Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

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

Summary

This section provides for an exclusion from the application of the transfer pricing rules in section 835C to the computation of non-trading profits, gains or losses in certain circumstances. Provided certain conditions are satisfied, the exclusion will apply in respect of a transaction between certain associated persons who are both chargeable to tax in the State on the profits or gains or losses arising from the transaction, or who would be so chargeable if there were any profits or gains or losses. Where the supplier meets this requirement but the acquirer does not, the exclusion will only apply where the acquirer is chargeable to tax on any profits or gains or losses arising from its relevant activities, or would be so chargeable if there were any, and they are resident in the State.

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. Provided the necessary conditions are satisfied, 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 persons”.

Arrangements between qualifying persons

Provided certain conditions are satisfied, the section applies to an “eligible person” (either a supplier and an acquirer) in respect of an arrangement involving a supplier and an acquirer who are both “qualifying persons”.

(1) A “qualifying person”, in relation to a chargeable period, means a person who -

  • (1)(a)(i) is a supplier in relation to an arrangement and who is chargeable to income tax or corporation tax under Case III, IV or V of Schedule D, in respect of the profits or gains or losses arising from that arrangement, or
  • (1)(a)(ii) is an acquirer in relation to an arrangement and who is chargeable to income tax or corporation tax under Schedule D, in respect of the profits or gains or losses arising from that arrangement.

(1)(b) Where the qualifying person is within the charge to income tax in respect of the profits or gains or losses arising from the arrangement, they must also be resident in the State.

(1)(c) The qualifying person cannot be a qualifying company under section 110.

Meaning of chargeable to income tax or corporation tax

Subsection (2) clarifies when a person will be regarded as chargeable to income tax or corporation tax under Schedule D (other than under Case I or II of Schedule D in the case of a supplier) in respect of the profits or gains or losses arising from the arrangement.

(2)(a) For the purposes of subsection (1)(a)(i), a supplier, in relation to an arrangement, will, for the chargeable period, be regarded as chargeable to income tax or corporation tax under Schedule D, other than under Case I or II of Schedule D, in respect of the profits or gains or losses arising from the arrangement concerned only where the consideration receivable by the supplier under that arrangement –

  • is directly taken into account in computing the amount of profits or gains or losses of the supplier chargeable to income tax or corporation tax under Case III, IV or V of Schedule D, or
  • would be so taken into account if any consideration were receivable by the supplier under the arrangement.

(2)(b)(i) For the purposes of subsection (1)(a)(ii), an acquirer will, subject to subsection (2)(b)(ii), for the chargeable period, be regarded as chargeable to income tax or corporation tax under Schedule D, in respect of the profits or gains or losses arising from the arrangement concerned only where the consideration payable by the acquirer under that arrangement –

  • is directly taken into account in computing the amount of profits or gains or losses chargeable to income tax or corporation tax under Schedule D, or

would be so taken into account if any consideration were payable by the acquirer under the arrangement.

(2)(b)(ii) In the case of an acquirer where the consideration payable under the arrangement does not fall within subsection (2)(b)(i), the acquirer will, for the chargeable period, be regarded as chargeable to-

  • income tax under Schedule D in respect of the profits or gains or losses arising from the arrangement concerned, where any profits or gains or losses of the acquirer arising directly or indirectly from its relevant activities are, or, if there were any, would be chargeable to income tax under Schedule D, or
  • corporation tax under Schedule D in respect of the profits or gains or losses arising from the arrangement concerned, where the acquirer is resident in the State and any profits or gains or losses of the acquirer arising directly or indirectly from its relevant activities are, or, if there were any, would be chargeable to corporation tax under Schedule D, or would be chargeable to corporation tax but for section 129 or section 831B.

Exclusion

(3) Subsection (3) provides for the application of the exclusion. The exclusion provides that where-

  1. a supplier or an acquirer, in relation to an arrangement, is chargeable to tax for a chargeable period, under Schedule D, other than under Case I or II of Schedule D, in respect of the profits or gains or losses arising from that arrangement (the ‘eligible person’), and
  2. the supplier and the acquirer are both qualifying persons, in relation to that arrangement, for the chargeable period of the eligible person,

then, section 835C shall not apply in computing the amount of profits or gains or losses arising to the eligible person from the arrangement for the chargeable period.

(4) Subsection (4) clarifies when a supplier or an acquirer, as the case may be, will be regarded as chargeable to income tax or corporation tax under Schedule D, other than under Case I or II of Schedule D in respect of the profits or gains or losses arising from an arrangement in the chargeable period. This will be the case where the consideration receivable or payable is directly taken into account in computing the amount of profits or gains or losses chargeable to income tax or corporation tax under Schedule D, other than under Case I or II, or would be taken into account if any consideration were receivable or payable.

(5) Subsection (5) provides that where a person is an eligible person for a chargeable period, the other party to the arrangement is required to be a qualifying person throughout that chargeable period.

Anti-avoidance provisions

Subsections (6) to (8) contain anti-avoidance provisions.

(6)(a) & (b) Subsection (6) contains an anti-avoidance provision which ensures that the exclusion in subsection (3) only applies in respect of arrangements that have been entered into for bona fide commercial reasons. It further provides that the exclusion will not apply where the main purpose, or one of the main purposes, of the arrangement is the avoidance of tax.

(7) Subsection (7) provides that the exclusion will not apply in circumstances where a deduction or some form of relief for the purposes of domestic tax or foreign tax (as defined in section 835Z(1)), would be available to the acquirer, which exceeds the actual consideration payable under the arrangement.

(8) Subsection (8) provides that the exclusion in subsection (3) cannot apply in the case of an arrangement between qualifying 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 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.

(8)(b) For the purposes of subsection (8), “tax advantage” has the same meaning as in section 811C.

Maintenance of records

(9) A qualifying 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 2024