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Transfer Pricing
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15. (1) Part 35A of the Principal Act is amended, in subsection (1) of section 835A, by inserting, in the definition of “relevant person” in that subsection, “(and for the purposes of sections 835F and 835G shall, in relation to an arrangement, include a person who is a supplier or an acquirer whose profits or gains or losses within the charge to tax would take account of any results of the arrangement)” after “results of the arrangement”.
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(2) Part 35A of the Principal Act is further amended by substituting the following for section 835E:
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“Modification of basic rules on transfer pricing for arrangements between qualifying relevant persons
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835E. (1) For the purposes of this Part, but subject to subsection (2), for a chargeable period, ‘qualifying relevant person’, in relation to an arrangement, means—
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(a) a relevant person—
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(i) who is chargeable to income tax or corporation tax under Schedule D for the chargeable period in respect of profits or gains or losses, the computation of which takes account of the actual results of the arrangement, and
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(ii) who, where that person is chargeable to income tax in respect of profits or gains or losses (and, as aforesaid, the computation of which takes account of the actual results of the arrangement), is resident in the State for the purposes of tax for the chargeable period,
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or
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(b) a person who, not being a relevant person to whom paragraph (a) applies, is a supplier or an acquirer who, under paragraph (c)(i) of subsection (5), is regarded as a party to a qualifying loan arrangement.
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(2) A person who is a qualifying company within the meaning of section 110 shall not be regarded, for the purposes of this Part, as a qualifying relevant person.
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(3) For the purposes of this section, but subject to subsection (5)(c)(ii), the computation of profits or gains or losses of a relevant person that are chargeable to income tax or corporation tax under Schedule D for the chargeable period, as the case may be, shall only be regarded as taking account of the actual results of an arrangement where—
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(a) in the case of an acquirer in relation to an arrangement, the actual consideration payable for an acquisition under the arrangement is directly taken into account in computing the amount of profits or gains or losses of the acquirer that are chargeable to tax under Schedule D,
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(b) in the case of a supplier in relation to an arrangement, the actual consideration receivable for a supply under the arrangement is directly taken into account in computing the amount of profits or gains or losses of the supplier that are chargeable to tax under Schedule D.
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(4) Subject to subsections (5) and (6), where the actual consideration receivable by the supplier for a supply under an arrangement, or the actual consideration payable by the acquirer for an acquisition under an arrangement, is not greater than a nominal amount, the computation of profits or gains or losses of the supplier or the acquirer, as the case may be, that are chargeable to tax under Schedule D shall, for the purposes of this section, not be regarded as taking account of the actual results of that arrangement.
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(5) (a) In this subsection a ‘qualifying loan arrangement’ for a chargeable period is an arrangement—
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(i) whereby a loan is made by a supplier to an acquirer, otherwise than in the course of a trade carried on by the supplier, and—
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(I) where the acquirer is a company referred to in clause (I) or (II) of subparagraph (ii), the acquirer is within the charge to corporation tax and the supplier is—
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(A) an individual who is resident in the State for the purposes of income tax, or
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(B) a company within the charge to corporation tax,
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or
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(II) where the acquirer is a company referred to in clause (III) of subparagraph (ii), both the supplier and the acquirer are companies within the charge to corporation tax,
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(ii) where the company who is the acquirer in relation to the arrangement is—
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(I) a company which exists wholly or mainly for the purposes of carrying on a trade or trades,
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(II) a company whose income consists wholly or mainly of profits or gains chargeable to tax under Case V of Schedule D, or
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(III) a company whose business consists wholly or mainly of the holding of shares directly in a company which exists wholly or mainly for the purposes of carrying on a trade or trades or whose income consists wholly or mainly of profits or gains chargeable to tax under Case V of Schedule D,
