirer is entitled to claim the remaining allowances following the transfer,
    • (1)(d)(v) where the supply and acquisition of the asset occurs in the course of a conversion of a building society to a company, to which paragraph 1 of Schedule 16 applies and, in accordance with that paragraph, a balancing allowance or a balancing charge does not arise for the building society and any unallowed allowances may be made to the new company,
    • (1)(d)(vi) where the supply and acquisition of the asset occurs in the course of a transfer, to which paragraph 2 of Schedule 17 applies, from a trustee savings bank to a successor company and, in accordance with that paragraph, a balancing allowance or a balancing charge does not arise for the bank and certain unallowed allowances may be made to the successor company.

Transfer pricing rules do not apply in computing the amount of any balancing charge or balancing allowance of the supplier of an asset where -

  • (1)(c) the market value of the asset at the time of the balancing allowance or balancing charge event does not exceed €25 million;
  • (1)(d)(i) – (vi) the asset is supplied (and acquired) is such circumstances that in accordance with a relief in the Act the asset is regarded as having been supplied and acquired for an amount other than market value (or equivalent) or the arm’s length amount. [see above].

Anti-avoidance provisions

(2)(a) The section contains an anti-avoidance provision designed to guard against the parcelling of assets as part of a scheme to avoid exceeding the €25 million threshold referred to in subsection (1)(a). Where the asset on which capital expenditure is incurred by the acquirer had at any time formed part of another asset (the ‘other asset’) and that asset and the other asset were acquired under separate arrangements as part of a scheme to avoid exceeding the €25 million threshold, the expenditure incurred on both assets will be taken into account for the purposes of determining whether the €25 million threshold is exceeded.

(2)(b) A similar anti-avoidance provisions applies for the purposes of the €25 million threshold referred to in subsection (1)(c), and which applies in connection with the computation of a balancing allowance or balancing charge arising to a supplier.

Interaction with other provisions of the TCA 1997 that deal with the computation of allowances and charges relating to capital expenditure

(3a) The section provides that, where the relevant conditions for the application of the transfer pricing rules in section 835C are met, the rules will apply notwithstanding certain other provisions in the TCA 1997 which deal with the computation of allowances and charges relating to capital expenditure. This provision ensures that, where the relevant conditions are met, the arm’s length principle and transfer pricing rules will apply instead of market value rules specified in capital allowance provisions and, therefore, the associated transfer pricing documentation requirements in section 835G will apply.

(3b) Where transfer pricing rules apply in computing a balancing charge to be made on a supplier in respect of an asset, the amount of the balancing charge cannot exceed the amount of capital expenditure incurred by the supplier on that asset.

(4) The section provides that the transfer pricing rules in section 835C will not apply instead of certain other provisions of the TCA 1997 where their application would result in higher allowances being claimed or in a lower balancing charge arising than under those other provisions. This provision ensures that anti-avoidance provisions in the TCA 1997 are not dis-applied where their application would result in a higher tax liability than would be the case if transfer pricing rules apply.

Interaction with section 291A(3)

(5) The section provides for any necessary modification to be made to the application of section 291A(3) to ensure that the amount of any allowances claimed in respect of a specified intangible asset in each chargeable period is compatible with section 835C(2)(a).

Relevant Date: Finance Act 2021