ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
Maisto e Associati Piazza Filippo Meda 5 20121 Milano Italy Tel: +39 0277 69 31 Fax: +39 0277 69 3300
Email: info@maisto.it Web: www.maisto.it
1. Rules Governing Transfer Pricing 1.1 Statutes and Regulations Transfer pricing is governed by Article 110(7) of Presidential Decree, 22 December 1986, No 917 (the “Consolidated Law on Income Taxes” , also referred to as the Income Tax Code or ITC), which provides that the prices for intercompany cross- border transactions have to be determined on the basis of the arm’s length principle (ie, based on the conditions and prices that would have been agreed between independent parties act - ing on an arm’s length basis and in comparable circumstances) to the extent that this gives rise to an increase in taxable income. Special rules are provided for downward adjustments. Pursuant to Article 31-quater of Presidential Decree 22 December 1973, No 600( “Presidential Decree No 600/1973” ), and related implementing regulations issued by the Italian Revenue Agency (IRA) on 30 May 2018, a downward adjustment is allowed under the fol - lowing circumstances: • as a result of the implementation of an agreement reached by competent authorities pursuant to a double tax treaty (DTT), to the Convention on the elimination of double taxa - tion in connection with the adjustments of
profits of associated enterprises resident in a member state of the European Union (90/436/ EEC) and to Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union; • as a result of a joint audit carried out as part of international administrative co-operation; and • upon request of the taxpayer, following a final upward adjustment, complying with the arm’s length principle carried out by a state with which a DTT is in force and that allows an effective exchange of information. General guidelines for the correct application of the arm’s length principle set out by Article 110(7) of the ITC have been issued in the Decree of the Ministry of Economy and Finance, on 14 May 2018 (the “Ministerial Decree” ), aligning the Italian regulations with current international best practices. 1.2 Current Regime and Recent Changes Following the 1971 tax reform, transfer pricing was regulated by a specific provision (Articles 53, last paragraph, letter (b) and 56(2) of Presidential Decree, 29 September 1973, No 597( “Decree No 597/1973” )), separately for expenses and rev - enues.
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