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New Rules for Transfer Pricing Tax Audit

Maurizio Bottoni's picture

As described just one year ago, after the issuing of the 2017 edition of the Transfer Pricing Guidelines, the Italian Government reviewed the domestic rules on TP and provided that in cases of a TP adjustment made abroad by a foreign country, the Italian company involved in the audited transactions can ask to the Italian Tax Authorities – according to art. 31 quater of the Presidential Decree n. 600/1973 - to reduce its taxable income without necessarily ask for the application of a mutual agreement procedure, which is in any case applicable.

On May 30, 2018, the Italian tax office issued the operative instructions to apply the above mentioned procedure which represents a new option for the tax payer. Infact, according to the above mentioned art. 31 quater of the Presidential Decree n. 600/1973, the decreased income adjustment can be recognized:

  • running the agreements concluded with the competent authorities of foreign countries as a result of the procedures related to international conventions against double taxation on income or by the Convention 90/436/EC No. 23 July1990;
  • at the conclusion of the checks carried out within the framework of international cooperation activities whose results are shared by the participating States;
  • as a result of instance by the taxpayer, in the face of a definite increase in grinding and in accordance with the principle of free competition made by a State with which it is in force a Tax Treaty against double taxation on income that allows a proper exchange of information. It remains, in any case, the right for taxpayers to request, where presuppositions, activation of friendly procedures (the procedures and deadlines for the presentation of the instance will be defined by a subsequent decision of the Italian Tax Office).

At the same time, the Minister of Finance defined specific guidelines, consistent with the best international practise, for the operative application of the TP rules contained in art. 110, paragraph 7, of the Presidential Decree n. 917/1986.  The Decree dated May 5, 2018 also provided a simplified procedure for intra group low value adding services.

In the next months, the tax authorities should issue new operative instructions related the Italian TP documentation (so called, country file and master file)  by which, we hope, many of the doubts raised in the application of the law will be clarified.

Interconsulting Studio Associato is at your complete disposal to deliver you further details regarding the new rules for transfer pricing tax audit.

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Maurizio Bottoni's picture

Maurizio Bottoni is the senior partner of Interconsulting. As a consultant in one of the Big Four he has developed a deep knowledge of the Italian and International tax law, through the involvement in operations and reorganization of multinationals. Extraordinary transactions and international issues are his daily business.