Investment in Italy

Investment in Italynot possible to apply the traditional methods. Non-traditional methods may also be used tosupport the traditional methods, whenever the latter do not produce satisfactory results.Transfer pricing regulations in Italy only apply to cross-border transactions between relatedentities (i.e. entities which directly or indirectly control the Italian company or are controlledby it or are under common control). Application of the transfer pricing rules to domestictransactions is in principle excluded although, as shown by recent case law, the fair valueprinciple is also extended and applied to transactions between Italian related parties, incertain circumstances.Documentation issuesItalian tax law does not establish specific documentation requirements for transfer pricingpurposes. However, if the taxpayer is able to provide transfer pricing documentation, nopenalties should be applied in case of assessment.Nevertheless, appropriate transfer pricing documentation is generally recommended, as ithelps to support the position of the taxpayer vis-à-vis the tax authorities in an audit. In thisregard, the burden of proof lies with the tax administration, which, in tax audits resultingin adjustments to transfer prices, has to give evidence of the criteria on which the transferpricing adjustments are based. In practice, however, a lack of documentation makes it easierfor the tax authorities to justify a tax assessment and adjustments and, therefore, shifts theburden of proof to the taxpayer, which must demonstrate that the tax authorities’ approachis incorrect.To set up transfer pricing documentation, reference is generally made to (i) the principlesestablished in the OECD Guidelines, supplemented by the indications provided by the EUTransfer Pricing Code of Conduct recently issued by the EU Joint Transfer Pricing Forum,and (ii) Italian tax regulations.For certain transactions, such as intra-group services, the general Italian tax rules requireproof that the services are actually pertinent to the business, i.e. that the company receivingthe services obtains - or can reasonably expect to obtain - an advantage from them, inconsideration of its ordinary business activity. This circumstance must be demonstrated byappropriate (additional) documentation, which must be shown to the Italian tax inspectors ina tax audit. The Italian tax authorities have recently been taking a very aggressive approachto Italian companies that are members of multinational groups and that deduct intra-groupcharges for services, usually disallowing the deduction if the charges are not appropriatelydocumented.© 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.51