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Italy: New revision of the Italian Transfer pricing provisions on arm’s length principle


Barbara Scampuddu

Gian Luca Nieddu

On April 24 2017, the Italian Government introduced two important changes affecting the definition of the arm's-length principle for transfer pricing purposes. Art. 59 of Law Decree n. 50/2017, in fact, replaced the concept of "normal value" mentioned in Art. 110 paragraph 7 of the Italian Income Tax Code (ITC), fully aligning the wording of the domestic rule with the OECD arm's-length principle.

Furthermore, it introduced brand new provisions for corresponding adjustments ultimately conducting to a decrease in taxable income of the Italian taxpayer (reference is to article 31-quarter of Presidential Decree n. 600/1973).

The previous wording of Art. 110(7) of the ITC stated that elements of income arising from transactions with non-resident companies which control – directly or indirectly – the enterprise, or are controlled by the enterprise or by the same person controlling the enterprise, are evaluated on the basis of the normal value of the goods supplied, the services rendered and the goods and services received, if they produce an increase in taxable income. This provision shall also apply if the result is a decrease in taxable income, but only in compliance with agreements concluded by the competent authorities of foreign states in accordance with the mutual agreement procedures provided for by international conventions for the avoidance of double taxation.

According to the definition contained in Art. 9 of the ITC, the "normal value" means the price or consideration charged on average to goods and services of equal or similar kind, at arm's length and at the same marketing stage, at the time and place the goods and services have been purchased or supplied and, where such information is lacking, at the nearest time and place. For determining the normal value, reference is made, as far as it is possible, to the price lists or tariffs of the persons supplying goods or services and, where such information is lacking, to the market-lists of the Chamber of Commerce as well as to professional tariffs, taking into account distributor discounts.

Considering the above and the international debate generated by the OECD BEPS Project, Law Decree n. 50/2017 replaces the "normal value" standard with a concept that is more in line with the OECD definition of the arm's length principle.

More precisely, the new version of Art. 110(7), so abandoning the "normal value" concept, states that income derived by a resident enterprise from transactions entered into with non-resident companies that either: (1) directly or indirectly, control the enterprise; or (2) are controlled by it or by the same company that controls the enterprise, must be determined by reference to the conditions and prices those should be agreed between independent enterprises acting in free competition and in comparable conditions.

As said, the Law Decree introduces also new provisions to solve potential double taxation issues. Namely, it is now clarified that a reduction (for transfer pricing purposes) of the taxable basis of an Italian related entity can be accepted by the Italian tax authorities:

  • Pursuant to agreements concluded with the competent authorities of foreign countries after the mutual agreement procedure provided by the double tax treaty or by the EU Arbitration Convention;

  • If it is the final outcome of a joint audit carried out in the context of international cooperation between states;

  • Following a specific request submitted by the Italian taxpayer to the Italian tax authorities asking for the recognition at local level of the definitive outcome reached by the foreign state authorities (for example, at the end of a litigation procedure carried on in the foreign country). This procedure is viable only if Italy has adequate exchange of information with that State. The central revenue authority will circulate operative instructions for the application to this new procedure in the next few months.

Barbara Scampuddu ( and Gian Luca Nieddu (


Tel: +39 02 7780711


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