ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
Such guidance represents sector-specific application of the AOA rather than a safe harbour regime, as it does not provide for fixed margins or simplified out - comes but requires a full analysis of functions, risks and assets in line with the AOA Report and OECD Guidelines. 10. Relevance of the United Nations Practical Manual on Transfer Pricing 10.1 Impact of UN Practical Manual on Transfer Pricing As discussed in 1. Rules Governing Transfer Pricing , Italian transfer pricing regulations have been aligned with international best practices (ie, the OECD Guide - lines as amended following the BEPS project). There is no reference in Italian legislation or administrative guidance to the UN Practical Manual on Transfer Pric - ing. 11. Safe Harbours or Other Unique Rules 11.1 Transfer Pricing Safe Harbours Special rules for low value-adding intercompany services are provided by Article 7 of the Ministerial Decree. This provision, mirroring the OECD Guide - lines, provides a simplified approach to assess con - sistency with the arm’s length principle of certain qualified services. These are services which: • are of a supportive nature; • are not part of the core business activity of the group; • do not require the use of unique and valuable intangibles and do not lead to the creation of the same; and • do not involve the assumption or control of sub - stantial or significant risk by, or give rise to the creation of significant risk for, the service provider. In accordance with the OECD Guidelines, the remu - neration of the above-mentioned services is deemed to be arm’s length if a mark-up of 5% is applied on the direct and indirect costs borne for the performance of the same services. Therefore, if the simplified
approach is applied, a specific benchmark to test the arm’s length value is not required. However, in order to apply such a simplified approach, the taxpayer must draft specific documentation in accordance with the detailed content set out by the 2020 TP DOC Regula - tion. 11.2 Rules on Savings Arising From Operating in the Jurisdiction Italian laws do not provide specific rules for govern - ing savings arising from operating in Italy; in line with the general OECD recommendations, savings arising from operating in Italy should be taken into account in the functional analysis, as they are an economic characteristic of the market. 11.3 Unique Transfer Pricing Rules or Practices Italian laws provide notable unique rules to determine the transfer pricing applicable to online advertising sales and ancillary services rendered by Italian tax - payers to related foreign parties. Specifically, Article 1 (177) of Law 27 December 2013, No 147, provides that in determining the pricing of online advertising sales and ancillary services, taxpayers must use profit indicators other than those applicable to the costs incurred for carrying out the activity (essentially, the CPM and TNMM based on costs). The use of profit indicators based on costs is allowed only if an APA is reached with the IRA. Furthermore, the IRA has issued detailed transfer pric - ing guidelines governing the remuneration of asset management activities performed under the invest - ment management exemption (IME), which not only stress the central role of compliant transfer pricing documentation, but also identify the transfer pricing methods to be applied. In particular, the guidelines indicate a preference for the comparable uncontrolled price (CUP) method for core investment management services; allow the use of the profit split method only under specific conditions; and generally restrict cost- based methods to ancillary or supporting services. While the IME regime requires the availability of ade - quate TP documentation rather than a demonstra - tion that the remuneration is arm’s length per se, the absence or inadequacy of such documentation may nonetheless give rise to transfer pricing penalties and
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