Worldwide transfer pricing reference guide 2014

Italy (continued)
Statute of limitations on transfer pricing assessments (continued)
In case of a potential criminal tax allegation, tax officers may invoke a specific law that allows the standard five year statute of limitations
to be doubled.
Return disclosures/related party disclosures
Italian companies must officially communicate (in documents, correspondence, register of companies) whether they are managed and
controlled by another company and the name of the related company (Article 2497–bis of the Italian Civil Code). Financial statements
should include essential data from the managing or controlling company’s financial statements and relations with related parties
(Articles 2424, 2427, 2428 and 2497–bis of the Italian Civil Code). The tax return should disclose transactions with tax havens
concerning costs and expenses. The same disclosure is also valid for taxpayers with intercompany flows that are to be grouped in costs
versus revenues.
Transfer pricing-specific returns
In Italy there are no specific transfer pricing returns. As already mentioned, for the purposes of the optional penalty protection
regime, taxpayers who intend to adhere to such regime, shall communicate to the Italian Revenue Agency the availability of proper
documentation on the annual income tax return (i.e., in a dedicated box).
Frequency of tax audit and transfer pricing scrutiny by the tax authority
The likelihood of a general tax audit is high, as is the likelihood of being audited specifically on transfer pricing. The Italian tax authorities
usually challenge the price of intercompany transactions that they deem do not comply with the arm’s length principle or that result in
a mismatch between the characterization of entities and their remuneration. The likelihood of the transfer pricing methodology being
challenged is also high, as tax officers often try to challenge all of the various aspects of transfer pricing; i.e., not only the methodology,
but also the functional analysis, comparables, etc., There appears to be a tendency toward challenging transfer pricing in combination
with issues related to tax havens, permanent establishments and/or abuse of law.
Circular 58/E provided an interim penalty regime. Italy is particularly active in challenging taxpayers on deemed permanent
establishments. Following the Italian Supreme Court’s “Philip Morris” case, additional case law is available in this respect. Despite the
general pressure put on commissionaire arrangements, it is also worthwhile mentioning a recent favorable Supreme Court decision
(Boston Scientific case).
In addition, there is generally greater tax audit activity and particular attention paid to large taxpayers, where the Italian tax authorities
are devoting greater resources in intelligence and monitoring activities on multinationals.
Likewise, Circular Letter no. 6/E issued by the Central Revenue Agency on 25 January 2008 provides operating guidelines to tax
authorities in relation to the prevention and combat of tax avoidance, and among the most crucial areas to be assessed, it mentions
intercompany transactions and transfer prices according to the provisions of Article 110 (7) of Decree 917. Legislative Decree no. 185
issued on 29 November 2008 introduced the category of “large” taxpayers, stating that “in relation to the corporate income tax and
VAT returns of relevant size companies, the Central Revenue activates substantial controls in the year following the one of the filing,”
where “relevant size companies are the ones which achieve a (yearly) turnover not lower than EUR300 million. Such threshold was
reduced to EUR100 million by 31 December 2011.”
Starting from 2012, in implementing the provisions of paragraph 10 of Article 27 of the Legislative Decree no. 185 of 2008, Circular
Letter 18/E, dated 31 May 2012, provides that the “tutorship” activities shall cover all the large taxpayers (then about 3,200 companies,
compared to about 2000 tutorials in 2011). As part of the tutorship activities, the need to maintain a high level of attention is
re-affirmed, for the purpose of identifying a number of phenomena related to important risk factors that are also carefully considered by
the OECD. Transfer pricing is expressly mentioned among such phenomena.
Similar operating instructions on transfer pricing scrutiny are contained in the Circular Letter no. 25/E issued on 31 July 2013 where the
compliance to the optional regime on transfer pricing documentation is identified as a positive factor of transparency and cooperation
with the tax administration within the risk monitoring activities.
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