Transfer Pricing 2026 Comparisons

Transfer pricing is governed by Article 110(7) of Presidential Decree, 22 December 1986, No 917 (the “Consolidated Law on Income Taxes”, also referred to as the Income Tax Code or ITC), which provides that the prices for intercompany cross-border transactions have to be determined on the basis of the arm’s length principle (ie, based on the conditions and prices that would have been agreed between independent parties acting on an arm’s length basis and in comparable circumstances) to the extent that this gives rise to an increase in taxable income.

Special rules are provided for downward adjustments. Pursuant to Article 31-quater of Presidential Decree 22 December 1973, No 600 (“Presidential Decree No 600/1973”), and related implementing regulations issued by the Italian Revenue Agency (IRA) on 30 May 2018, a downward adjustment is allowed under the following circumstances:

• as a result of the implementation of an agreement reached by competent authorities pursuant to a double tax treaty (DTT), to the convention on the elimination of double taxation in connection with the adjustments of profits of associated enterprises resident in a member state of the EU (90/436/EEC) and to Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the EU;
• as a result of a joint audit carried out as part of international administrative co-operation; and
• upon request of the taxpayer, following a final upward adjustment, complying with the arm’s length principle carried out by a state with which a DTT is in force and that allows an effective exchange of information.

General guidelines for the correct application of the arm’s length principle set out by Article 110(7) of the ITC were issued in the Decree of the Ministry of Economy and Finance, on 14 May 2018 (the “Ministerial Decree”), aligning Italian regulations with current international best practices.

Following the 1971 tax reform, transfer pricing was regulated separately by a specific provision (Articles 53, last paragraph, letter (b) and 56(2) of Presidential Decree, 29 September 1973, No 597 (“Decree No 597/1973”)) for expenses and revenues.

The IRA issued comprehensive guidelines on transfer pricing for the first time in 1980 with Circular No 32/9/2267 of 22 September 1980 (the “1980 Circular”). The 1980 Circular was largely based on the OECD report, “Transfer Pricing and Multinationals” of 1979, and has been the sole source for interpreting Italian transfer pricing rules for a very long time.

At the end of 1980, the provisions contained in Articles 53 and 56 of Decree No 597/1973 were repealed and replaced by Article 75, last paragraph, of Presidential Decree, 30 December 1980, No 897. Further guidelines were issued by the IRA with Circular No 42 of 12 December 1981 (the “1981 Circular”), dealing with the concept of control. Subsequently, Article 75 was transposed into Article 110(7) of the ITC, which provided that the price for intercompany cross-border transactions had to be determined on the basis of the “normal” value of goods and services, as defined by Article 9(3) of the ITC, which reads as follows:

“Normal value [...] means the price or consideration applied on average for goods or services of the same kind or similar, at arm’s length conditions and at the same market level, at the time and place where goods and services are purchased or rendered or, in the absence of this, at the nearest time and place. For the determination of normal value, reference is made as far as possible to price lists or tariffs of the person rendering the goods or services or, in the absence of this, to official lists, considering usual discounts. [...]”.

Alignment With OECD Transfer Pricing Guidelines

In 2017, in order to better align the Italian transfer pricing regulations with international standards, Article 110(7) was amended by Law Decree, 24 April 2017, No 50 converted, with amendments, by Law No 96 of 21 June 2017: the reference to the “normal” value concept was replaced by the reference to the arm’s length principle. Therefore, the new Article 110(7) of the ITC explicitly incorporates the arm’s length principle set forth by both Article 9 of the OECD Model Tax Convention on Income and on Capital (the “OECD Model Convention”), Condensed Version 2017, and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of January 2022 (the “OECD Guidelines”).

On 14 May 2018, the Ministerial Decree was published, setting out general guidance for the correct application of the arm’s length principle in line with international best practices, making explicit reference to the OECD Guidelines and to the OECD Final Report on Base Erosion and Profit Shifting (BEPS) Actions 8–10 as well.

Furthermore, pursuant to Article 8 of the Ministerial Decree, on 23 November 2020, the director of the IRA issued Regulation 2020/0360494 (the “2020 TP DOC Regulation”), to replace the previous 2010 regulations, updating the transfer pricing documentation eligibility requirements to benefit from the penalty protection regime, and aligning the same with the OECD Guidelines as amended following the OECD Final Report on BEPS Actions 13.

It is also worth noting that the Ministerial Decree contains a final clause under Article 9 that explicitly enables the IRA to issue further implementing measures, in light of the OECD Guidelines as amended from time to time.

Transfer pricing rules apply with respect to cross-border transactions carried out between an Italian resident enterprise and non-resident companies that are linked by a direct or indirect “control” relationship. Indeed, Article 110(7) of the ITC applies to cross-border transactions occurring between Italian and non-resident enterprises that “directly or indirectly control the Italian enterprise, or are controlled by it, or are controlled by the same company controlling the Italian enterprise”. However, Article 110(7) of the ITC does not provide a definition of “control”.

The definition of “associated enterprises” is provided by Article 2, letter a), of the Ministerial Decree, as follows: “an enterprise resident in the Italian territory as well as non-resident companies where: (i) one of them participates directly or indirectly in the management, control or capital of the other; or (ii) the same person participates directly or indirectly in the management, control or capital of both enterprises”.

What Constitutes Control?

Article 2, letter b), of the Ministerial Decree clarifies that “participation in the management, control or capital” means (i) a participation of more than 50% in the capital, voting rights or profits of another enterprise; or (ii) the dominant influence over the management of another enterprise, based on equity or contractual bounds. In this respect, it should be noted that Article 110(7) of the ITC merely refers to the concept of “control”, which was already present in the wording of Article 110(7) before the amendments introduced by the Law Decree of 24 April 2017, No 50. In this regard, the 1980 Circular had specified that the concept of “control” must be characterised as “all instances of potential or effective economic influence”.

