The Canada Revenue Agency (CRA”) regularly ratings deals between associated corporations when one is Canadian resident and something is not. Transfer prices play a large role in determining the overall organization’s tax liabilities If the downstream division is located in the jurisdiction with a higher tax rate compared to the upstream division, there is an incentive for the overall organization to make the transfer price as high as possible.
Generally, to be trading, the Irish company should be engaged in the key profit-making commercial activity and should have the necessary people resources in Ireland with the requisite skill and expertise to perform that activity.8 Whilst certain activities may be outsourced or subcontracted to third parties; the directors must be involved in managing the commercial activity and strategic direction of the company.
To avoid any unwanted tax schemes, transfer pricing rules have been based on the arm’s length principle which sets forth that prices or values imposed between related parties should correspond to those established between independent parties in similar transactions. The Irish transfer pricing rules and arm’s-length test apply to domestic trading transactions and crossborder transactions alike.
Arrangements concluded within small or medium sized enterprises (‘SMEs’) are excluded from the scope of Ireland’s transfer pricing rules. Whether the accepted methodologies for determining and reporting the arm’s length standard will withstand the regulatory adjustments remains to be seen, as most of the Member State governments involved are appealing through the courts, and the companies maintain they have complied with the law.
As noted in the aforementioned October 2003 Tax Traps & Tips article, interest is a significant cost component to any transfer pricing dispute. In this context, in November 2012, the Revenue Commissioners announced that transfer pricing compliance reviews (‘TPCRs’) would form the cornerstone of monitoring compliance with Ireland’s transfer pricing rules.
The operations that are covered are basically any type of cross-border transactions between related parties, including, for example, purchase and sale of products, furnishing of services, financial transactions, technology transfers or transfer of Transfer Pricing rights to use patents, trademark, copyrights. This environment requires taxpayers to take a proactive and coordinated approach to understand their transfer pricing arrangements and global, regional as well as local documentation requirements.
In October 2015, the OECD released and the G20 endorsed its final report on each of the 15 BEPS action items, including action item 13. Under action item 13, the OECD published revised standards for transfer pricing documentation, including countryby- country (“CbC”) reporting. Under Dutch law, companies are also under a statutory obligation to document transactions between divisions conducted within the same country.