Tax

Transfer Pricing Correlative Adjustments

By:

Sasha Kerins

28 Nov 20225 min read

The Irish Revenue (“Revenue”) published updates to their tax and duty manual (“TDM”) containing guidelines for correlative adjustment (“CA”) claims under Ireland’s double tax treaty network. Here is a summary of the Revenue guidelines.

Contents

Introduction to CA

If a group company or subsidiary (an associated enterprise [“AE”]) has had to pay additional tax in a foreign country, as a result of a transfer pricing (“TP”) adjustment in that country; CA is the mechanism available to compensate for that additional foreign tax; essentially allowing an adjustment to the Irish profits of the Irish taxpayer.

This mechanism only works where there is a Double Taxation Agreement (“DTA”) with that other country.

Purpose of CA

To provide the taxpayer (who is Irish resident for treaty purposes) with relief from economic double taxation i.e. taxation of the same profit in both Ireland and in another country where the AE is located.

Eligibility conditions

Condition 1: DTA is in place between Ireland and the country of AE; and

Condition 2: Presence of Article equivalent to Article 9 of the OECD Model Tax Convention on Income and Capital (“MTC”); or AE’s Country is a Multilateral Instrument (“MLI”) signatory and has fully adopted Article 17 of MLI

Procedure to claim

Form & Contents: Form CA1 – Revenue prescribed claim form (along with detailed list of information required)
Mode of submission:
1. Original: To the Revenue Division/Branch dealing with the Irish taxpayers’ affairs; and
2. Copy: To the Revenue Transfer Pricing Branch of the International Tax Division
Language: English or Irish

Review by Revenue

The Revenue officer will review the claim and accept the claim - to the extent, they consider the primary adjustment justified in both principle and value terms. Accordingly, the claim may be wholly or partly accepted; or wholly rejected.

Claim Accepted (Wholly or Partially)

Claim Rejected (Wholly)

Revenue to seek confirmation from AE’s Country if AE has paid additional tax on incremental profit after adjustment.

Irish taxpayer to submit revised computations for affected years to Revenue.

Revenue to amend assessments and make resulting repayments.

Revenue to give notice stating reasons for rejection.

Irish taxpayer can appeal against the notice by either appealing to the Tax Appeals Commission (“TAC”) or by taking Mutual Agreement Procedure (“MAP”) assistance (see details below).

Appeal mechanism

Appeal to the Tax Appeals Commission (“TAC appeal”)

MAP Assistance under DTA

Time limit: Within 30 days of notice from Revenue rejecting the claim wholly or partially.

Procedure: Notice of Appeal (along with a copy of the notice from Revenue) to be submitted either electronically (through www.taxappeals.ie) or via email or post.

Time limit: Within the time limit specified in relevant DTA (generally within 3 years from the first notification of dispute).

Procedure: MAP Request to Competent Authority in Revenue’s International Tax Division, as per guidance specified in Revenue’s TDM Part 35-02-08. The taxpayer has the option to submit a Protective MAP request to ensure that the time limit is not exceeded. However, in such a case, the Competent Authority cannot examine the request until further notification from the company.

Special considerations

Irish tax law does not allow a deduction for additional tax paid as a result of TP adjustments in other countries. The CA rules under DTAs is the appropriate mechanism to relieve Irish taxpayers from any potential double taxation.
Revenue is not bound to accept a CA claim, merely because a TP adjustment is imposed by another tax authority. The Revenue will only accept the CA claim, to the extent it considers the overseas adjustment is justified in both principle and value terms.
The taxpayer can make a fresh CA claim, even if it has already submitted a CA claim which is either still under review or has been refused by Revenue before the publication of this guidance.
CA will not include relief for:
- Secondary adjustments such as imputed or notional interest on intercompany balances;
- Interest on unpaid taxes; and
- Statutory penalties.

Way forward

The Revenue TDM provides detailed guidance on the procedural mechanisms for the application of correlative adjustment-related Article under Ireland’s DTA network. The appropriateness and acceptance of the CA claim depends to a large extent on the completeness and accuracy of the submission made to Revenue.

In a case where the CA claim is wholly or partially rejected by Revenue, it is important to make a submission to the respective tax authorities in the prescribed manner, within the specified time limit. Failure to do so may lead to the appeal application being rejected. It should also be noted that an incorrect claim to Revenue could, in some circumstances, lead to penal consequences.

While the CA proceedings provide an opportunity for the Irish entity to claim double taxation relief, the large amount of documentation required to be submitted, along with the tight time limits, can act as potential hurdles.

Next steps

We strongly recommend that companies who suffer overseas TP adjustments seek prompt advice from their tax advisors.

In support of your CA claim, we can work with you to provide the following:

Compile relevant documentation at the group level, enabling the Irish entity to obtain complete and accurate evidence/documents (including any audit papers) from its AE; and
Be fully aware of the historical and current tax positions taken by the AEs in their respective jurisdictions (at all stages - from the starting date of the transaction to the conclusion of the audit or appeal).

Contact us

If you would like to know more, contact a member of our Transfer Pricing team or your usual Grant Thornton contact.