With Order No. 13136 of May 7 2026, the Italian Supreme Court has provided important guidance on the application of transfer pricing rules to intra-group financial transactions, specifically in the context of guarantees granted without explicit remuneration.
The decision is particularly relevant for multinational groups, as it addresses a recurring issue in practice: whether the absence of a fee in intra-group arrangements – such as guarantees or financial support – automatically triggers a transfer pricing adjustment under Article 110(7) of the Italian Income Tax Code.
Building on domestic case law and the jurisprudence of the Court of Justice of the European Union (CJEU), the Supreme Court adopts a substance-over-form approach, emphasising that the arm’s-length principle must be applied in light of the economic reality of the transaction, rather than its formal characterisation.
The facts of the case
The dispute concerned the provision of intra-group guarantees within a broader financing transaction. In particular, the Italian subsidiary had granted, on a pro rata basis, real guarantees (including mortgages and pledges) in favour of its US parent company, Alfa Inc., in connection with a $60 million loan granted by a pool of American banks to the Alfa Group.
The guarantees provided by the Italian entity amounted to approximately €42 million and were disclosed in the company’s financial statements as off-balance-sheet items. Notably, no remuneration was charged for the provision of such guarantees.
The tax authorities considered that this arrangement lacked a valid economic rationale. In their view, an independent enterprise would have required compensation for assuming such financial risk. Therefore, applying transfer pricing rules, the authorities determined an arm’s-length fee.
Using the comparable uncontrolled price (CUP) method, they applied an average remuneration rate of 3.13% to the guaranteed amount, resulting in an upward adjustment to taxable income of approximately €1.314 million for each fiscal year under review.
The taxpayer challenged the tax assessments before the Provincial Tax Court, which rejected the claims. However, on appeal, the Regional Tax Court reversed the decision, ruling in favour of the taxpayer and annulling the assessments.
The regional court found that the transaction, although formally free of charge, was not devoid of economic substance. Rather, it was supported by valid business reasons linked to the overall interests of the group.
The Italian tax authorities subsequently appealed to the Supreme Court, arguing, inter alia, that:
Transfer pricing rules apply irrespective of whether a transaction is formally remunerated;
Only a ‘technical’ consideration (i.e., an explicit price) should be relevant, rather than indirect or future economic benefits; and
Guarantees should, in any event, be treated as inherently onerous transactions.
The Supreme Court’s position
The core issue addressed by the Supreme Court was whether transfer pricing rules apply to intra-group transactions carried out without explicit consideration and, if so, how such transactions should be evaluated.
More specifically, the court was called upon to clarify whether:
The absence of remuneration automatically leads to a transfer pricing adjustment; or
The taxpayer may justify the transaction by demonstrating the existence of indirect economic benefits or broader commercial reasons.
The Supreme Court rejected a purely formalistic approach. It held that, in the context of intra-group transactions, the concepts of ‘gratuitousness’ and ‘economic benefit’ must be interpreted in their economic sense, rather than in strictly legal terms.
This implies that the analysis should not be limited to the presence or absence of a contractual price but should instead consider the overall economic arrangement and the interests pursued by the parties.
The court referred to its established case law, including the well-known doctrine of ‘compensating advantages’, according to which a transaction that appears unremunerated in isolation may nonetheless be justified by benefits accruing at the group level.
The court also explicitly relied on the CJEU’s decision in Hornbach-Baumarkt (Case C-382/16, May 31 2018), which recognised that transfer pricing adjustments may be excluded where the taxpayer demonstrates that the transaction is supported by valid commercial reasons.
In particular, the CJEU acknowledged that a parent company may have a legitimate interest in supporting the financial stability and economic success of the group as a whole, even where this results in conditions that deviate from those that would have been agreed between independent parties.
The Supreme Court further referred to subsequent EU case law (including Pizzarotti, Case C-558/19, October 8 2020), confirming that transfer pricing rules must allow taxpayers to justify deviations from arm’s-length conditions based on group-level economic considerations, provided that such rules are applied in a proportionate manner.
The decision is also consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which emphasise that the arm’s-length principle requires an analysis of the actual economic substance of the transaction, rather than its formal legal structure.
An important aspect of the decision concerns the allocation of the burden of proof. Once the tax authorities have identified a potential deviation from arm’s-length conditions – such as the absence of remuneration for a guarantee – it is for the taxpayer to demonstrate that the transaction is nonetheless justified.
This may be achieved by showing that the conditions applied are consistent with market practice or by substantiating the existence of valid business reasons within the group. In this respect, the court confirms that the presence of a sound economic rationale – such as safeguarding the continuity of the group’s operations – may be sufficient to rebut the tax authorities’ position.
Conclusions
The decision of the Supreme Court confirms a clear shift towards a substance-based interpretation of transfer pricing rules.
In particular, it establishes that the absence of an explicit consideration does not, in itself, justify a transfer pricing adjustment. Rather, the analysis must focus on the economic reality of the transaction and on the existence of a broader business rationale.
For multinational groups, the ruling underscores the importance of properly documenting the commercial reasons underlying intra-group transactions, especially where they deviate from standard market conditions.
In this context, taxpayers should ensure that their transfer pricing policies are supported not only by benchmarking analyses but also by a clear and well-documented articulation of the economic logic underpinning their intra-group arrangements.
