Italy Issues Transfer Pricing Decree In Compliance to BEPS Action 8-10

; posted on
May 18th, 2018

The Minister for the Economy and Finance of Italy issued the Decree of Transfer Pricing Guidelines to cross-border transactions between associated companies. It implements the provision contained in Article 59, paragraph 1 of the Decree Law of April 14, 2017 n.50, which established that the transactions must be valued on the basis of arm’s length principle.

Affirming the Arm’s Length Principle

The new regulation considers recommendations in the BEPS Action 8-10 by the OECD and OECD Transfer Pricing Guidelines (2017). The Guideline defines “control” and “associated enterprises” for transfer pricing purpose in Art.2 and Art.3 respectively, based on which it continues to clarify circumstance under which an uncontrolled transaction is comparable to a controlled transaction. The Arm’s Length is observed throughout the comparability analysis provisions. In addition, it introduced a new provision on low added value services in Art.7 and benefit the tax payers with a series of simplifications. The Guideline also furbishes documentation standard and clarifies cases of “suitable documentation” for the purposes of penalty protection.

The Selection of Transfer Pricing Methods

With regard to methods used, the Decree lists five methods generally used in practice, that is the comparable uncontrolled price method, resale price method, cost plus method, transactional net margin method and the transactional profit split method. In addition, the guidance gives clarifications on the aggregation of operations. More sophisticated technical issues, for example, intangible property, intra-group service and cost sharing agreement, are not covered in this 10-page guideline.

Sources: MEF, Illustrative report

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