In addition, the 1980 Circular reaffirmed that the concept of control is strictly related to the actual existence of a “dominant influence”. In light of this, apart from voting rights, some other factors are identified by the 1980 Circular, such as:

• the exclusive sale of products manufactured by the other enterprise;
• the use of the capital, products and technical co-operation of the other enterprise, including joint ventures;
• the right of the other enterprise to appoint members of the board of directors of the enterprise;
• the existence of members of the board of directors in common;
• the existence of family relationships between the parties; and
• in general, all the cases in which a potential or actual influence on business decisions is exercised.

On this point, the Ministerial Decree indicates that the concept of “participation in the management, control or capital” includes a “dominant influence” over the management of another enterprise based on constraints other than mere capital control, even if it introduced a reference to contractual bounds.

The transfer pricing methods to be used for the evaluation of a controlled transaction on the basis of the arm’s length principle are provided by Article 4(2) of the Ministerial Decree, in accordance with those listed in the OECD Guidelines:

• the comparable uncontrolled price (CUP) method;
• the resale price method (RPM);
• the cost-plus method (CPM);
• the transactional net margin method (TNMM); and
• the transactional profit split method (PSM).

It is worth mentioning that, based on the 1979 OECD Guidelines, the 1980 Circular had already referred to such methods for the evaluation of a controlled transaction. The practice of the IRA shows that the guidelines provided by the 1980 Circular on transfer pricing methods have been frequently considered together with the OECD developments in this regard (namely, the OECD Guidelines as updated from time to time). It is also worth noting that the Italian Ministry of Finance has translated into Italian and published the OECD Guidelines, first in 2013 and then in 2017, implicitly endorsing their adoption.

Article 4(5) of the Ministerial Decree, following the OECD Guidelines, allows taxpayers to apply an unspecified method, other than the methods listed in Article 4(2) of the same Ministerial Decree, provided that they demonstrate that (i) none of the specified methods can be applied in a reliable manner; and (ii) the different method produces a result consistent with the one which independent enterprises would obtain in carrying out comparable uncontrolled transactions.

The “most appropriate method” rule for the selection of the method is explicitly adopted by Article 4(1) of the Ministerial Decree as provided by the OECD Guidelines. Accordingly, Article 4(1) states that the most appropriate method should be selected based on:

• the strengths and weaknesses of each method depending on the circumstances of the case;
• the appropriateness of the method considered in view of the economically relevant characteristics of the controlled transaction;
• the availability of reliable information, in particular in relation to comparable uncontrolled transactions; and
• the degree of comparability between the controlled transaction and the uncontrolled transaction.

Furthermore, in line with the OECD Guidelines, Article 4(3) also states that traditional methods (CUP, CPM or RPM) have to be preferred, where a traditional method and a transactional method (TNMM or PSM) can be applied in an equally reliable manner. Additionally, Article 4(3) provides that the CUP method is deemed to be preferable where it and any of the other above-mentioned methods can be applied in an equally reliable manner. Lastly, Article 4(4) specifies that it is not necessary to apply more than one method to assess the arm’s length nature of a controlled transaction.

Article 6 of the Ministerial Decree deals with the arm’s length range – ie, the range of figures related to a number of uncontrolled transactions each of which is equally comparable to the controlled transaction. In accordance with the OECD Guidelines, it is expressly provided that a controlled transaction is deemed to be at arm’s length if the related financial indicator falls within the above-mentioned arm’s length range.

Furthermore, it is worth mentioning that according to Article 6(3), if the financial indicator of a controlled transaction does not fall within the arm’s length range, the IRA and the Guardia di Finanza (hereafter, jointly referred to as the “Tax Auditors”) are allowed to make an adjustment in order to bring it within the range. The IRA, with Circular Letter No 16/E (the “Circular Letter”), issued on 24 May 2022 provided instructions regarding the correct definition and use of “arm’s length range”.

Lastly, in accordance with the OECD Guidelines, Article 6(3) states that, in the case of a transfer pricing adjustment by the Tax Auditors, the taxpayer has the right to demonstrate that the controlled transaction complies with the arm’s length principle. In this case, the Tax Auditors can disregard the taxpayer’s arguments, providing adequate explanation.

According to Article 3 of the Ministerial Decree, in the case of differences in comparability that affect a financial indicator, comparability adjustments can be made if it is possible to reduce such differences in a reliable manner.

As to year-end adjustments, Italian laws do not provide for notable rules, but in practice multinational enterprises (MNEs) used to apply such adjustment to respect the arm’s length principle under Article 110(7) of the ITC.

Italian laws do not provide for notable rules specifically relating to the transfer pricing of intangibles. The arm’s length principle applies.

Italian laws do not provide for any special transfer pricing rules regarding hard-to-value intangibles. The arm’s length principle and the OECD Guidelines on hard-to-value intangibles apply.

Cost sharing/cost contribution arrangements are generally recognised in Italy (reference to them is expressly made in the 1980 Circular), even if no special transfer pricing rules apply to such arrangements. The arm’s length principle applies.

Italian laws provide that a taxpayer is allowed to make an upward transfer pricing adjustment after the filing of a tax return, and before a tax assessment is served, by submitting an amended tax return and paying the higher taxes resulting from the upward adjustment, related interest and reduced penalties through the ravvedimento operoso (active repentance) programme.

In the event that a taxpayer has opted for the penalty protection regime (see 8.1 Transfer Pricing Penalties and Defences), such upward adjustment may also be accompanied by a corresponding update of the transfer pricing documentation.

