Italy: Changes made to Italian tax law impacting transfer pricing

Tax Insights ()
​At the end of 2013 a number of changes were made to Italian tax law which impact transfer pricing.

In response to the current international debate on taxation of the digital economy, the Finance Act for fiscal year 2014 (Law no. 147/2013) introduced new rules relating to the determination of the arm’s length value of intercompany transactions for companies that operate in on-line advertising or provide ancillary services. For such companies profit indicators based on cost will no longer be acceptable. Changes to VAT and payment rules also increase the possibility of close tax authority monitoring of such transactions.

The Finance Act also addressed a point that had previously been in doubt as to whether transfer pricing adjustments are subject to local tax – the Regional Tax on Productive Activities (IRAP) – as well as corporate income tax. It clarified that IRAP does indeed apply. Tax geared penalties for transfer pricing adjustments relating to fiscal years 2008 to 2012 will not take into consideration the additional IRAP unless the assessment was already final at 1 January 2014.

The above rules are already in force except for the VAT provision which will have effect from 1 July 2014.

The Government has also approved a Law Decree extending both the period for which an International Ruling (i.e. advance pricing agreement) applies and the potential scope – to also include the determination of whether a permanent establishment exists. Although the changes apply from 24 December 2013, they are not definitive until the Law Decree is converted into law (within 60 days) and are therefore still potentially subject to amendment or even cancellation.