Transfer Pricing Between the US and Ireland: Tax Challenges and Contrasts
In an increasingly complex global tax environment, Transfer Pricing is still one of the most sensitive and strategic issues in international taxation. Recent developments in the United States and Ireland illustrate the diametrically opposed regulatory and administrative approaches adopted by both, creating significant challenges for multinationals regarding compliance, litigation, and tax dispute resolution.
Structural Amendments in the United States
In the United States, the evolution of Transfer Pricing disputes is strongly influenced by administrative amendments. The Internal Revenue Service (IRS) has recently reduced staff by 25%, particularly in Human Resources and the Appeals Office, which has weakened its ability to manage tax disputes independently.
This institutional weakening has lengthened tax audits and fostered taxpayers to explore preventive mechanisms such as Advance Pricing Agreements (APAs) or Mutual Agreement Procedures (MAPs). These instruments help avoid lengthy litigation and offer greater legal certainty in cross-border transactions.
In addition, the IRS has intensified its scrutiny of certain sensitive transactions, such as corporate restructurings, intangible transactions, share-based compensation, and ex-post adjustments to functional profitability. Specifically, the institutional position expressed in GLAM 2025-001 suggests a growing IRS willingness to consider actual profitability results to adjust transfer prices, which could shift traditional approaches focused on ex ante projections.
Strengthening and Sophistication of the Irish Approach
Unlike the United States, Ireland has adopted a more rigorous and expansive strategy for Transfer Pricing enforcement. The Irish tax authority has increased its operational capacity by incorporating teams specializing in competent authority and dispute resolution functions, as well as international litigation.
The Irish approach distinguishes itself by its emphasis on substantive analysis of transactions, beyond formal contracts. Tax authorities have begun to actively question the actual economic nature of transactions, especially those involving intercompany interest rates, intellectual property, and the allocation of functions, risks, and assets (FAR).
Likewise, there is a growing emphasis on strict compliance with contemporary documentation, in line with the OECD guidelines. The recharacterization of transactions and the application of the Arm’s Length Principle from an economic perspective are becoming standard practice in Irish audits.
Implications for Multinational Groups
The divergence of criteria and institutional capacities between the United States and Ireland has several consequences for taxpayers:
- Increased legal uncertainty, especially in related-party transactions in both jurisdictions.
- Risk of double taxation, to the extent that each country applies Transfer Pricing adjustments under different methodologies or with different temporal criteria (ex-ante vs. ex-post).
- Need to strengthen tax defense strategies, including robust technical documentation and a proactive consideration of APAs and MAPs.
- Possible expansion of the use of transaction recharacterization, which jeopardizes schemes structured solely based on formal contracts.
Final Considerations
The current environment requires constant adaptation by multinational taxpayers. The growing divergence between the US and Irish approaches to Transfer Pricing illustrates how global tax pressures are not only focused on complying with regulations but also on anticipating the risks of protracted international disputes.
In this context, internal coordination among the tax, accounting, legal, and operational areas of multinationals becomes indispensable. In addition, continuous monitoring is essential for regulatory and doctrinal developments in both jurisdictions, as well as to strengthen defense strategies based on real economic substance and documentary consistency.
Source: Morgan Lewis