Italian laws do not contain any provision on secondary transfer pricing adjustments.

Italy carries out cross-border tax information sharing on the basis of a comprehensive and multi-layered legal framework, which combines international, EU and domestic sources. These instruments are designed to promote administrative co-operation among tax authorities, while at the same time ensuring the protection of taxpayers’ rights.

In summary, with specific reference  to transfer pricing matters, the exchange of information may be carried out on the basis of DTTs, tax information exchange agreements (TIEAs), and EU directives as implemented in Italy.

DTTs

Italy has a wide treaty network, largely based on the OECD Model Tax Convention on Income and on Capital of 1969, generally compliant with Article 26 of the OECD Model Convention. As a general rule, under DTTs, contracting states are obliged to exchange not only necessary information, but also pieces of information that could be “foreseeably relevant”, with the only limitations being those applicable to generalised requests for information, of a banking or financial nature, and not concerning specific taxpayers (so-called “fishing expeditions”). The exchange of information can occur upon request, automatically or spontaneously.

TIEAs

Furthermore, Italy has concluded several TIEAs with states other than those with which it has a DTT in force. Based on such agreements, exchange of information can occur only upon request, and the pieces of information to be exchanged are those that are foreseeably relevant for the assessment and collection of taxes.

EU Directives

Italy has implemented, among other things, the following EU directives.

• Council Directive (EU) 2015/2376 (DAC3), which provides for the automatic exchange of tax rulings and advance pricing agreements (APAs); however, bilateral or multilateral APAs concluded with third countries are excluded if the agreement reached does not allow its disclosure. These agreements may be subject to spontaneous exchange, if allowed and where the competent authority of the third country authorises the disclosure.
• Council Directive (EU) 2016/881 (DAC4), which provides for the automatic exchange of reporting documents of multinational companies (ie, country-by-country reporting).
• Council Directive (EU) 2018/822 (DAC6), which provides for the automatic exchange of information regarding cross-border aggressive tax planning mandatorily communicated by Italian intermediaries (such as, lawyers, tax accountants, notaries, financial institutions, etc) or taxpayers.
• Council Directive (EU) 2021/514 (DAC7), which provides for the automatic exchange of information regarding platform operators with respect to sellers in the sharing and digital economy and adds, among other things, some rules regarding the timeline and the subject of the information to be communicated with respect to tax rulings and APAs.
• Council Directive (EU) 2023/2226 (DAC 8), which extends the framework for the automatic exchange of information to crypto-assets, clarifying and expanding the relevant definitions and the subjective and objective scope of reporting obligations for operators and transactions, in line with the EU regulatory framework on crypto-assets (MiCA).

Italian laws provide certain instruments of advanced administrative co-operation with foreign administrations that carry out control activities on the correct fulfilment of tax obligations. It is important to note that Article 3 of Legislative Decree No 13, dated 12 February 2024, mandates the introduction of specific forms of co-operation between domestic and foreign administrations and the reorganisation of existing co-operation mechanisms. On the basis of this reform, the rules governing joint audits between administrations of different countries, already introduced into the Italian legal system by Article 16 of Legislative Decree No 32, dated 1 March 2023, have been further developed and incorporated into the new Article 31-bis 4 of Presidential Decree No 600/1973. In particular, in the event of common or complementary interest with respect to one or more taxpayers, the Tax Auditors may request the competent authority of another member state or several member states to conduct a joint audit of such taxpayers. The Tax Auditors may enter specific arrangements for the activation of joint audits with the tax authorities of third jurisdictions with which a bilateral or multilateral treaty permitting this is in force. In the event of a joint audit conducted within the territory of the state, the tax authorities appoint a representative responsible for directing and co-ordinating the audit. This enables the tax authorities of the other member states to engage with the taxpayers concerned and review the relevant documents, while ensuring compliance with the rules ordinarily applicable to evidence collection and taxpayers’ rights. The competent authorities jointly establish the relevant facts and circumstances with a view to reaching an agreement on the taxpayer’s position, which is recorded in a final report.

As regards multilateral audits, including simultaneous audits, Italy provides a specific legal framework under Presidential Decree No 600/1973, Article 31-bis 3, effective as of 22 February 2024 and amended by Legislative Decree No 13 of 12 February 2024 (“Article 3”). In the event of common or complementary interest, this provision expressly allows the Italian tax authorities to carry out multilateral and simultaneous audits in co-operation with the tax administrations of other member states, each within its own territory, ensuring co-ordinated audit activities and structured exchanges of information between the competent authorities throughout the audit process. Italy does not currently provide for formalised enhanced programmes specifically dedicated to multilateral or simultaneous controls. Communication during the audit is ensured through the designation of a representative responsible for directing and co-ordinating the simultaneous controls, as well as through ongoing exchanges of information between the participating tax administrations. The tax authorities may propose a simultaneous audit in respect of one or more independently identified taxpayers and are required to accept or reject proposals received from other competent authorities. The tax authorities may also conduct simultaneous audits with the tax authorities of third jurisdictions with which a bilateral or multilateral treaty permitting such co-operation is in force, subject to the accession of the foreign authorities. Unlike joint audits, simultaneous audits do not require the participating tax administrations to reach a common conclusion or to issue a jointly agreed final report. Each tax administration remains competent to carry out the audit activities within its own territory and to adopt its own assessment, on the basis of the information exchanged during the simultaneous audit.

Italy participates in the OECD International Compliance Assurance Programme (ICAP) as a supporting tax administration. Through ICAP, the Italian tax authorities engage in multilateral, voluntary risk assessment processes co-ordinated by the OECD, aimed at providing participating multinational groups with increased tax certainty on transfer pricing and permanent establishment risk areas. Italy’s involvement is framed within the broader co-operative compliance and international administrative co-operation framework, complementing domestic tools such as advance pricing agreements and mutual agreement procedures.

