Investment in Italy

Investment in Italy5.1.13 Tax rulingsTaxpayers can request ordinary tax rulings to clarify which tax provisions and interpretationsshould be applied in cases that appear uncertain.Other tax rulings are available with regard to specific tax law provisions, including :• general anti-avoidance rules• anti-tax haven legislation• CFC legislation• disposal of tax credits• participation exemption regime on inbound dividends• participation exemption regime on capital gains• worldwide tax consolidation• advertising and entertainment expenses• minimum tax on dormant companies.The taxpayer must file a written query with the tax authorities, who must reply within120 days. If they do not, it is understood that they implicitly agree with the taxpayer’sinterpretation. However, the reply is only binding on the tax authorities in the case presentedand with respect to that applicant.Advance Pricing Agreements: APAs are also available and are binding for three years.5.1.14 Transfer pricingGeneral principlesItalian transfer pricing regulations are included in the corporate income tax rules. Theregulations are based on the 1979 version of the OECD Transfer Pricing Guidelines although,in practice, the principles outlined in the 1995 version are generally recognised and appliedby the Italian tax authorities in tax audits and rulings.The transfer pricing regulations are based upon the ‘fair value principle’ (basically the arm’slength principle), whereby the conditions applied in an intra-group transaction should becomparable with those that would be applied between unrelated entities in comparabletransactions. The tax authorities may apply this rule automatically if taxable income isthereby increased; conversely, a reduction of taxable income is only possible under doubletax treaties.Testing for arm’s length conditions is based on methods reflecting those identified by the OECDin its Transfer Pricing Guidelines. However, Italian law expressly provides for the comparableuncontrolled price (“CUP”) method, which is therefore generally used and indicatedby the Italian tax authorities as the preferred method to be applied whenever possible.Other recommended methods, to be applied only in the absence of suitable CUPs, arethe ‘traditional’ ones (i.e. the Resale Price Method or “RPM” and the Cost Plus Method or“CPLM”). The ‘non-traditional’ methods (including the Profit Split Method and other profitbasedmethods) are accepted only in exceptional circumstances and to the extent that it is50© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.