Italy

On 28 December 2018, the Italian government published Legislative Decree No. 142, transposing the European Union's Anti-Tax Avoidance Directive (2016/1164) into Italian legislation. The new set of provisions will be effective from the fiscal year following December 31 2018. The decree will aim to tackle tax avoidance practices related to interest deduction, exit tax, rules on foreign controlled companies, a definition of financial intermediaries, and hybrid mismatches, all of which are explored below.

A ruling issued on November 2 2018 by the Central Revenue has provided clarification regarding the application of the VAT regime to transfer pricing (TP) year-end adjustments occurring between related companies belonging to the same multinational group (group).

In general terms, inherence can be described as the relationship between the cost and the enterprise, where the cost has a specific relevance to the determination of income; this is a result of its connection not to a specific revenue, but rather to an activity potentially able to produce income. Based on this assumption, in order to consider a cost deductible (i.e. inherent), the taxpayer is required to demonstrate clearly the connection with the activity, providing the tax authority with "sufficient" documentation.