In Italy there is an APA programme allowing taxpayers with international activities to:

• determine the most appropriate transfer pricing methods and criteria applicable to the transactions carried out with related parties, according to Article 9 of the OECD Model Convention as provided for by Article 110(7) ITC (APA);
• define the entry or exit value of assets when the entity transfers its residence in or out of Italy;
• assess in advance of a non-resident company starting a new business in Italy whether the conditions for it to exist as a permanent establishment in Italy are met;
• define the tax law provisions, including DTT provisions applicable to cross-border items, regarding the tax treatment of income (such as dividends, interests, royalties or other income items) paid to/received from non-resident companies; and
• define the attribution of profits to a permanent establishment in Italy of a non-resident company or to a permanent establishment in another state of a resident company.

APA programmes can be: (i) unilateral, when they involve only the taxpayer and the IRA; or (ii) bilateral or multilateral, when they involve the taxpayer, its foreign counterparty(ies), the IRA and one or more foreign tax authorities, covering all the DTT matters, including transfer pricing.

Bilateral and Unilateral APA Procedure

The unilateral APA procedure is regulated by Article 31-ter of Presidential Decree No 600/1973 and by its implementing regulations issued by the IRA Director on 16 March 2016 (the “2016 Regulations”). For the bilateral and multilateral APA procedure, the governing provisions are the above-mentioned Article 31-ter of Presidential Decree No 600/1973 to be read together with the relevant DTT (in particular, the rule corresponding to Article 25(3) of the OECD Model Convention, which provides for mutual agreement procedures (MAPs) between the tax authorities of the contracting states aimed at avoiding double taxation).

The APA procedure is concluded: (i) in the case of unilateral APAs, with the execution of a binding agreement by and between the IRA and the Italian taxpayer; or (ii) in the case of bilateral or multilateral APAs, with the execution of a binding agreement by and between the IRA and one or more foreign tax authorities, as well as of a corresponding binding agreement by and between the IRA and the Italian taxpayer mirroring the transfer pricing method and criteria agreed upon between the tax authorities.

During the term of effectiveness of the APA, the tax authorities are precluded from exercising their assessment powers with respect to the transactions covered by the APA.

The office in charge of the administration of the programme has the power to assess if the taxpayer complied with the terms and conditions set out by the APA and if no changes occurred in the factual and legal circumstances founding the APA. Both unilateral and bilateral/multilateral APAs can be renewed at the request of the taxpayer.

The APA programme is administered by dedicated offices within the IRA.

Italian laws do not provide for automatic co-ordination between the APA process and MAPs. Nevertheless, consistency is normally secured because both MAPs and bilateral/multilateral APAs are generally handled by the IRA.

There are no limits on which taxpayers and/or transactions are eligible for an APA. Indeed, an APA application can be submitted by all Italian taxpayers regardless of the size of the activity performed and of the kind of intercompany transaction to be covered, provided that the provisions laid down by Article 110(7) of the ITC apply.

The scope of bilateral and multilateral advance agreements may include not only transfer pricing but all cases of a conventional nature referring to enterprises.

Italian laws do not provide a deadline to file an APA application even if the date of filing is relevant for the purposes of the period of validity for bilateral and multilateral APAs.

A mandatory deadline is provided for the submission of the APA renewal application. Indeed, pursuant to Article 10 of the 2016 Regulations, taxpayers willing to renew a unilateral APA must submit the renewal application 90 days before the end of the fiscal year in which the APA’s validity expires. The same deadline should also apply to the agreement executed by and between the IRA and the taxpayer following a bilateral or multilateral APA.

APA user fees are only necessary for the submission of bilateral and multilateral APA applications. The admissibility of the application is subject to the payment of a fee equal to:

• EUR10,000, where the overall turnover of the group to which the applicant belongs, is less than EUR100 million;
• EUR30,000, where the overall turnover of the group to which the applicant belongs, is between EUR100 million and EUR750 million; and
• EUR50,000, where the overall turnover of the group to which the applicant belongs, exceeds EUR750 million.

The above-mentioned fees are halved for the request of an APA renewal.

Specific regulations were issued by the Revenue Agency’s Director (Reference No 2021/297428) on 2 November 2021, in order to provide implementing measures for the payment of the fees due for the request of a renewal. Such specific regulations also clarified: (i) that for the determination of the overall turnover of the group, reference should be made to the latest consolidated balance sheet available at the date of submission of the application; and (ii) that in the event of the submission of several requests for bilateral or multilateral APAs with different states, the applicant shall pay the fee, as determined by the rules listed above, for each bilateral application or for each foreign country involved.

No fees are required for unilateral APAs.

The conclusion of a unilateral APA binds the parties for five years starting from the fiscal year in which it is signed, provided that no changes occur to the factual or legal conditions which constitute the premise on which the clauses of the agreement are based. As for bilateral or multilateral APAs, these are binding according to the agreements reached with the foreign tax authorities and starting from the fiscal year in which the application was submitted. The duration of bilateral or multilateral APAs is agreed by the competent contracting authorities, and the tendency of the IRA is to propose a duration no longer than five years, aligned with the maturity of unilateral APAs.

Unilateral APAs can have retroactive effect (“rollback”) for one or more fiscal years preceding the effectiveness of the APA still open to tax assessment, if: (i) the factual and legal circumstances on which the APA is based also existed in previous fiscal years; and (ii) no tax audits (access, inspections and verifications) covering previous fiscal years to be covered by the APA have been started.

