ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
3.3 Hierarchy of Methods The “most appropriate method” rule for the selection of the method is explicitly adopted by Article 4 (1) of the Ministerial Decree as provided by the OECD Guidelines. Accordingly, Article 4 (1) states that the most appropriate method should be selected based on: • the strengths and weaknesses of each method depending on the circumstances of the case; • the appropriateness of the method considered in view of the economically relevant characteristics of the controlled transaction; • the availability of reliable information, in particular in relation to comparable uncontrolled transactions; and • the degree of comparability between the controlled transaction and the uncontrolled transaction. Furthermore, in line with the OECD Guidelines, Article 4 (3) also states that traditional methods (CUP, CPM or RPM) have to be preferred, where a traditional method and a transactional method (TNMM or PSM) can be applied in an equally reliable manner. Additionally, Article 4 (3) provides that the CUP method is deemed to be preferable where it and any of the other above- mentioned methods can be applied in an equally reli - able manner. Lastly, Article 4 (4) specifies that it is not necessary to apply more than one method to assess the arm’s length nature of a controlled transaction. 3.4 Ranges and Statistical Measures Article 6 of the Ministerial Decree deals with the arm’s length range – ie, the range of figures related to a number of uncontrolled transactions each of which is equally comparable to the controlled transaction. In accordance with the OECD Guidelines, it is expressly provided that a controlled transaction is deemed to be at arm’s length if the related financial indicator falls within the above-mentioned arm’s length range. Furthermore, it is worth mentioning that according to Article 6 (3), if the financial indicator of a controlled transaction does not fall within the arm’s length range, the IRA and the Guardia di Finanza (hereafter, jointly referred to as the “Tax Auditors”) are allowed to make an adjustment in order to bring it within the range. The IRA, with Circular Letter No 16/E (the “Circular
control or capital” includes a “dominant influence” over the management of another enterprise based on constraints other than mere capital control, even if it introduced a reference to contractual bounds. 3. Methods and Method Selection and Application 3.1 Transfer Pricing Methods The transfer pricing methods to be used for the evalu - ation of a controlled transaction on the basis of the arm’s length principle are provided by Article 4 (2) of the Ministerial Decree, in accordance with those listed in the OECD Guidelines: • the comparable uncontrolled price (CUP) method; • the resale price method (RPM); • the cost-plus method (CPM); • the transactional net margin method (TNMM); and • the transactional profit split method (PSM). It is worth mentioning that, based on the 1979 OECD Guidelines, the 1980 Circular had already referred to such methods for the evaluation of a controlled trans - action. The practice of the IRA shows that the guide - lines provided by the 1980 Circular on transfer pricing methods have been frequently considered together with the OECD developments in this regard (namely, the OECD Guidelines as updated from time to time). It is also worth noting that the Italian Ministry of Finance has translated into Italian and published the OECD Guidelines, first in 2013 and then in 2017, implicitly endorsing their adoption. 3.2 Unspecified Methods Article 4 (5) of the Ministerial Decree, following the OECD Guidelines, allows taxpayers to apply an unspecified method, other than the methods listed in Article 4 (2) of the same Ministerial Decree, provided that they demonstrate that (i) none of the specified methods can be applied in a reliable manner; and (ii) the different method produces a result consistent with the one which independent enterprises would obtain in carrying out comparable uncontrolled transactions.
101 CHAMBERS.COM
Powered by FlippingBook