1. Introduction
On 26 April 2024, the Revenue Commissioners (“Revenue”) published an updated version of the Bilateral Advance Pricing Agreement Guidelines (the “New Guidance”). The New Guidance is intended to reflect OECD best practice on Bilateral Advance Pricing Agreements (“APA”).
While a number of the updates are administrative in nature, the New Guidance offers enhanced details on taxpayer compliance requirements within the APA programme, in addition to providing some useful clarifications.
Ireland’s APA programme is growing in significance as taxpayers face international transfer pricing disputes and need an experienced competent authority, such as the Irish Competent Authority (the “Irish CA”), to resolve cases effectively. In 2023, 16 new APA requests were received by the Irish CA, bringing the total number of APAs under negotiation to 68 at the end of 2023[1]. This increase in the number of taxpayers seeking to enter into the APA programme highlights the increasing importance of the certainty afforded by an APA.
2. Key Clarifications
2.1 Inclusion of Prospective Years
The New Guidance provides additional detail that the Irish CA is open to considering an APA term that includes at least two prospective years where, at the time an agreement is reached by the Irish CA, most of the proposed years have passed. This is subject to confirmation by the taxpayer that the facts and circumstances of the transaction should remain the same for this two-year period. Given the protracted nature of APA processes generally, this is a welcome clarification.
2.2 Timeframe on Decision to Accept APA into the Programme
The New Guidance provides a revised timeframe within which the Irish CA must deliver a decision to accept or reject an APA application from 50 to 60 days. This 60 day period begins on the date of receipt of a complete APA application.
2.3 Requirement to inform the Irish CA of “Relevant Developments”
There is now a requirement of taxpayers throughout the process to inform the Irish CA “without delay” of any relevant developments which could impact the APA. Whilst in practice it has been customary for taxpayers to keep the Irish CA updated on material developments throughout the course of an APA application, the New Guidance now specifically puts an onus on taxpayers to do so. Although the New Guidance does not specify what may constitute “relevant developments” it can be expected that it will include anything that could impact the critical assumptions underpinning the proposed APA such as changes in the functional profile of an entity (eg, due to a restructuring). They may also include macro-economic changes that impact financial projections for an entity or proposed covered transaction.
The New Guidance also clarifies that in the course of negotiations between Competent Authorities, the Irish CA may consult with the taxpayer as necessary to clarify any factual questions.
2.4 Consultation with the Taxpayer Following APA Agreement
The New Guidance confirms that where an APA differs from the approach proposed in the taxpayer’s submission and is not agreeable to the taxpayer, the Irish CA is willing to consult with the taxpayer to determine if any modifications may be made to achieve a final set of terms and conditions acceptable to all parties.
2.5 Further Detail on the Relationship between Transfer Pricing Audit and APA Process
The New Guidance contains a new section elaborating on the relationship between transfer pricing audits and APAs.
In Ireland a transfer pricing audit or examination process and the APA process are conducted by separate teams within Irish Revenue, therefore, the New Guidance notes the importance of informing the Irish CA of any open audits or examinations relating to the transaction(s) proposed to be covered by the APA, regardless of whether these transactions relate to a period prior to the proposed APA period.
Importantly, the New Guidance also clarifies that:
(i) where Revenue have commenced a transfer pricing audit or compliance intervention of a particular period for a taxpayer “this period may not be covered by an APA”; and
(ii) where an APA application has been accepted into the APA programme by the Irish CA, during the period of the APA negotiations the transaction(s) proposed to be covered by the APA would generally not be subject to a transfer pricing audit or compliance intervention by Revenue.
An exception to (ii) above would, however, arise where the taxpayer withdraws its APA application or the APA process is otherwise terminated.
2.6 Information to be Provided under Council Directive 2015/2376
The New Guidance expands on the description of what can be provided in relation to APAs with non-EU countries under Council Directive 2015/2376 as regards mandatory automatic exchange of information in the field of taxation (the “Directive”). The previous guidance noted that the information shared would be based on the taxpayer’s request. It now goes further to note that the information is based on the taxpayer’s “application, including clarifications and additional information sought from the taxpayer”. It does not change the scope of what needs to be provided under the Directive but it would reflect updates to the application (eg, if a change to methodology is proposed by the taxpayer).
3. Compliance Related Updates
3.1 Filing Position During the Negotiation Period
Taxpayers are instructed that for the period between the submission of an APA application and the reaching of an agreement, the corporation tax return in Ireland should be filed based on the position proposed in the APA application.
3.2 Amendments of Returns following Revision, Revocation or Cancellation of an APA
Where an APA is revised, revoked or cancelled, taxpayers are advised that they may need to amend previously filed tax returns. Taxpayers can liaise with Revenue in that respect.
3.3 Annual Reporting Requirements – Additional Reconciliations
Taxpayers are now also required to confirm the relevant financial accounting standard used to apply their transfer pricing methodology and provide a reconciliation showing the necessary adjustments to arrive at the amounts stated in the financial statements.
Revenue have also requested that taxpayers provide a schedule demonstrating how the financial data used in applying the transfer pricing methodology in the APA may be reconciled to the financial statements.
4. Key Takeaways
The New Guidance largely reflects recent practical experience for taxpayers and practitioners engaged in APA processes with the Irish CA. It also contains important and helpful clarifications that taxpayers with an APA or who are engaged in or contemplating an APA process should be aware of.
The clarifications regarding the potential inclusion of prospective years, which will in practical terms provide advanced certainty for a taxpayer with an APA, and the stated willingness of the Irish CA to seek modifications to a final agreement in certain circumstances, are welcome.
The additional details to be provided as part of APA annual reporting, such as financial reconciliations and the requirement to inform Revenue of any developments impacting the APA, are in line with transfer pricing documentation requirements and practical experience.
Overall the clarifications evidence the collaborative approach experienced by taxpayers and practitioners when engaging with the Irish CA on APAs generally.
For more information please contact your usual Matheson Tax contact.
[1] Revenue 2023 Annual Report