25A. Attribution of profits to a branch

(1) In this section—

“Article 7 of the OECD Model Tax Convention” means the provisions contained in Article 7 of the Model Tax Convention on Income and on Capital published by the OECD on 21 November 2017;

“authorised OECD approach guidance” means the guidance on the attribution of profits to permanent establishments set out in the 2010 Report on the Attribution of Profits to Permanent Establishments approved for publication by the Council of the OECD on 22 July 2010, supplemented by the whole or part of such additional guidance on the attribution of profits to permanent establishments, published by the OECD on or after the date of the passing of the Finance Act 2021, as may be designated by the Minister for Finance for the purposes of this section by order made under subsection (5);

‘branch’, in relation to a company which is not resident in the State, means a branch or agency through which the company carries on a trade in the State;

“double taxation relief arrangements” means arrangements having effect by virtue of section 826;

“OECD” means the Organisation for Economic Co-operation and Development;

“Minister” means the Minister for Finance;

“relevant branch income” has the meaning given to it in subsection (2);

“relevant branch records” has the meaning given to it in subsection (7);

“return” and “specified return date for the accounting period” have the meanings given to them by section 959A;

“Revenue officer” means an officer of the Revenue Commissioners;

“small enterprise” and “medium enterprise” have the meanings assigned, respectively, to those expressions by section 835F and ‘small or medium-sized enterprise’ shall be construed accordingly.

(2) For the purposes of section 25(2), the amount of any trading income arising directly or indirectly through or from a branch and any income from property or rights used by, or held by or for, the branch (in this section referred to as ‘relevant branch income’) shall be an amount that is attributable to the branch in accordance with subsections (3) and (4).

(3) For the purposes of subsection (2), the relevant branch income that is attributable to a branch is the amount of such income which it would have earned, in particular in its dealings with other parts of the company (in this subsection referred to as ‘the first-mentioned company’), if it were a separate and independent company engaged in the same or similar activities as the branch is engaged in under the same or similar conditions as obtained in respect of the branch, taking into account the functions performed, assets used and risks assumed by the first-mentioned company through the branch and through the other parts of that company.

(4) (a) For the purpose of attributing relevant branch income to a branch, subsection (3) shall be construed to ensure, as far as is practicable, consistency between—

(i) the effect which is to be given to subsection (3), and

(ii) regardless of whether such double taxation relief arrangements actually apply, the effect which would be given if double taxation relief arrangements incorporating paragraph 2 of Article 7 of the OECD Model Tax Convention were to be applied, in accordance with the authorised OECD approach guidance, to the computation of so much of the profits as are attributable to the branch that comprise relevant branch income.

(b) For the purpose of determining the effect which would be given if double taxation relief arrangements referred to in paragraph (a)(ii) were to be applied, in accordance with the authorised OECD approach guidance, as required by paragraph (a)(ii), references to ‘Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations’ and ‘the Guidelines’ in the authorised OECD approach guidance shall be construed, as far as is practicable, as references to the transfer pricing guidelines (within the meaning of section 835D).

(5) The Minister may, for the purposes of this section, by order designate the whole or part of any additional guidance on the attribution of profits to permanent establishments, published by the OECD on or after the date of the passing of the Finance Act 2021, as being comprised in the authorised OECD approach guidance.

(6) Every order made by the Minister under subsection (5) shall be laid before Dáil Éireann as soon as may be after it is made and, if a resolution annulling the order is passed by Dáil Éireann within the next 21 days on which Dáil Éireann has sat after the order is laid before it, the order shall be annulled accordingly, but without prejudice to the validity of anything previously done thereunder.

(7) (a) Subject to paragraph (d), a company carrying on a trade in the State through a branch for an accounting period shall have available and, upon request made in writing by a Revenue officer, shall provide to the Revenue Commissioners, such records (in this section referred to as ‘relevant branch records’) as may reasonably be required for the purposes of determining whether the relevant branch income of the company for that accounting period has been computed in accordance with this section.

