Investment in Italy

Investment in ItalyPenaltiesNo penalties should apply if the taxpayer provides transfer pricing documentation in case ofassessment. Alternatively, standard corporate income tax penalties, ranging from 100 to 200percent of the additional tax, can be applied where higher taxable profits have emerged as aresult of a transfer pricing adjustment. The taxpayer may, however, be able to reduce the penaltyif it can reach an agreement with the tax authorities before the case is taken to court.In certain circumstances criminal penalties may also apply.International rulingsThe international ruling scheme (see also section 5.1.13 above), recently introduced in Italy,is reserved for enterprises doing international business, namely:• resident companies which meet the conditions imposed by current transfer pricing rules• resident companies owned by or owning non-resident companies• resident companies that have paid interest, dividends or royalties to non-residents orhave been paid these by non-residents• non-resident companies that operate in Italy through a permanent establishment.A ruling serves to:• define in advance the methods to be used in calculating the arm’s length value oftransactions subject to transfer pricing regulations• clarify how to apply specific rules, including treaty rules, regarding the payment orreceipt, to or by non-residents, of dividends, interest or royalties, as well as otherincome components• clarify how to apply specific rules, including treaty rules, regarding the allocation of gainsor losses between permanent establishments.The ruling procedure starts with an application, to be filed with the Revenue Office in Milanor in Rome, depending on the fiscal domicile of the applicant. The application must includeall documents demonstrating that the applicant is eligible for the procedure.The procedure should be completed in 180 days but in practice - especially for rulings regardingtransfer pricing matters - takes much longer, as several meetings and double checks with thetaxpayer are generally required. During the procedure, and in order to collect the informationneeded for the inquiry, the Revenue Office will be given access to the different sites wherethe company or permanent establishment conducts its activity. The Revenue Office mayalso seek the international cooperation of foreign tax administrations. In this case, thedeadline for completion of the procedure may be postponed until the information requestedfrom the foreign tax administration is obtained.The proceedings end with the taxpayer and the director of the relevant Revenue Officesigning an agreement, which is binding for three years. The Italian tax authorities mustrefrain from any tax assessment of the matters regulated by the agreement.Should an agreement not be reached, a written report will be drawn up.52© 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.