Modernise Transfer Pricing (TP)
The Report recommends that Ireland should update our TP rules to follow the current OECD TP guidelines. Our rules currently reference the 2010 guidelines. As part of this, it also recommends that transfer pricing should apply to all transactions including non-trading, capital transactions and transactions of SMEs. Furthermore the report recommends that Ireland adopt the transfer pricing documentation requirements set out as part of BEPS action 13.
From a timing perspective the report recommends that these changes are made by the end of 2020. Given the number of measures that Ireland must introduce in the coming years as a result of BEPS/the EU’s Anti-Tax Avoidance Directive, it appears unlikely that the Department of Finance would move in advance of that date.
Intellectual Property (IP) Regime
The Report recommends a recalibration of Ireland’s existing IP regime to ensure some smoothing of corporate tax revenues over time. The recommendation is for the reintroduction of a cap such that, in any given year, only 80% of income could be offset by IP amortisation and related financing expenses. Any excess deductions would be carried forward to subsequent years without limit and hence this proposal would be unlikely to have any impact on a company’s effective tax rate but could affect cash taxes in any given year.
It is possible that the Minister for Finance may introduce this cap in the upcoming Budget. However, it is currently unclear as to whether the cap will apply to all IP (as the report suggests) or only to IP acquired after a date in the future.
Competitive Territorial Regime
In line with ATAD, a CFC regime must be introduced by 2019. The Report recommends that Ireland should move to a territorial tax system and/or enhance our foreign tax credit regime to maintain Ireland’s competitiveness internationally.
The various other recommendations in the report either don’t require significant change or are merely calls for Ireland to maintain its current commitment to implement BEPS/EU initiatives.