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Italy: New transfer pricing guidelines address methodology, arm’s length, documentation

Italy: New transfer pricing guidelines

The Ministry of Economy and Finance on 14 May 2018 issued a decree providing transfer pricing guidelines, in compliance with article 110(7) of the Italian income tax law as recently modified to incorporate the arm’s length principle.


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The decree consists of nine articles; sets out certain general and fundamental principles that are generally applied in international practice; and makes express reference to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (as updated).

The Italian transfer pricing guidelines:

  • Define the criteria for establishing that transactions are comparable (i.e., for purposes of verifying that none of the possible differences among transactions could materially affect the financial indicator—price or margin—to be compared or that reasonably accurate adjustments can be made to eliminate the material effects of such differences) 
  • List the economically relevant characteristics or comparability factors to be used for accurate delineation of the controlled transaction, and allow a judgment to be based on comparability

These characteristics and factors follow those provided by the most recent version of the OECD Transfer Pricing Guidelines. 

Transfer pricing methodology

The OECD transfer pricing methods (both traditional transaction methods and transactional profit methods) are listed and accepted in the Italian transfer pricing guidelines, even though traditional transaction methods (mainly the CUP method) are preferred in situations when more than one method can be applied in an equally reliable manner. The Italian transfer pricing guidelines also acknowledge the possibility of adopting an alternative method, but only if none of the listed OECD methods can be reliably used and only if the result of the alternative method is compliant with the arm’s length principle.

A combined transactions approach is allowed when transactions are so closely linked or continuous that they cannot be properly evaluated separately.

Arm’s length principle

According to the Italian transfer pricing guidelines, the arm’s length range is a range of figures for the financial indicator, calculated using the most appropriate transfer pricing method and a number of uncontrolled transactions, all relatively equally reliable. A controlled transaction is in line with the arm’s length principle when the relevant condition of the controlled transaction (i.e., price or margin) falls within the arm’s length range. 

The Italian tax agency may adjust the value of the financial indicator if that value falls outside the arm’s length range, subject to the right of the associated enterprise (related party) to present evidence that the conditions of the controlled transaction satisfy the arm’s length principle. The tax agency has the authority to reject that evidence, but must do so on the basis of appropriate arguments.

The Italian transfer pricing guidelines (Article 7) introduce a definition of “low value-added intra-group services” as well as a simplified approach, in line with the OECD Transfer Pricing Guidelines, for the exclusive purpose of evaluating the arm’s length value of those services. 

Transfer pricing documentation

The Italian tax agency is to update the rules on transfer pricing documentation. On this point, the Italian transfer pricing guidelines state that transfer pricing documentation will be appropriate to allow for penalty protection whenever that documentation provides auditors with the information necessary for an accurate analysis of the transfer prices, regardless of the choice of method or the selection of the tested party or comparables. This protection will apply even if the transfer pricing documentation contains omissions or partial inaccuracies, provided that these do not hamper the work of the tax agency.

Further implementation rules will be issued to take into consideration of the OECD Transfer Pricing Guidelines as they may be periodically updated.


Read a May 2018 report [PDF 161 KB] prepared by the KPMG member firm in Italy

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