As for the retroactive effect of bilateral and multilateral APAs, in addition to the above-mentioned conditions, it is also necessary to: (i) submit a request for retroactive effect in the APA application; and (ii) obtain the consent of the relevant foreign tax authority(ies) to extend the effects of the APA to the previous fiscal years still open to tax assessment.

In both cases, if, from the retroactive effect of the APAs, upward adjustments are due, the taxpayer can spontaneously correct these using the ravvedimento operoso programme (as discussed in 5.1 Upward Transfer Pricing Adjustments) and by the submission of an amended tax return. No penalties apply to the higher taxes arising from the upward adjustment.

Administrative Tax Penalties

Italy has no specific transfer pricing penalties. However, administrative tax penalties generally also apply in the case of transfer pricing claims.

In particular, a transfer pricing claim may give rise to the application of the administrative penalties provided for by Legislative Decree 18 December 1997, No 471 (“Legislative Decree No 471/1997”): (i) for an incorrect corporate income tax return pursuant to Article 1(2); or (ii) if the transfer pricing adjustment also triggers a failure to apply withholding taxes, for an incorrect withholding tax agent return pursuant to Article 2(2), each of which is equal to 70% for violations committed from 1 September 2024 (and ranges between 90% and 180% for violations committed before 1 September 2024) of the higher corporate taxes/higher withholding taxes assessed as a consequence of the upward adjustment (in case of withholding tax violations, a further 20% penalty applies for the failure to apply withholding tax). Repeated violations can lead to special mechanisms for the calculation of penalties.

Defences and exemptions

With respect to administrative penalties, there are a number of potentially applicable exempting cases, in particular where the violation deriving from incorrect estimates gives rise to a differential not exceeding 5% of the declared amount (Article 6(1) of Legislative Decree No 472/1997). Such exempting cases are, however, seldom recognised by the IRA.

Documentation requirements for penalty protection

More specifically, Article 26 of Decree-Law, 31 May 2010, No 78, converted into law with amendments by Article 1 of Law 30 July 2010, No 122, introduced into the Italian legal system a penalty protection rule for taxpayers that comply with certain transfer pricing documentation requirements for their intra-group transactions subject to transfer pricing rules.

Specifically, it is provided pursuant to Articles 1(6) and 2(4-ter) of Legislative Decree No 471/1997 that no penalties apply if the taxpayer delivers documentation that is appropriate to allow control over the compliance of the prices charged with the arm’s length principle, as determined in the 2020 TP DOC Regulation and as clarified by Circular Letter No 15 of 26 November 2021 (“Circular No 15/2021”). This is a replacement of the previous 2010 regulations that is substantially aligned with BEPS Action 13. In particular, penalties do not apply if the following conditions are met:

• the taxpayer has communicated to the IRA through the relevant corporate income tax return that it has prepared transfer pricing documentation;
• the taxpayer delivers, within 20 days from the Tax Auditors’ request, transfer pricing documentation drafted in accordance with the template structure set out by the 2020 TP DOC Regulation;
• the information reported in the delivered documentation is fully consistent with the underlying commercial reality; and
• the documentation delivered in the course of an audit is complete and consistent with the provisions endorsed by the 2020 TP DOC Regulation (for further details see 8.2 Transfer Pricing Documentation).

On this point, Article 8 of the Ministerial Decree reiterates that transfer pricing documentation will be appropriate to allow for penalty protection whenever that documentation provides auditors with the information necessary for an accurate analysis of the transfer prices, regardless of the choice of method or the selection of the tested party or comparables. This protection should apply, based on Circular No 15/2021, even if the transfer pricing documentation contains omissions or partial inaccuracies, provided that these do not hamper the IRA’s tax audit.

Criminal Tax Penalties

Furthermore, in addition to the above-mentioned administrative tax penalties, upward transfer pricing adjustments may – under certain circumstances – compel tax officers to refer the assessment to the public prosecutors to explore possible criminal tax law implications if certain thresholds are exceeded.

In particular, Article 4 of Legislative Decree, 10 March 2000, No 74 provides for the imprisonment, from two to four-and-a-half years, of anyone who, with the aim of evading tax, files an incorrect tax return whereby both of the following thresholds are exceeded: (i) the non-paid tax exceeds EUR100,000; and (ii) the upward adjustments exceed 10% of the positive elements indicated in the tax return or EUR2 million.

Defences and exemptions

However, under Article 4(1-bis) of the Legislative Decree, 10 March 2000, No 74, no criminal relevance is given to:

• undeclared income deriving from improper classification or evaluation of positive or negative items of income that are real and properly disclosed in the accounts or in other documentation relevant for tax purposes;
• wrong timing accrual;
• non-deductibility of real costs; or
• issues not related to the business activity of the taxpayer.

Therefore, based on the above-mentioned Article 4(1-bis), it is often argued that transfer pricing adjustments should not be considered relevant for criminal purposes if at least one of the above-mentioned conditions is met (especially in cases where the taxpayer prepared TP documentation).

Italian laws follow the three-tiered approach recommended by BEPS Action 13 and the OECD Guidelines (ie, master file, local file and country-by-country reporting).

Master File and Local File

As mentioned in 8.1 Transfer Pricing Penalties and Defences, a specific penalty protection regime was introduced in 2010 whereby, should the Tax Auditors raise a transfer pricing claim, no penalties are levied if the taxpayer has complied with specific documentation requirements and has timely filed a specific communication to the IRA within the corporate tax return on the availability of such documentation.

The 2020 TP DOC Regulation, which replaced the 2010 regulation, requires transfer pricing documentation that consists of a master file and a local file. Therefore, Italian taxpayers (including permanent establishments of non-Italian resident entities), wishing to benefit from the penalty protection regime, are obliged to prepare on a yearly basis both the master file and the local file.

