Revenue Note for Guidance

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Revenue Note for Guidance

835HB Interaction with provisions dealing with chargeable gains

Summary

The section provides that transfer pricing rules apply only in respect of the computation of chargeable gains and allowable losses 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 rules contained in provisions dealing with chargeable gains 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 the computation of chargeable gains and allowable losses.

Details

(1) The section provides that transfer pricing rules in section 835C will apply for the purposes of computing any chargeable gain or allowable loss arising to a supplier on the disposal of a chargeable asset. In relation to the acquisition of a chargeable asset, the section provides for the application of transfer pricing rules for the purposes of determining the amount of consideration for the acquisition of the asset (base cost), which will be taken into account in computing the amount of any chargeable gain arising on a subsequent disposal of the asset.

Circumstances where transfer pricing rules do not apply

(2) The section provides that the transfer pricing rules in section 835C will not apply for the purposes of computing the amount of any chargeable gain or allowable loss arising to a supplier on a disposal (supply) of a chargeable asset where -

  • (2)(a) the market value of the asset at the date of disposal does not exceed €25 million.
  • (2)(b), (d) the asset is disposed of in such circumstances that, in accordance with a relief in the TCA 1997, the asset is regarded as having been disposed of for an amount of consideration that would give rise to neither a gain nor a loss. The relevant reliefs that provide for this treatment are contained in section 606(2), section 615(2), section 617(1), section 632(1), section 633, section 633A, section 702(2) or paragraph 5(2) of Schedule 17,
  • (2)(c) the asset is transferred in the course of a conversion of a building society into a successor company to which paragraph 3(1) of Schedule 16 applies, or
  • (2)(e) the asset is disposed of by an individual to a company and, immediately after its acquisition by the company, the asset remains a chargeable asset.

The transfer pricing rules in section 835C will not apply for the purposes of determining the base cost of an acquirer -

  • (3)(a) where the market value of the asset acquired does not exceed €25 million, or
  • (3)(b) in circumstances where the acquirer is treated by the provisions mentioned in subparagraphs (i) to (vi) of subsection (2)(b) or paragraph 5(3) of Schedule 17 or section 631(3) as having acquired the asset at the same time and for the same cost as the supplier from whom the asset is acquired.

Anti-avoidance provision

(4) The section contains an anti-avoidance provision designed to guard against the splitting of assets as part of a scheme to avoid exceeding the €25 million threshold referred to in subsection (2)(a). Where the asset being disposed of by the supplier had at any time formed part of another asset (the ‘other asset’) and that asset and the other asset were supplied under separate arrangements as part of a scheme to avoid exceeding the €25 million threshold, the market value of both assets will be taken into account for the purposes of determining whether the €25 million threshold is exceeded.

A similar anti-avoidance provision applies for the purposes of the €25 million threshold referred to in subsection (3)(a), which relates to the application of transfer pricing rules to the computation of the base cost of a chargeable asset acquired by an acquirer.

Corresponding adjustment

(5)(a) The section provides for a corresponding adjustment to the base cost of a chargeable asset of an acquirer in circumstances where, by virtue of section 835C, the amount of the gain of a supplier that is chargeable to tax is computed based on the arm’s length amount rather than the actual consideration receivable.

(5)(b) A corresponding adjustment to the base cost of an acquirer will not be made until such time as tax due and payable for the chargeable period by the supplier has been paid.

Interaction with other provisions of the TCA 1997 that deal with the computation of chargeable gains and allowable losses

(6)(a) 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 chargeable gains and allowable losses. 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 provisions dealing with chargeable gains and, therefore, the associated transfer pricing documentation requirements in section 835G will apply.

(6)(b) 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 (i) a lower chargeable gain or higher allowable loss arising to the supplier on the disposal of a chargeable asset, or (ii) the acquirer of a chargeable asset having a higher acquisition cost than would be the case 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.

Relevant Date: Finance Act 2021