Irish Finance Bill 2021 adopts transfer pricing, international tax changes

By Doug Connolly, MNE Tax

The Finance Bill 2021 released by the Irish government on October 21 sets out legislative changes related to transfer pricing, anti-tax avoidance measures, planned tax treaty ratifications, and various other previously announced corporate and international tax measures.

The bill, which relates to the budget for 2022, does not include a planned change in the corporate tax rate related to the October 8 OECD agreement. The Irish government, in connection with the Budget 2022 released just several days after the OECD deal, had announced its intention to adopt a two-tier corporate tax rate. The new regime would add a new 15% rate for companies that are in-scope of the agreement’s minimum tax provisions, while retaining the current 12.5% rate for other companies.

However, the Irish government can bide its time in enacting corporate tax hikes in accordance with the OECD deal until next year’s finance bill (at least) – allowing it to await confirmation of the deal and EU guidance. Under the OECD agreement, the new minimum tax provisions are to be “brought into law in 2022, to be effective in 2023.”

Transfer pricing changes

The bill adopts the authorized OECD approach for the attribution of income to a branch of a non-resident company operating in Ireland. This approach will apply transfer pricing rules to the taxation of permanent establishments or branches in the country by attributing their profits on an arm’s length basis.

The bill also amends transfer pricing legislation, including anti-avoidance provisions, to ensure certain aspects “operate as intended.”

The changes include an exclusion from the transfer pricing rules for the computation of non-trading income in certain circumstances. When the conditions are met, the exclusion will apply for transactions between associated persons who are both chargeable to tax in Ireland on any profits or gains arising from the transaction.

The bill further amends the transfer pricing legislation definition of “relevant person” to specify that the term includes, in relation to an arrangement, “a supplier or acquirer, whose profits or gains or losses within the charge to tax would take account of any results of the arrangement.”

Other corporate and international tax changes

As announced in Budget 2022, the finance bill includes a new tax credit for the digital gaming sector and tax relief for certain start-up companies. Also as announced in the budget, it transposes anti-tax avoidance directive measures, including an interest limitation rule and anti-reverse hybrid rules. With respect to the anti-hybrid rules, the bill also makes some further technical amendments.

In addition to these changes, the finance bill updates the list of jurisdictions with respect to which enhanced controlled foreign corporation measures apply as a result of the jurisdictions being included in the EU’s updated list of non-cooperative jurisdictions for tax purposes.

Regarding tax treaty developments, the bill provides for the ratification of the tax treaty signed with Kosovo and the tax treaty amending protocol signed with Germany.

Furthermore, the bill transposes the EU directive extending the automatic exchange of information to digital platforms. In connection with this, it establishes a reporting requirement for digital platform operators that will apply beginning in 2023.