All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Italy refines transfer pricing methodology

Italy large

A new decree replaces Italy’s previously established hierarchy of transfer pricing methods, and aligns the country further with the OECD's guidelines. TP Week’s correspondents in Italy, Antonella Della Rovere and Federico Vincenti of Crowe Valente/Valente Associati GEB Partners, explain the new provisions.

On May 14 2018, the Italian Ministry of Economy and Finance issued a decree providing guidelines for the application of the Italian transfer pricing provisions, following relevant public consultation (the decree).

The Italian transfer pricing provisions, art. 110 para. 7 of the Italian Income Tax Code, had been amended in 2017 in line with the OECD Guidelines, as updated in July 2017 following the BEPS project.

The decree is composed of nine articles and in line with the OECD Guidelines on transfer pricing – these have been explicitly taken into account, according to the preamble. Further implementing provisions are expected to be issued by the Italian Revenue Agency, in particular with regards to updates of the OECD Guidelines.

In more detail, concerning the concept of control, the decree confirms the approach of the tax administration requiring verification of legal as well as economic control for the application of transfer pricing regulations.

The decree also adopts the notion of comparability as provided in the OECD Guidelines. For the assessment of comparability, it affirms the need to proceed with the analysis of the economically significant characteristics of the transactions (contractual terms, functional analysis, characteristics of goods and services, economic circumstances, company strategies).

As for the selection of the applicable transfer pricing method, the decree, in line with the OECD Guidelines, favours the most appropriate method on the basis of the specific circumstances of each case. Such method shall hence be determined ad hoc, taking into account the strengths and weaknesses of the various methods, the appropriateness of the method in consideration of the economically relevant characteristics and the availability of reliable information.

Thus, the aforementioned provision allows to disregard, in principle, the previously established hierarchy of transfer pricing methods. Such hierarchy implied that certain methods, so-called traditional methods, were to be prioritised over so-called transactional methods. The latter could be applied only in case of application of the former was not possible.

Nevertheless, this is not absolute. In particular, the decree, following the OECD, provides that if a traditional and a transactional method can be applied with the same degree of reliability, the application of the traditional method is preferable. To the same effect, if the comparable price method and any other transfer pricing method can be applied with the same degree of reliability, the application of the first is preferable.

The decree also provides that in case of audit, the tax administration must verify the correct application of the arm’s-length principle by reference to the method applied by the taxpayer, provided that the decree has been complied with.

Moreover, the decree introduces so-called “low value-adding services” in Italian transfer pricing. For such services, a simplified approach can be adopted as follows: “Following preparation of specific documentation, the value of the service is determined by adding a profit margin of 5% on the sum of all the direct and indirect costs related to the supply of the service”.

Low value-adding services are deemed to be services:

  • of a supportive nature;

  • that are not part of the core business of the multinational group;

  • not requiring the use of unique and highly valuable intangible assets, and not contributing to creation of such assets;

  • not involving the assumption or control of a significant risk by the service provider and not generating the occurrence of such risk to such person.

Finally, the decree authorises the Italian Revenue Agency to update the rules on transfer pricing documentation and more specifically the requirements for such documentation to be considered suitable (pre-requisite for exclusion of penalty or so-called penalty protection). In any case, as per the decree, transfer pricing documentation must be considered suitable where it provides the auditors with the data and information necessary to analyse the transfer prices applied, regardless of:

(i) whether or not the transfer pricing method or the selection of transactions or comparable subjects differ from those identified by the auditors; and

(ii) any omissions or partial inaccuracies that are not likely to compromise the auditors’ analysis.

Antonella Della Rovere

Antonella Della Rovere



Federico Vincenti

Federico Vincenti
Tax manager


Valente Associati GEB Partners/Crowe Valente

More from across our site

The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree