Taxes Consolidation Act 1997 section 769N

Application of Part 35A

Section 769N requires large companies claiming knowledge development box (KDB) relief to apply OECD transfer pricing standards when determining market values and making apportionments of income and expenditure for the purposes of the relief.

• Where a company is subject to the transfer pricing rules in Part 35A (broadly, groups with 250+ employees, turnover exceeding €50 million, or balance sheet exceeding €43 million), section 835D applies with necessary modifications to all valuations and apportionments required for KDB purposes.
• Transfer pricing standard documentation must support that income is not overstated and expenses are not understated — the reverse of the usual Part 35A focus — and this KDB requirement applies in addition to any separate Part 35A obligations.
• Companies that are not large companies face a scaled burden of proof: smaller, simpler enterprises may use straightforward approaches such as cash-flow-based IP valuations or notional royalty rates of up to 10%, while larger or more complex groups will need expert reports and more detailed documentation.
• Documentation prepared for R&D tax credit claims will be a useful starting point for KDB documentation, although key differences between qualifying expenditure for KDB and expenditure on R&D must be addressed.