(b) The relevant branch records shall include—

(i) a description of the business of the company, including its organisational structure, business strategy and key competitors,

(ii) a description of the business of the branch, including its organisational structure, business strategy and key competitors,

(iii) a functional and factual analysis which contains such information as may reasonably be required for the purposes of determining—

(I) the existence, characterisation and terms of any dealings between the branch and other parts of the company, and

(II) the appropriate attribution of assets, risks and free capital to the branch,

(iv) calculations supporting the attribution of free capital to the branch based on the functional and factual analysis referred to in subparagraph (iii),

(v) in relation to each of the dealings between the branch and other parts of the company, accounting records and contemporaneous documents which support the existence of such dealings,

(vi) a description of the transfer pricing method used in respect of each of the dealings between the branch and other parts of the company and the reasons for selecting the transfer pricing method,

(vii) details of the tested party used, if applicable, and an explanation of the reasons for selection,

(viii) in respect of each of the dealings between the branch and other parts of the company, a list and a description of selected comparable uncontrolled transactions (internal or external), if any, and information on relevant financial indicators for independent enterprises relied on in attributing the relevant branch income to the branch, including a description of the comparable search methodology and the source of such information, and

(ix) in respect of each of the dealings between the branch and other parts of the company, information and allocation schedules showing how the transfer pricing method has been used to determine the relevant branch income attributable to the branch.

(c) References in this subsection to—

(i) ‘functional and factual analysis’ and ‘free capital’ shall be construed in accordance with the authorised OECD approach guidance, and

(ii) ‘transfer pricing method’, ‘tested party’, ‘selected comparable uncontrolled transactions (internal or external)’, ‘relevant financial indicators for independent enterprises’ and ‘comparable search methodology’ shall be construed in accordance with the transfer pricing guidelines (within the meaning of section 835D).

(d) Paragraph (a) shall not apply to a company for an accounting period where—

(i) the company is a small enterprise for that accounting period, or

(ii) the company is a medium enterprise for that accounting period and the relevant branch income attributable to the branch of the company, as determined in accordance with subsections (3) and (4), for that accounting period is less than €250,000.

(8) (a) The relevant branch records shall be prepared no later than the specified return date for the accounting period concerned.

(b) Where a Revenue officer makes a request in writing to a company under subsection (7)(a), the company shall provide the relevant branch records to the Revenue Commissioners within 30 days from the date of the request.

(9) (a) Where a company fails to comply with a request to provide relevant branch records to the Revenue Commissioners in accordance with subsections (7)(a) and (8)(b), the company shall, subject to paragraph (b), be liable to a penalty of €4,000.

(b) Where the company referred to in paragraph (a) is not a small or medium-sized enterprise, the penalty specified in that paragraph shall be €25,000 and, if the failure referred to in that paragraph, on the part of that company, continues, that company shall be liable to a further penalty of €100 for each day on which the failure continues.

(10) (a) In this subsection “relevant branch adjustment” means the amount of any difference between—

(i) the amount of chargeable profits included in a return delivered by or on behalf of a company on or before the specified return date for an accounting period, and

(ii) the amount of chargeable profits that should have been included in the return delivered by or on behalf of the company on or before the specified return date for the accounting period,

which arose by virtue of the chargeable profits, included in the return delivered by or on behalf of the company, not being computed in accordance with this section.

(b) Where the conditions set out in paragraph (c) are met, a relevant branch adjustment shall not be taken into account in determining whether a penalty referred to in section 1077F(2) for a careless default applies to the company for an accounting period or in computing the amount of any such penalty.

(c) The conditions referred to in paragraph (b) are—

(i) the company has, for the accounting period, prepared the relevant branch records, by the date specified in subsection (8)(a),

(ii) the company provides the relevant branch records referred to in subparagraph (i) to a Revenue officer within the period specified in subsection (8)(b), and

(iii) the relevant branch records referred to in subparagraph (i) are complete and accurate and demonstrate that, notwithstanding the relevant branch adjustment, the company has made reasonable efforts to comply with this section in determining the relevant branch income that is attributable to the branch.

(11) Subsections (3) and (4) of section 886 shall apply with any necessary modifications to the relevant branch records as those provisions apply to the records required by that section.

(12) This section shall not apply to so much of the trade of an overseas life assurance company (within the meaning of section 706) as is life business (within the meaning aforesaid) that is not new basis business (within the meaning of section 730A).