As to the master file, the 2020 TP DOC Regulation provides that this file has to contain information regarding the group, in a structure and format that substantially mirrors BEPS Action 13 and the OECD Guidelines; taxpayers are allowed to draft more than one master file if the group carries out several activities that are different from each other and regulated by specific transfer pricing policies. Circular No 15/2021 clarified that taxpayers may also submit the master file prepared by the direct or indirect controlling entity, concerning the group as a whole or the individual division in which it operates, provided that such a document is (i) structured in the manner and (ii) contains the information required by Annex I to Chapter V of the OECD Guidelines. However, where such document has a different structure or contains less information than can be inferred from the 2020 TP DOC Regulation, it must be supplemented by the taxpayer with a document linking the structure or with one or more appendices.

With regard to the local file, the 2020 TP DOC Regulation provides that this file has to contain information regarding the local entity and its intra-group transactions, and must be drafted following a structure and format that substantially mirrors BEPS Action 13 and the OECD Guidelines. Circular No 15/2021 clarified that a taxpayer may submit transfer pricing documentation with respect to a part of the intercompany transactions carried out. A simplification is provided for small and medium-sized enterprises (taxpayers with an annual turnover not exceeding EUR50 million that are not, directly or indirectly, controlled by, or in control of, entities exceeding the mentioned annual turnover): they can opt to update the benchmark analysis of the local file every three years (instead of annually), provided that (i) the comparability analysis has been performed using publicly available information sources; and (ii) the five comparability factors (characteristics of property or services, functions, assets and risks, contractual terms, economic circumstances, and business strategies) have not substantially changed.

Lastly, the 2020 TP DOC Regulation also sets out the content and the structure of the documentation to be followed by taxpayers for applying the simplified approach for intra-group, low value-adding services.

It is worth mentioning that in case of doubts about the content that needs to be included in the master file and local file, Circular No 15/2021 clarifies that taxpayers may refer to the OECD Guidelines.

In order to benefit from the penalty protection, both the master and local files must be:

• prepared on a yearly basis, following the structure indicated in the 2020 TP DOC Regulation;
• drafted in Italian (however, it is permissible to have the master file in English);
• signed by the taxpayer’s legal representative or by a delegate using a digital signature with time stamp to be affixed within the date of submission of the tax return; and
• submitted in an electronic format and delivered within 20 days of the Tax Auditors’ request.

As stated above, the existence of the transfer pricing documentation must be communicated to the IRA in the corporate income tax return.

Circular No 15/2021 clarifies that, in the event the taxpayer opts to submit the transfer pricing documentation only for a part of the intercompany transactions carried out, the above penalty protection will apply only with respect to the transactions described.

Country-by-Country Reporting

With Law 28 December 2015, No 208 (Finance Act 2016), Italy introduced country-by-country reporting (CbCR) obligations in accordance with Action 13 of the OECD BEPS project. On 8 March 2017, the Decree of the Italian Ministry of Finance implementing the CbCR obligations (the “CbCR Decree”) was published. The law introduced a CbCR obligation for MNE groups to deliver a comprehensive report to the IRA reflecting their activities and taxes paid in each country where the group operates (eg, revenues, profits before tax and corporate income tax paid).

Under the CbCR Decree, CbCR obligations may only apply to Italian-resident companies that belong to an MNE group with consolidated revenues that are EUR750 million or over (or a corresponding amount in the local foreign currency). An MNE group means a plurality (group) of enterprises, resident in different jurisdictions (or having permanent establishments in different jurisdictions), that are linked by a control or ownership relationship and are obliged to draft consolidated financial statements according to domestic accounting principles (or that would be obliged to do so, if the shares of any of the enterprises were traded on a regulated market).

The following entities are obliged to file CbCR under the CbCR Decree:

• The Italian resident parent company of an MNE group (the “Parent”) – ie, the company obliged to draft consolidated financial statements according to its accounting principles and which is not controlled, whether directly or indirectly, by other enterprises of the MNE group.
• Italian resident subsidiaries of an MNE group (the “Subsidiary”), if –
1. the non-resident parent company is not obliged to file CbCR in its state of residence; or
2. there is no qualifying automatic exchange of information (AEoI) agreement for CbCR purposes between Italy and the state of residence of the non-resident parent company; or
3. the IRA has notified the Italian resident Subsidiary that the state of residence of the Parent suspended the AEoI or repeatedly omitted to transmit the CbCR files to the IRA.

Even if there is no qualifying AEoI agreement, an Italian Subsidiary is, in any case, exempted from filing the CbCR in the following circumstances:

• the MNE group has more than one subsidiary in the EU and designates another subsidiary to file the CbCR, provided that such subsidiary receives all the information needed to prepare the filing;
• the MNE group voluntarily appoints a surrogate parent company to file the CbCR in its state of residence, provided that if the surrogate parent company is resident in a non-EU state, additional requirements must be met (eg, it must be resident in a state with mandatory CbCR rules and with a qualifying AEoI agreement with Italy); or
• the Parent voluntarily files CbCR with the tax authorities of its state of residence, subject to certain additional conditions (eg, the foreign state should enact CbCR legislation by the deadline for filing the first CbCR under the CbCR Decree).

As discussed in 1. Rules Governing Transfer Pricing, Italian transfer pricing regulations are substantially aligned with OECD Guidelines. Therefore, there are no notable differences to be highlighted.

Italian transfer pricing rules consistently apply the arm’s length principle under all circumstances.

As discussed in 1. Rules Governing Transfer Pricing, Italian transfer pricing regulations have been amended in order to better align the rules with the best international practices (ie, OECD Guidelines as amended following the BEPS project).

