Effective from July 1, 2016 the Irish Revenue is introducing a formal bilateral Advance Pricing Agreement programme. In this respect the Irish Revenue has issued a Revenue Operational Manual titled: Bilateral Advance Pricing Agreement Guidelines.

Ireland’s bilateral APA programme is effective from July 1, 2016 and applies to bilateral APA applications made to Revenue on or after this date. Accordingly, the Guidelines do not apply with respect to (i) bilateral APAs which have been signed prior to July 1, 2016 and (ii) formal bilateral APA applications which have been submitted to the Irish Revenue before July 1, 2016 (but in respect of which an APA has not been concluded as of July 1, 2016).

 

The bilateral APA programme only applies to transfer pricing issues (including the attribution of profits to a permanent establishment (“PE”)).

 

An application for a bilateral APA may be made by a company which is tax-resident in Ireland for the purpose of the relevant double tax treaty and also by a PE in Ireland of a non-resident company in accordance with the provisions of the relevant treaty.

 

The bilateral APA programme is intended to apply in respect of a transaction(s) where the transfer pricing issues involved are complex, e.g. there is significant doubt over the appropriate application of the arm’s length principle, or where, for any other reason, there would otherwise be a high likelihood of double taxation arising (in the absence of a bilateral APA).

 

A bilateral APA provides certainty to taxpayers that, as long as the terms and conditions of the APA are satisfied, the transfer pricing issues covered by the APA will not be subject to audit adjustments by the tax authorities of either country which is party to the APA.

 

Ireland’s bilateral APA programme is conducted within the legal framework of the double tax treaty which Ireland has entered into with the other jurisdiction concerned, i.e. there must be a double tax treaty in place in order for a bilateral APA application to be considered. APAs are conducted under the Mutual Agreement Procedure (“MAP”) Article of the relevant treaty where the relevant enabling provision is present in the treaty.

 

The bilateral APA programme is administered by the Transfer Pricing Branch. Certain officers within this Branch are specifically authorised by Revenue to be an authorised representative for the purposes of being a competent authority under the terms of Ireland’s double taxation agreements and conventions, i.e. the officers concerned have the authority to conclude bilateral APAs with Ireland’s double tax treaty partners. The Transfer Pricing Branch also deals with requests from taxpayers for MAP assistance to resolve transfer pricing disputes with treaty partners.

 

The bilateral APA programme is a voluntary programme: Taxpayers can choose whether or not to enter into it. Revenue is committed to operating the programme on the basis of trust and mutual cooperation with the taxpayer and the other tax administration in order to ensure the efficient and fair processing of requests for an APA. Revenue expects that taxpayers considering a bilateral APA request will adopt a similar approach to the programme and regards taxpayer cooperation as critical to the success of the programme.

 

Revenue is under no obligation to accept a request from a taxpayer for a bilateral APA and may, following consultation with the competent authority of the foreign tax administration, terminate consideration of the APA request at any time prior to conclusion of the APA. Such termination is only likely to occur in exceptional circumstances. The taxpayer can also withdraw from the APA programme at any time prior to the conclusion of the APA.

 

Transparency is a fundamental aspect of the bilateral APA programme. Throughout the APA process, the taxpayer should ensure that both tax administrations are provided with the same information at the same time. This applies to any information submitted by the taxpayer to either tax administration as part of the APA process.

 

In negotiating bilateral APAs, Revenue considers that each case is unique and is based on a specific set of facts and circumstances. The APA terms agreed between Revenue and the foreign tax administration do not create a precedent for transactions involving the same taxpayers for any years other than those years included in the APA period (including any roll-back period) or for transactions involving taxpayers other than those specified in the APA.

 

Revenue will endeavour to conclude bilateral APA cases within 24 months of receipt of the formal bilateral APA application from the taxpayer. Concluding APAs within this 24 month period is dependent on a number of factors as outlined in Part 4 of the Guidelines.

 

Revenue does not charge an application fee for entry into the bilateral APA programme but applicants should note that, depending on the jurisdiction, a fee may be charged by the other tax administration involved in the negotiation of a bilateral APA.

 

The rules and procedures governing the bilateral APA process vary from country to country. For instances where a double tax treaty partner has requirements which differ from those set out in these Guidelines, Revenue is willing to consider applying those other requirements, if such application may be appropriate in the specific case.

 

The APA process is made up of a number of distinct stages as follows:

(i)      Pre-filing;

(ii)    Formal APA application;

(iii)   Evaluation of APA application and negotiation of APA;

(iv)  Formal Agreement; and

(v)    Annual Reporting.

 

While not an exhaustive list, set out below are the terms that according to the Irish Revenue are typically agreed between the two competent authorities:

·        Nature of the covered transaction(s);

·        Term for which the APA will be effective (including any roll-back period);

·        Transfer Pricing Methodology used;

·        Compensating adjustments;

·        Critical assumptions; and

·        Taxpayer annual reporting requirements.

 

According to the Guidance, Irish Revenue may revoke or cancel an APA where it is established that any of the following situations have arisen:

·        There has been a misrepresentation, mistake or omission in the information submitted by the taxpayer, whether as part of the formal APA application, any further information submitted as part of the APA application or negotiation process, the annual reports or any other related information;

·        For the full period or part of the period of the APA, the participating taxpayer(s) failed to comply with a material term or condition of the APA; or

·        The tax administration in the foreign jurisdiction has revoked or cancelled the APA.

