ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
ciple set forth by both Article 9 of the OECD Model Tax Convention on Income and on Capital (the “OECD Model Convention”), Condensed Version 2017, and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of January 2022 (the “OECD Guidelines”). On 14 May 2018, the Ministerial Decree was pub - lished, setting out general guidance for the correct application of the arm’s length principle in line with international best practices, making explicit reference to the OECD Guidelines and to the OECD Final Report on Base Erosion and Profit Shifting (BEPS) Actions 8–10 as well. Furthermore, pursuant to Article 8 of the Ministerial Decree, on 23 November 2020, the director of the IRA issued Regulation 2020/0360494 (the “2020 TP DOC Regulation”), to replace the previous 2010 regulations, updating the transfer pricing documentation eligibility requirements to benefit from the penalty protection regime, and aligning the same with the OECD Guide - lines as amended following the OECD Final Report on BEPS Actions 13. It is also worth noting that the Ministerial Decree con - tains a final clause under Article 9 that explicitly ena - bles the IRA to issue further implementing measures, in light of the OECD Guidelines as amended from time to time. 2. Definition of Control/Related Parties 2.1 Application of Transfer Pricing Rules Transfer pricing rules apply with respect to cross- border transactions carried out between an Italian resident enterprise and non-resident companies that are linked by a direct or indirect “control” relationship. Indeed, Article 110 (7) of the ITC applies to cross-bor - der transactions occurring between Italian and non- resident enterprises that “directly or indirectly control the Italian enterprise, or are controlled by it, or are controlled by the same company controlling the Italian enterprise”. However, Article 110 (7) of the ITC does not provide a definition of “control”.
The definition of “associated enterprises” is provided by Article 2, letter a), of the Ministerial Decree, as fol - lows: “an enterprise resident in the Italian territory as well as non-resident companies where: (i) one of them participates directly or indirectly in the management, control or capital of the other; or (ii) the same person participates directly or indirectly in the management, control or capital of both enterprises”. What Constitutes Control? Article 2, letter b), of the Ministerial Decree clarifies that “participation in the management, control or capi - tal” means (i) a participation of more than 50% in the capital, voting rights or profits of another enterprise; or (ii) the dominant influence over the management of another enterprise, based on equity or contractual bounds. In this respect, it should be noted that Arti - cle 110 (7) of the ITC merely refers to the concept of “control”, which was already present in the wording of Article 110 (7) before the amendments introduced by the Law Decree of 24 April 2017, No 50. In this regard, the 1980 Circular had specified that the concept of “control” must be characterised as “all instances of potential or effective economic influence”. In addition, the 1980 Circular reaffirmed that the con - cept of control is strictly related to the actual existence of a “dominant influence”. In light of this, apart from voting rights, some other factors are identified by the 1980 Circular, such as: • the exclusive sale of products manufactured by the other enterprise; • the use of the capital, products and technical co- operation of the other enterprise, including joint ventures; • the right of the other enterprise to appoint mem - bers of the board of directors of the enterprise; • the existence of members of the board of directors in common; • the existence of family relationships between the parties; and • in general, all the cases in which a potential or actual influence on business decisions is exer - cised. On this point, the Ministerial Decree indicates that the concept of “participation in the management,
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