The Irish Revenue Commissioners ("Revenue") recently published their 100th Annual Report (the "AR"), a year during which they collected a record amount of tax. This was against a backdrop of a challenging environment for taxpayers and one which is growing in complexity, with the trend of increasing disputes with revenue authorities likely to continue. It is therefore unsurprising to see that the AR evidences continued high demand for Advance Pricing Agreements ("APAs") and Mutual Agreement Procedures ("MAPs").
2. Key Takeaways from the AR in respect of APAs and MAPs
The AR highlights that during 2022:
- Revenue resolved a total of 103 MAP disputes, 37 of which related to transfer pricing and 66 of which related to other (non-transfer pricing) disputes;
- a total of 28 MAP requests were initiated in respect of transfer pricing cases, which represents an increase of five from the 2021 figures;
- Revenue concluded 4 APA's and received 12 APA requests; and
- 6 APA requests were withdrawn by taxpayers.
The continued strong demand for MAPs and APAs in respect of transfer pricing continues the trend seen since the adoption of the Action 14 minimum standard by OECD inclusive framework jurisdictions, including Ireland, to make dispute resolution mechanisms more effective. It also underlines the importance of understanding and evaluating the available dispute resolution mechanisms in determining the strategy for preventing or dealing with a transfer pricing dispute.
Importantly, Ireland's efforts in resourcing the Irish Competent Authority ("Irish CA") team and the work of the Irish CA team has led to the Irish CA receiving three awards from the OECD in recognition of Ireland's efforts in 2021.
3. Five things taxpayers should know about APAs and MAPs
- Ireland’s bilateral APA programme is conducted under the legal framework of the MAP article within the relevant double tax treaty with Ireland. As such, there must be a double tax treaty in place in order for a bilateral APA application to be considered by the Irish CA.
- MAPs are also conducted under the MAP article of the relevant double tax treaty, there are also other mechanisms under which a MAP request may be made, including the EU Arbitration Convention and the European Union (Tax Dispute Resolution Mechanism) Regulations 2019 ("EU TDRM"). The Arbitration Convention and the EU TDRM can only be initiated in relation to cases involving EU Member States. As such, in the context of an EU transfer pricing dispute, taxpayers should consider the advantages and disadvantages of proceeding under a particular mechanism before choosing their preferred approach given the circumstances of their case.
- Depending on the treaty or mechanism, MAP requests generally have to be submitted within a prescribed time limit. Therefore, at the outset of any dispute, taxpayers should familiarise themselves with the applicable time limits for making a MAP request as the Irish CA is clear that where a time limit has not been met a request for MAP assistance will not be accepted.
- Taxpayers should be familiar with the types of information that will be required by the Irish CA in order to process a MAP request and should plan accordingly, including in relation to correspondence with a local tax authority through an audit process. In addition, taxpayers should be aware that relief will not be available for certain types of adjustments and should bring this knowledge to bear in any interaction with a foreign tax authority during a transfer pricing audit. For instance, Revenue will not provide any relief for interest and penalties imposed by the other country and secondary / repatriation of profits adjustments implemented under the laws of another country.
- The AR shows that in 2022 a relatively high number of APAs were withdrawn by taxpayers. In order for taxpayers to reduce the chances of needing to withdraw an APA request, it is recommended that taxpayers engage in pre-file discussions with the respective Competent Authorities. The Irish CA specifically encourages taxpayers to arrange a pre-filing meeting to discuss their case and any queries that they may have. In addition, the pre-file gives the Irish CA the opportunity to identify any problems which the taxpayer may need to address before making a formal application. It also allows an opportunity for the Irish CA to give an indication of whether it is likely to accept an application. In our experience, the more time dedicated to preparing the application and engaging in pre-filing discussions the increased likelihood the process will yield a successful outcome.
4. Takeaways for taxpayers
Given the increasingly complex international tax landscape, and the proliferation of disputes, taxpayers are turning to APAs and MAPs more frequently as effective mechanisms to prevent and resolve disputes. The trend we have seen in recent years of taxpayers taking a more proactive approach to dispute prevention by seeking APAs is borne out by the statistics disclosed in the AR.
Where a taxpayer does utilise the APA or MAP mechanisms, they will find in the Irish CA a team that works hard to resolve cases (as evidenced by Ireland recently receiving three MAP awards from the OECD in recognition of its work). They will also find a team that is committed to resolving cases in a timely manner. That noted, the APA and MAP processes can take a long time and internal stakeholders expectations for expedient resolution should be managed.
Please contact Catherine O'Meara or Trevor Glavey for more information or your usual Matheson tax department contact.