Italy has been contributing to the collective effort to redefine international tax rules for the digital economy since its inception in the OECD. Indeed, it participated in the discussions that led the OECD and the G20 to adopt the first report on the taxation of the digital economy, consisting of Action 1 (Addressing the tax challenges of the digital economy) of the action plan, developed by the OECD to counter the phenomena of BEPS.

In 2021, Italy chaired for the first time the G20, a privileged discussion forum for the world’s major economies, which has supported the work carried out so far at the OECD. Under, the Italian Presidency of the G20, on 8 October 2021 a historic agreement was reached between 136 countries of the OECD/G20 Inclusive Framework on a two-pillar solution of reforming the international tax rules, to be implemented in 2023.

In support of this agreement, Italy (and other countries, such as Austria, France, Spain and the United Kingdom) and the United States signed on 21 October 2021 a transitional agreement to move from the current system of taxation of digital services to a new multilateral solution: the United States has to stop the trade measures against Italy and the other signing countries and the latter will have to allow a certain method to credit the digital services tax paid against the Pillar One liability in order to avoid double taxation, once the Pillar One rules are implemented. Furthermore, Italian legislation on a digital services tax already sets out the repealing of the digital services tax once the political agreement on digital economy taxation is implemented.

Generally, it is expected that these initiatives could have an impact on domestic legislation, which could be subject to amendments when the work on the two-pillar solution is complete and the Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union is implemented. This Council Directive has been incorporated into Italian legislation through the Legislative Decree of 27 December 2023, No 209. The Legislative Decree empowers the Minister of Finance to issue secondary regulation. The Minster of Finance has issued five decrees dealing with:

• safe harbour (mainly CbCR transitional safe harbour (TSH));
• Italian qualified domestic minimum top-up tax (QDMTT) (expected to be qualified and eligible for the safe harbour status);
• substance-based income exclusion (SBIE);
• Administrative Guidelines approved within the Inclusive Framework; and
• treatment of deferred taxation generated in the period prior to the implementation of the global anti-base erosion (GloBE) rules.

As of today, no official position or implementing guidance has been issued in Italy with respect to Pillar One Amount B, and the IRA appears to be in a phase of internal assessment. In light of the fact that Pillar One Amount B is conceived as an annex to the OECD Guidelines (starting from 1 January 2025), and in view of Italy’s well-established tendency to align its transfer pricing framework and administrative practice with OECD soft-law instruments, the Italian system is currently awaiting official clarification, which appears necessary in order to ensure legal certainty for MNEs.

As a general rule, Italy applies the OECD Guidelines on risk, recognising a return to the entity actually assuming the risk. Through functional analysis, it also takes into account how related parties involved in a controlled transaction operate in relation to the assumption and management of the specific, economically significant risks, identifying in particular who performs control functions and risks mitigation functions, who bears the consequences arising from the risk outcomes, and who has the financial capacity to assume the risk.

The Italian legal framework is largely aligned with the “Authorised OECD Approach” (AOA), as set out by the OECD in the Report on the Attribution of Profits to Permanent Establishments of 22 July 2010 (the “AOA Report”). In this respect, the AOA has been expressly incorporated into Italian law through Legislative Decree No 147/2015 (the so-called “Internationalisation Decree”), which amended Article 152 of the ITC. Pursuant to this provision, a permanent establishment is treated as a functionally separate entity, and profits must be attributed in accordance with the arm’s length principle, consistent with the OECD Guidelines. Italy does not apply general safe harbour rules for the allocation of profits to permanent establishments; profit attribution is instead carried out on a case-by-case basis, following a functional and factual analysis aligned with the AOA Report. However, in certain specific sectors – most notably the banking sector – the IRA has issued detailed administrative guidance (Director of the IRA, Provision of 5 April 2016, No 49121) on the attribution of profits and capital to Italian permanent establishments of non-resident banks. Such guidance represents sector-specific application of the AOA rather than a safe harbour regime, as it does not provide for fixed margins or simplified outcomes but requires a full analysis of functions, risks and assets in line with the AOA Report and OECD Guidelines.

As discussed in 1. Rules Governing Transfer Pricing, Italian transfer pricing regulations have been aligned with international best practices (ie, the OECD Guidelines as amended following the BEPS project). There is no reference in Italian legislation or administrative guidance to the UN Practical Manual on Transfer Pricing.

Special rules for low value-adding intercompany services are provided by Article 7 of the Ministerial Decree. This provision, mirroring the OECD Guidelines, provides a simplified approach to assess consistency with the arm’s length principle of certain qualified services. These are services which:

• are of a supportive nature;
• are not part of the core business activity of the group;
• do not require the use of unique and valuable intangibles and do not lead to the creation of the same; and
• do not involve the assumption or control of substantial or significant risk by, or give rise to the creation of significant risk for, the service provider.

In accordance with the OECD Guidelines, the remuneration of the above-mentioned services is deemed to be arm’s length if a mark-up of 5% is applied on the direct and indirect costs borne for the performance of the same services. Therefore, if the simplified approach is applied, a specific benchmark to test the arm’s length value is not required. However, in order to apply such a simplified approach, the taxpayer must draft specific documentation in accordance with the detailed content set out by the 2020 TP DOC Regulation.

Italian laws do not provide specific rules for governing savings arising from operating in Italy; in line with the general OECD recommendations, savings arising from operating in Italy should be taken into account in the functional analysis, as they are an economic characteristic of the market.

Italian laws provide notable unique rules to determine the transfer pricing applicable to online advertising sales and ancillary services rendered by Italian taxpayers to related foreign parties. Specifically, Article 1(177) of Law 27 December 2013, No 147, provides that in determining the pricing of online advertising sales and ancillary services, taxpayers must use profit indicators other than those applicable to the costs incurred for carrying out the activity (essentially, the CPM and TNMM based on costs). The use of profit indicators based on costs is allowed only if an APA is reached with the IRA.

