Revenue Note for Guidance

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Revenue Note for Guidance

835DA OECD Pillar One - Amount B

Summary

This section provides for the political commitment in respect of Amount B of Pillar One of the OECD’s two-pillar solution to address the tax challenges arising from the digitalisation of the economy. In broad terms, Amount B sets out a simplified approach to determine the arm’s length amount for certain marketing and distribution arrangements. In February 2024, members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (including Ireland) agreed a political commitment in relation to ‘covered jurisdictions’ in respect of Amount B from 1 January 2025. This commitment respects the outcome determined under Amount B rules (contained in the OECD’s Pillar One – Amount B report), where such an approach is applied by a covered jurisdiction with which Ireland has a bilateral tax treaty in effect.

Details

Definitions

(1)(a) Key definitions include:

“covered jurisdiction” means a jurisdiction listed in the document entitled Statement on the definition of covered jurisdiction for the Inclusive Framework political commitment on Amount B, published by the OECD on 17 June 2024;

“OECD” has the same meaning as in section 835D(1);

“OECD Pillar One Amount B guidance” means the document entitled OECD (2024), Pillar One - Amount B: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, published by the OECD on 19 February 2024, supplemented by the document entitled Statement on the definitions of qualifying jurisdiction within the meaning of section 5.2 and section 5.3 of the simplified and streamlined approach, published by the OECD on 17 June 2024;

“one-sided transfer pricing method” and “tested party” must be construed in accordance with the transfer pricing guidelines (within the meaning of section 835D);

“qualifying arrangement” must be construed in accordance with subsection (2).

(1)(b) A word or expression which is used in this section and is also used in the OECD Pillar One Amount B guidance has, unless the context otherwise requires, the same meaning in this section as it has in the OECD Pillar One Amount B guidance.

Subsection (2) sets out the conditions for an arrangement to be considered a “qualifying arrangement” for the purposes of the section. These follow the requirements set out in the OECD’s Pillar One – Amount B report published in February 2024.

(2)(a)(i) In order for an arrangement to be a qualifying arrangement it must either be:

  1. a buy-sell marketing and distribution arrangement where the distributor under the arrangement purchases goods from one or more than one associated company for wholesale distribution to independent parties, or
  2. a sales agency or commissionaire arrangement where the sales agent or commissionaire under the arrangement contributes to one or more than one associated company’s wholesale distribution of goods to independent parties and where those goods are sold by the associated company without either it, or the sales agent or commissionaire, engaging other associated parties as intermediaries between it and the independent party customers.

(2)(a)(ii) In addition, it must exhibit the economically relevant characteristics that mean it can be reliably priced using a one-sided transfer pricing method where the distributor, sales agent or commissionaire, as the case may be, is the tested party.

(2)(b) An arrangement will not be a qualifying arrangement where-

  1. (2)(b)(i) the arrangement involves the distribution of non-tangible goods, services or the marketing, trading or distribution of commodities,
  2. (2)(b)(ii) the distributor, sales agent or commissionaire, as the case may be, that is the tested party, carries out non-distribution activities and the arrangement cannot be adequately evaluated and reliably priced separately from those non-distribution activities, or
  3. (2)(b)(iii) the distributor, sales agent or commissionaire, as the case may be, that is the tested party has incurred annual operating expenses which are lower than 3 per cent, or greater than 30 per cent, of its annual net revenues.

Subsection (3) provides additional conditions to ensure that this section only applies in specific circumstances. These conditions are:

  1. (3)(a)(i) The supplier is a company resident in the State and the acquirer is-
    • the distributor, sales agent or commissionaire, as the case may be, under the qualifying arrangement, and
    • a company resident, by virtue of the law of the covered jurisdiction, for the purposes of a tax which corresponds to corporation tax in the covered jurisdiction,
    (3)(a)(ii) or vice versa in respect of the supplier and the acquirer.
  2. (3)(b) Under the tax law of the covered jurisdiction, the arm’s length amount of consideration for the supply and acquisition under the qualifying arrangement may be determined in accordance with the OECD’s Pillar One - Amount B report.
  3. (3)(c) The profits of the distributor, sales agent or commissionaire, as the case may be, relating to that qualifying arrangement have been determined in accordance with the OECD’s Pillar One – Amount B report.
  4. (3)(d) The covered jurisdiction is a jurisdiction with which Ireland has a bilateral tax treaty in place which has force of law by virtue of section 826(1).

(4) Subsection (4) clarifies the meaning of arm’s length consideration for the purposes of subsection (3).

(5) Subsection (5) provides that where this section applies to a qualifying arrangement for a chargeable period, section 835C, section 835D and section 835G shall apply as if certain modifications were made to them.

(5)(a)(i) Section 835C will apply as if it provided that the transfer pricing method that is the most appropriate to determine the arm’s length amount of consideration for a qualifying arrangement should be determined in accordance with the OECD Pillar One Amount B guidance.

(5)(a)(ii) Section 835D will apply as if the definition of “transfer pricing guidelines” which is contained in section 835D were supplemented with the OECD Pillar One - Amount B report to ensure that when section 835D is being applied the OECD Pillar One - Amount B report is also taken into account.

(5)(b) Section 835G will apply with additional documentation and notification requirements:

  • Where this section applies the meaning of “local file” in section 835G is to be read as requiring that certain specified additional documentation be maintained on the local file.
  • Further, it provides that section 835G shall be read as containing an additional subsection requiring that the Irish resident party to the arrangement notify Revenue that this section has applied to an arrangement for the chargeable period.

(6) Subsection (6) contains an anti-avoidance provision which ensures that the section only applies in respect of arrangements that have been entered into for bona fide commercial reasons. It further provides that the section will not apply where the main purpose, or one of the main purposes, of the arrangement is the avoidance of tax.

Relevant Date: Finance Act 2024