From Italy: Italy implements changes to its transfer pricing regime

Francesco Marconi and Stefano Rossi - Andersen Tax & Legal, Italy, a Member Firm of Andersen Global

Transfer pricing has gained increasing attention in recent years in Italy. In 2010, Italy introduced a penalty protection regime together with early recognition of the 2010 OECD Guidelines. Italy also requires reporting of the totals of inter-company transactions in the annual income tax return. These latter developments have significantly enhanced the profile of transfer pricing in Italy with a much broader level of awareness and general interest.

Law Decree n. 50/2017, entered into force on April 24, 2017, replaces the “normal value” standard with a transfer pricing method that is in line with the OECD arm’s length principle. Accordingly, Italy’s tax authorities may make transfer pricing adjustments if operations carried out between related parties are not in line with conditions and prices that unrelated parties performing in a free/open competition and in comparable circumstances would have agreed.

Furthermore, the Law states that the Ministry of Finance may issue regulations to set up best practices in line with the international consensus to implement the principles stated in the new provision of the Income Tax Law.

Moreover, the Law includes provisions for corresponding adjustments following a transfer pricing adjustment that results in a decrease in taxable income.

Said corresponding adjustments can now be made:

to respect agreements concluded with foreign state competent authorities pursuant to tax treaty mutual agreement procedures;
after tax audits carried out in the context of international cooperation activities whose results are shared by the participating States;

at the request of a taxpayer if a transfer pricing adjustment involves a country with which Italy has an in-force tax Treaty with adequate exchange of information provisions.