The fiscal year 2017 is full of important news related to transfer pricing rules. On July 10, 2017 the OECD released the 2017 edition of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The OECD Transfer Pricing Guidelines provide guidance on the application of the “arm’s length principle”, which represents the international consensus on the valuation, for income tax purposes, of cross-border transactions between associated enterprises. The 2017 edition of the Transfer Pricing Guidelines mainly reflects a consolidation of the changes resulting from the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project.

The new approach of the tax administrations on the TP issues induced Italian Government to review (by Law Decree n. 50 of April 24, 2017 converted in the Law n. 96 of June 21, 2017) the domestic rules on TP.

In particular, the revised rules now provide that:

1. The components of income statement of an enterprise arising from transactions with non-resident companies in Italy, who directly or indirectly control the enterprise, are controlled by or are controlled by the same company that controls the company, are determined with reference to the conditions and the prices which would have been agreed between independent actors operating in conditions of free competition and in comparable circumstances, if it follows an increase in income;
2. The same provision shall apply even if the result is a decrease in income, according to the way and conditions provided by the new art. 31 quater of the Presidential Decree n. 600/1973;
3. A specific Decree will define, according to the best international practise, le guidelines for the operative application of the above mentioned rules contained in art. 110, paragraph 7, of the Presidential Decree n. 917/1986;
4. 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 planned friendly 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).

We would like to point out the importance of the news described at lett. b) and d). In practice, 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 to reduce its taxable income without necessarily  ask for the application of a mutual agreement procedure, which is in any case applicable.