 

Additionally, an APA can be cancelled if:

·        One or more of the critical assumptions proved to be materially incorrect;

·        There was a material departure from one or more of the critical assumptions;

·        There has been a change in tax law or in a provision of a double tax treaty that is materially relevant to the APA and it has not been possible to revise the APA to take account of the changed circumstances; or

·        There has been a failure to conclude a revised APA in a situation where matters have arisen which would otherwise require the revision of an APA.

 

Irish Revenue, with the agreement of the other competent authority, may seek to revise an APA rather than cancelling it. According to the Guidance this may occur where, for example –

·        There has been a change in any of the critical assumptions or in the terms and conditions of the APA; or

·        There has been a change in law and/or a change in a double tax treaty that impacts the Irish tax treatment of transactions covered by the APA.

 

There are 2 annexes attached to the Guidelines: 

“Appendix 1: Indicative list of items to be discussed at APA pre-filing meeting

1.      High level overview of the MNE’s business and corporate structure.

2.      Parties to the APA and the jurisdictions involved.

3.      Nature of the transactions to be covered under the APA, years to be covered (including whether a roll-back is being requested), and the amounts involved.

4.      Proposed Transfer Pricing Methodology (if decided upon).

5.      High level overview of any transfer pricing audits related to the transactions which are the subject of the APA discussions.

6.      Any other information which taxpayer considers important and relevant to the APA application.”

 

 

“Appendix 2: Indicative list of information to be included as part of APA application

 

(Note – this list is not exhaustive and the taxpayer should provide such further information as it considers to be relevant to the APA application)

 

1. Cover Letter requesting APA

 

2. Executive Summary

a.      Taxpayer entities involved.

b.      Covered transactions.

c.      Proposed APA term (indicating if a roll-back is requested and specifying the years).

d.      Proposed transfer pricing methodology.

e.      Legal basis for APA application (relevant double tax treaty and provisions thereof).

f.       Estimated value (in Euro) of the covered transactions over the proposed APA term.

g.      Reason why taxpayer believes an APA is appropriate for the transactions.

 

3. Company background information

1. Overview of the organisation, including its background, history, ownership structure, operations, operating environment and markets.
2. Overview of the relevant taxpayer group entities (including their tax residency status and how they fit into the corporate structure of the group).
3. Financial year-ends and functional currency for all the parties to the covered transaction(s).
4. Total consolidated revenue for the group for the most recent financial year for which this information is available.

4. Industry analysis

1. A description of the industry, including industry-specific practices.
2. Taxpayer’s position within the industry, including market share and main competitors.

5. Overview of Covered Transactions

1. Description of transaction flows.
2. Overview of relevant legal agreements governing the covered transaction(s).

6. Functional Analysis

1. A description of the functions performed, assets owned/employed and risks assumed by each of the parties to the covered transaction(s).
2. Characterisation of the parties to the covered transaction(s).

7. Economic Analysis

1. Selection of transfer pricing methodology (including critical assumptions made in selecting that method, reasons for rejecting the methods which were not selected).
2. Search for comparables (including a description of the search and screening processes and the rationale for accepting the comparables selected and for rejecting those not selected).
3. Description of adjustments made to the comparables selected.
4. Financial information for the selected comparables.
5. Summary of the application of the proposed transfer pricing methodology to each of the parties to the covered transaction(s).

8. Financial information

1. Financial statements for the previous three years for each taxpayer entity which is a party to the covered transaction(s).
2. Financial projections for each of the taxpayer entities (at an entity level) for the proposed period of the APA.
3. Financial projections for the each of the taxpayer entities for the proposed covered transaction(s) for the period of the APA.

9. Audit

1. Details of any tax authority enquiries relevant to the issues in the APA application.
2. Confirmation of when the time limit on tax authority audit enquiries expires in each jurisdiction for the roll-back years proposed to be covered by the APA.

10. Other

A copy of any previous or existing rulings or advance pricing agreements (whether unilateral, bilateral or multilateral) issued by other Tax Authorities, which relate to similar transaction(s) to those covered by the APA application.

 

11. Legal Agreements

Copy of all relevant legal agreements.”

 

Furthermore a.o. the following subjects are discussed in the Guidelines:

·        Introduction

·        Bilateral APA Programme overview

·        Purpose and Scope of an APA

o       What is an APA?

o       Cases suitable for APA

§        Factors which are more likely to result in a request for an APA being accepted by Revenue

§        Factors which are more likely to result in a request for an APA being rejected by Revenue

o       APA term & roll-back

·        APA process

o       Pre-filing

o       Formal APA application

o       Evaluation of APA application and negotiation of APA

o       Formal agreement

o       Annual reporting

·        Administering an APA

o       Audit

o       Consequences of non-compliance

§        Revoking or Cancelling the APA

§        Revising the APA

§        Renewing an APA

·        Confidentiality & Protection of information

o       Council Directive (EU) 2015/2376 of 8 December 2015

 

Click here to download the Revenue Operational Manual titled: Bilateral Advance Pricing Agreement Guidelines from the website of the Irish Revenue (Pdf Format).

 

 

Copyright – internationaltaxplaza.info

 

 

Are you looking for a new member for your tax team? Then check out our Special Birthday Offer and benefit from our special rates during the month of June 2016!

 

and

 

Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!