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 ...

Terms and conditions of use update (courtesy translation)

  These Terms was updated on 2 January 2018   These Terms and Conditions (“Terms”) apply to www.transferpricingitaly.com and any other TPI website or web channel accessible through www.transferpricingitaly.com (collectively, the Website) that links to these Terms (hereinafter the“Website”). The official version of the Terms and conditions here applicable is in Italian language. Should inconsistencies between the Italian version and this English courtesy translation emerge, the Italian language version prevails. Please read these Terms carefully as they contain important information regarding your legal rights, remedies and obligations with respect to your use of the Website, including but not limited to various limitations, exclusions, and indemnities. By accessing or using the Website, and the content and services available via the Website, you signify that you have read, understand and agree to be bound by these Terms in all respects with respect to the Website. If you are not willing to be bound by each and every term or condition, or if any representation made herein by you is not true, you may not use, and must cease using, the Website. As used in these Terms and the Website, TPI, us, and we refer to the TPI network and/or one or more of its Member Firms. Each Member Firm ...

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 ...

The benefits provided by a proper documentation on transfer pricing: two relevant Italian sentences

The judgements no. 83/1/2013 and no. 84/1/2013 issued on January, 2013 by the Regional Tax Commission of Lombardy emphasize the importance of a proper documentation on transfer pricing, providing guidance to multinational groups in order to avoid adjustments and penalties, since a suitable documentation prevents the application of high administrative penalties in the event of a tax assessment and allows the defence of the transfer pricing policies adopted against adjustments. Moreover, the two sentences shed some light on the allocation of the burden of proof. In fact, the Court established that in transfer pricing litigations the onus probandi has to be allocated between the Italian Tax Authority and the taxpayer on the basis of the legal principle of the "proximity" of the parties to the evidential facts related to the adequacy of the transfer prices applied. According to the decision of the Supreme Court, the burden of proof should be allocated by taking into account, in practice, the possibility for one or the other party to prove facts and circumstances that fall within their respective spheres of action. In detail, while it will be on the Tax Authority the burden ...