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(iii) where—
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(I) in the case of an acquirer referred to in clause (I) of subparagraph (ii), the acquirer is, for the chargeable period, chargeable to tax under Case I of Schedule D in respect of profits or gains or losses and the full amount of any interest chargeable on the loan would be directly taken into account in computing the amount of those profits or gains or losses, or
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(II) in the case of an acquirer referred to in clause (II) of subparagraph (ii), the acquirer is, for the chargeable period, chargeable to tax under Case V of Schedule D in respect of profits or gains or losses and the full amount of any interest chargeable on the loan would be directly taken into account in computing the amount of those profits or gains or losses, or
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(III) in the case of an acquirer referred to in clause (III) of subparagraph (ii), the proceeds of the loan are used by the acquirer to lend to another person (referred to in this clause as the ‘second arrangement’) and, in the chargeable period, interest is receivable by the acquirer under the second arrangement, which is directly taken into account in computing profits or gains or losses of the acquirer that are chargeable to tax under Schedule D (and where the second arrangement involves a person with whom the acquirer is associated, the amount of interest directly taken into account in computing those profits or gains or losses is not less than an arm’s length amount), but the following clause provides an alternative to this clause in the case of an acquirer referred to in subparagraph (ii)(III), or
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(IV) in the case of an acquirer referred to in clause (III) of subparagraph (ii), the proceeds of the loan are used by the acquirer to acquire ordinary shares directly in, or to subscribe for ordinary shares in, a company (in this clause referred to as a ‘relevant company’)—
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(A) which exists wholly or mainly for the purposes of carrying on a trade or trades or a company whose income consists wholly or mainly of profits or gains chargeable to tax under Case V of Schedule D, and
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(B) which, immediately following the acquisition or subscription, as the case may be, is a company with which the acquirer is associated,
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and arising from such acquisition, or subscription, as appropriate, of shares in the relevant company, the acquirer receives in the chargeable period, or in any period of three years that includes the chargeable period, an amount of dividends or other distributions, greater than a nominal amount, from the relevant company that are chargeable to tax under Schedule D or which would be chargeable to corporation tax but for section 129,
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and
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(iv) the arrangement is entered into for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
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(b) In the case of an acquirer referred to in clause (III) of paragraph (a)(ii), where, and to the extent that, the proceeds of a loan (in this paragraph referred to as the ‘replacement loan’) are used by the acquirer to repay a loan (referred to in this paragraph as the ‘original loan’)—
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(i) which was provided under an arrangement that, under paragraph (a), was regarded as a qualifying loan arrangement for a chargeable period, and
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(ii) the full proceeds of the original loan were used for a purpose specified in clause (III) or (IV) of paragraph (a)(iii),
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the proceeds of the replacement loan shall be deemed to be used for a purpose specified in clause (III) or (IV) of paragraph (a)(iii), as the case may be.
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(c) Where, for a chargeable period, an arrangement is a qualifying loan arrangement—
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(i) the supplier or the acquirer, as the case may be, shall, for the purposes of this section, be regarded as a party to a qualifying loan arrangement, but where clause (IV) of paragraph (a)(iii) or clause (III) of subsection (6)(b)(iii) applies in relation to the qualifying loan arrangement, the supplier or the acquirer, as the case may be, shall only be regarded as a party to a qualifying loan arrangement where they are both resident for the purposes of tax in the State, and
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(ii) subsection (8) shall apply to the supplier as if the supplier has, for the chargeable period, profits or gains or losses that are chargeable to tax under Schedule D, other than under Case I or II of Schedule D, the computation of which takes account of the actual results of the qualifying loan arrangement.
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(6) (a) In this subsection, a reference to a ‘debt’ is a reference to an amount of money owed by an acquirer to a supplier, which—
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(i) arose directly from a supply of goods, services or assets under an arrangement to which section 835C(1) applies (referred to in this subsection as the ‘underlying arrangement’), and
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(ii) is an amount of consideration for that supply and acquisition which, for bona fide commercial reasons, is unpaid.
