Archive for the ‘Blog’ Category
Italian TP provisions update for FY 2020 onward
On November 23 2020, the Italian Revenue Agency published new official instructions (“Provvedimento”) for the preparation of Transfer Pricing Documentation in Italy, replacing the provisions of September 29 2010. In general terms the new measures, which are applicable from the 2020 tax period, make the Italian TP documentation more compliant with the last version of OECD Transfer Pricing Guidelines in terms of contents of documentation. It is worth mentioning that, being transfer pricing a not exact science (OECD par.1.13), the preparation of an adequate transfer pricing documentation is a great opportunity for multinational companies operating in Italy. In the case of the predisposition of suitable documentation, companies in fact can benefit from the so-called “penalty protection regime” in case of transfer pricing adjustments by the Italian tax administration. Entry into force The new requirements will apply starting from the ongoing fiscal year at November 23rd, 2020. Accordingly, for the previous fiscal years former provisions dated September 29, 2010 still apply, provided that the Italian Company has declared the possession of TP documentation filing the tax declaration within next December 31, 2020. WHAT ARE THE MAIN NEWS FROM A PRACTICAL POINT OF VIEW? 1) Masterfile document has to be prepared along with Local file The previous provision (i.e. 2010) provided for ...
Tightening on management fees by Italian tax inspectors, the approach of the Italian Court of Cassation in the light of recent judgments
As regards management fees, the Italian tax authorities are traditionally reluctant. Depending on the case, they may take the position that services are not rendered or that the Italian subsidiary already has its own adequate structure. Notwithstanding the above, inter-company charges for services are in principle allowed provided that taxpayers give evidence of the underlying substance. On the basis of the latest Italian Supreme Court’s decisions, the approach of the tax authorities is getting more and more aggressive, since supported by what can be nowadays considered a consolidated approach by the Italian Supreme Tax Court. The Supreme Court’s hard-line on the deductibility of management fees is also confirmed by the recent judgment of 10/10/2018 no. 25025/2018, according to which the expenses relating to intra-group services provided by the parent company are non-deductible if documented only by the service contract, without providing any indication about the hours spent and the employment of staff. In particular, in the above decision, an Italian subsidiary was denied the deductibility of costs relating to financial assistance and treasury management services, use of the industrial factory's surface area, marketing and public relations services, human resources and assistance in the technical design of products. The services were provided by the parent ...
Penalty protection strengthened through the adequate transfer pricing documentation
Transfer pricing, decree issued by the Italian Ministry of Economy and Finance On May 14, 2018, the Ministry of Economy and Finance issued a decree containing the guidelines over transfer pricing guidelines (hereinafter “Decree”), published on the Official Journal (Gazzetta Ufficiale) on May 23, 2018. In detail, the Decree, referring to the article 110 (7) of the Italian income tax law (D.P.R. 22 December 1986, n. 917 - TUIR), reviews some of the fundamentals of the article 110 itself, consistent with article 9 of the OECD Model concerning transfer pricing. Among the key points in the Decree, there is a reinterpretation of the hierarchy in the transfer pricing methods applied so far, indicating the traditional methods (CUP, resale price, cost plus) as preferred methods with respect to the transactional profit methods (transactional net margin and profit split) and highlighting the CUP method as on top of such hierarchy. Another relevant change in the discipline refers to the limits imposed to the Italian tax auditors in adjusting the results of the intra-group transactions, now possible only when they do not fall within the range resulting from a benchmark analysis process. Also a brief mention is made by the Decree to the transfer pricing documentation, that can ...
Valuation approaches of income attributable to intangibles
Intangible assets are not visible on the balance sheet as are other assets such as cash, inventories, plants, and equipment. However, intangibles are often the difference between earning a “normal” return on investment and enjoying "excess" earnings. By their nature, intangibles are unique and because the nexus between intellectual property and its impact on operating profit is not always clear, the valuation of intangible assets requires disciplined, yet creative, thought. INTANGIBLE ASSETS AND INTELLECTUAL PROPERTY In the context of licensing. it is important to note a distinction between intangible assets and intellectual property. Intellectual property is a subset of intangible assets which confers legal protection, thus allowing for the transfer of these rights through licensing. However, not all intangible assets can be readily licensed or legally protected. For example, management experience and corporate procedures are recognized as intangible assets, yet these would be very difficult to license to third parties. CONVERGING VIEWS ON VALUATION OF INTANGIBLES The international best practice on intercompany transfer pricing, the appraisal profession, and the intellectual property community agree on the basic premise of value for intangible assets. While the terminology may vary, the common theme is that a reasonable or fair value should be based on an exchange of ...