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(b) Where, for a chargeable period, the following is the case—
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(i) a debt is owed by an acquirer to a supplier, which arose otherwise than in the course of a trade carried on by the supplier, and—
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(I) where the acquirer is a company referred to in clause (I) or (II) of subparagraph (ii), the acquirer is within the charge to corporation tax and the supplier is—
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(A) an individual who is resident in the State for the purposes of income tax, or
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(B) a company within the charge to corporation tax,
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or
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(II) where the acquirer is a company referred to in clause (III) of subparagraph (ii), both the supplier and the acquirer are companies within the charge to corporation tax,
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(ii) the company who is the acquirer is—
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(I) a company referred to in subsection (5)(a)(ii)(I),
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(II) a company referred to in subsection (5)(a)(ii)(II), or
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(III) a company referred to in subsection (5)(a)(ii)(III),
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(iii) where—
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(I) in the case of an acquirer referred to in clause (I) of subparagraph (ii), the acquirer is, for the chargeable period, chargeable to tax under Case I of Schedule D in respect of profits or gains or losses and the full amount of any interest chargeable on the debt would be directly taken into account in computing the amount of those profits or gains or losses, or
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(II) in the case of an acquirer referred to in clause (II) of subparagraph (ii), the acquirer is, for the chargeable period, chargeable to tax under Case V of Schedule D in respect of profits or gains or losses and the full amount of any interest chargeable on the debt would be directly taken into account in computing the amount of those profits or gains or losses, or
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(III) in the case of an acquirer referred to in clause (III) of subparagraph (ii), the debt arose directly from the acquirer acquiring ordinary shares in, or subscribing for ordinary shares in, a relevant company (as referred to in clause (IV) of subsection (5)(a)(iii)) and arising from such acquisition, or subscription, as appropriate, of shares in the relevant company, the acquirer receives in the chargeable period, or in any period of three years that includes the chargeable period, an amount of dividends or other distributions, greater than a nominal amount, from the relevant company that are chargeable to tax under Schedule D or which would be chargeable to corporation tax but for section 129,
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and
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(iv) the arrangement which gave rise to the debt was entered into for bona fide commercial reasons and not as part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, was the avoidance of tax,
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then the debt owed from the acquirer to the supplier shall be deemed to be a qualifying loan arrangement within the meaning of subsection (5) and subsection (5)(c) shall apply with any necessary modifications.
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(c) An underlying arrangement, which gave rise to a debt which is regarded as a qualifying loan arrangement under paragraph (b), shall not be regarded as a qualifying loan arrangement by virtue of paragraph (b).
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(7) This section shall apply to an arrangement involving a supplier and an acquirer who are, in respect of that arrangement, qualifying relevant persons.
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(8) Where, in relation to an arrangement to which this section applies, for a chargeable period, a supplier or an acquirer, as the case may be, is chargeable to tax under Schedule D, other than under Case I or II of Schedule D, in respect of profits or gains or losses, the computation of which takes account of the actual results of the arrangement—
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(a) the profits or gains or losses of the supplier or the acquirer, as the case may be, shall be computed on the basis that section 835C does not apply in respect of that particular arrangement, and
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(b) section 835G(2) shall not apply to the supplier or acquirer, as the case may be, in respect of that particular arrangement.
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(9) Subsection (8) shall not apply in the case of an arrangement involving a supplier and an acquirer who are qualifying relevant persons (in this subsection referred to as the ‘first-mentioned arrangement’) which is made as part of, or in connection with any scheme involving the acquirer in relation to the first-mentioned arrangement, or a person associated with the acquirer, entering into an arrangement with a person or persons who are not qualifying relevant persons (in this subsection referred to as the ‘second-mentioned arrangement’) and the sole or main purpose of the first-mentioned arrangement is to directly or indirectly obtain a tax advantage in connection with the second-mentioned arrangement.
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(10) For the purposes of subsection (9), ‘tax advantage’ has the same meaning as in section 811C.
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(11) A supplier or an acquirer, as the case may be, shall maintain and have available such records as may reasonably be required for the purposes of determining whether the requirements of this section are met.”.
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(3) This section shall come into operation on such day as the Minister for Finance may appoint by order.
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