(Italiano) Cosa significa applicare i principi OCSE in tema di Patent Box
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(Italiano) PATENT BOX: attenzione alle linee guida OCSE nella valorizzazione
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Transfer pricing documentation implementation: more and more benefits
In 2015 new Italian legislation on transfer pricing and international taxation has heavily increased the importance that, in tax terms, proper transfer pricing documentation represents for companies with international activity (multinationals or not). As you might know, since 2010 preparing, in fact, a specific supporting documentation the taxpayer could benefit from the non application of administrative penalties (in synthesis from 100% to 200% of the additional tax assessed in Italy) in case of disputes and transfer pricing adjustment. Since 2015 the following benefits will add to the penalty protection: Patent Box regime: possibility to opt for a lighter regime that allows to benefit from an exemption (respectively 30% in 2015, 40% in 2016 and 50% in 2017 and subsequent years) of income from intangible assets determined using the transfer pricing methods (with reference to the trademark or other marketing intangibles, to qualify for this exemption may be necessary to present the option by December 31, 2015 or earlier, as such intangibles may be excluded from the benefit as a result of a subsequent change in the law) Customs duties: the taxable value for customs duties on imports shall refer to the transfer pricing rules (i.e. Countryfile) Deductibility of costs arising from transactions with countries ...
Italian patent box regime: a new opportunity
Just released the Italian patent box. It represents a huge potential tax saving relief eligible for a very large number of resident and foreign companies in Italy. The 2015 Financial bill (DdL Stabilità 2015) approved by the Italian Parliament On 22 December 2014 introduces an elective regime which grants an exemption from corporate income tax (IRES, generally levied at 27.5%) and local tax (IRAP, generally levied at 3.9%) on income derived from qualifying intangible assets (such as patents, know-how and other intellectual properties). The exemption will be equal to 30% for 2015, 40% for 2016 and 50% as of 2017 onwards. The decree was signed on the day of Thursday, July 30, and from the first rumors we can understand the main practical aspects at stake. The scope of the new regime With the aim of encouraging the development and exploitation of intangible assets in the Italian territory while also preventing intellectual properties (IP) migration practices, the Italian Government has introduced for the first time a “Patent Box” regime. Duration The patent box regime can apply from the first fiscal year that follows the one ongoing as of December 31, 2014t and is characterized by a five year election period, i.e., the election ...
The recently-introduced Italian “Web Tax”
A number of recent changes are affecting the Italian business model of companies engaged in on-line advertising. As a consequence, companies operating in that field may need to review their transfer pricing model, possibly taking into consideration the possibility to apply for an APA. Transfer pricing At the end of 2013 a number of amendments were made to Italian tax law, also affecting transfer pricing. In response to the international debate on taxation of the digital economy, the Finance Act for fiscal year 2014 - law no. 147/2013, effective from 1 January 2014 - introduced new rules concerning the determination of the arm’s length value of intercompany transactions for companies that operate in on-line advertising or provide ancillary services. In particular, article 1, paragraphs 177-178 of the law introduced a limitation in the available profit level indicators that can be used in calculating transfer prices for multinational enterprises that operate in the on-line advertising sector. For such companies the use of profit level indicators based on cost is no longer permitted. Companies can only use cost-based indicators if they come to an Advanced Pricing Agreement (the so-called International standard ruling) with ...
The International Standard Ruling: cooperation between taxpayers and tax administration in Italy
The International Standard Ruling: cooperation between taxpayers and tax administration in Italy 1. What is the International Standard Ruling? The International Standard Ruling is part of the tax compliance policy which aims at improving cooperation and dialogue between taxpayers and the tax administration in Italy, providing legal certainty to both of the parties, preventing legal disputes and reducing the risk of international double taxation. This procedure came into force in 2004, but actually took effect only in February 2005 after the favorable advice of the European Commission. It is addressed to “enterprises with international activity” which intend to agree in advance with the Italian tax administration regarding their transnational intra-group transactions. The areas covered by the advance agreement procedure concern: 1. the correct transfer pricing methodology applicable to the transactions carried out with related parties, 2. the tax treatment provided for by law, including tax treaties, in respect of dividends, interest, royalties or other income paid to or received from nonresident persons in specific cases, 3. the application of the provisions of the law, including tax treaties, to specific cases related with the attribution of profits or losses to permanent establishments in Italy ...