Furthermore, the IRA has issued detailed transfer pricing guidelines governing the remuneration of asset management activities performed under the investment management exemption (IME), which not only stress the central role of compliant transfer pricing documentation, but also identify the transfer pricing methods to be applied. In particular, the guidelines indicate a preference for the comparable uncontrolled price (CUP) method for core investment management services; allow the use of the profit split method only under specific conditions; and generally restrict cost-based methods to ancillary or supporting services. While the IME regime requires the availability of adequate TP documentation rather than a demonstration that the remuneration is arm’s length per se, the absence or inadequacy of such documentation may nonetheless give rise to transfer pricing penalties and renewed scrutiny regarding the potential existence of a permanent establishment, particularly in structurally fragmented asset management arrangements.

Italian laws do not provide any provision about financial transactions. The Ministerial Decree, dated 14 May 2018, set out general guidance for the correct application of the arm’s length principle in line with international best practices making explicit reference to the OECD Guidelines (of July 2017). It also provides, pursuant to Article 9, that any additional implementing arrangement must be provided for by one or more Commissioner Decision, taking into account the provisions of the OECD Guidelines as regularly updated. However, even if no Commissioner Decision has been issued, the approach is currently that of following the provisions included in Chapter X of the OECD Guidelines.

There are no specific rules requiring co-ordination between transfer pricing and customs valuations; it is worth mentioning that the Italian Customs and Duty Agency provided high level guidance in Circular 6 November 2015, No 16 regarding the customs valuation of the transactions between related parties.

Italian laws do not provide for a specific controversy process for transfer pricing matters. Accordingly, general rules apply.

Administrative Tax Assessment

As a rule, in the case of a tax audit (which can be performed both by the IRA and the Guardia di Finanza), the tax auditors serve the taxpayer with a tax audit report (the “Report”) which describes the outcome of the audit activity and the findings of the auditors. The Report is not enforceable against the taxpayers and does not contain a request for payment of higher taxes and/or penalties, as it is just the basis for the IRA office competent for assessment to evaluate the matter and form its view. However, upon receipt of a Report the taxpayer has the option to accept wholly (with or without conditions) the content of the Report with a reduction of penalties to one sixth.

Before issuing an assessment notice, the IRA serves the taxpayer with a draft tax assessment (“Draft Assessment”) which, like the Report, is not enforceable but can be the start of an interaction between the taxpayer and tax authorities. The Draft Assessment does not need to replicate the contents of the Report. In certain cases (eg, desk analyses) the Draft Assessment is not preceded by a Report, but potentially just by a questionnaire sent by the IRA to the taxpayer to gather the relevant transfer pricing documentation.

Upon receipt of a Draft Assessment, the taxpayer has the following options:

• to file observations/comments to the competent IRA office (the law provides a 60-day freezing period after the issue of the Draft Assessment during which the IRA cannot issue a tax assessment notice to give the taxpayer time to provide observations); and/or
• to submit a formal application to start discussions with the competent IRA office to redetermine the findings in a settlement procedure.

In all cases, until a final tax assessment notice is issued, the taxpayer also has the faculty to accept wholly or partially the findings of the Report and/or the Draft Assessment, by self-correcting the violations by paying the amount due (higher tax and interest) plus reduced penalties, and to submit amended tax returns.

To raise an enforceable claim against the taxpayer, the IRA issues a tax assessment notice (the Guardia di Finanza are not entitled to issue tax assessments). Note that, in certain cases, a tax assessment notice could also be issued in the absence of previous audit activity.

The tax assessment notice is issued by the competent IRA office after the above procedure is completed. In any event, the final assessment should not include additional elements to the Draft Assessment, but if the taxpayer has submitted observations to the Draft Assessment, the final assessment notice will have to consider them and, if applicable, motivate why they have not been accepted by the IRA if the claim is wholly or partially confirmed.

Once the formal tax assessment notice is served to the taxpayer, the latter has the following options.

• Within 15 days from the service date, to submit a formal settlement application to the competent office, which allows the taxpayer and the IRA to discuss the content of the tax assessment notice and to negotiate a reduction/withdrawal of the adjustments raised (note that such alternative is not available if a settlement phase has already taken place before the issue of the tax assessment notice); this application suspends the appeal deadline by 30 days. In the case of a settlement, penalties, if any, are reduced to one third of the minimum applicable (to be calculated on the settled amount). If the negotiation fails, the taxpayer can still appeal before the competent First Instance Tax Court no later than the extended appeal deadline.
• Within 60 days (or 90 days, where the above settlement application is submitted and the related negotiation fails) from the service date, to file an appeal against the tax assessment notice before the competent First Instance Tax Court.
• To accept the claim and pay the relevant amounts within 60 days; in this case, the penalties are reduced to one third of the amount charged in the tax assessment notice.

Before filing the appeal, the taxpayer can opt to pay one third of the penalties indicated in the tax assessment notice, if any, thus reducing the risk of negative litigation. However, if the taxpayer prevails in court, the penalties paid will not be reimbursed.

Tax Litigation Procedure

The First Instance Tax Court schedules a hearing; the taxpayer is entitled to file additional documentation and briefs before the court within certain time limits.

Pending the appeal, the taxpayer is still in a position to negotiate a settlement with the competent IRA office, which must be concluded within the date scheduled for the first hearing before the First Instance Tax Court. If the negotiation is successful, the penalties, if any, are reduced to 40% of the minimum applicable.

The decision issued by the First Instance Tax Court may be appealed both by the IRA Office and by the taxpayer before the competent Second Instance Tax Court. Pending the second instance procedure, the taxpayer may further negotiate a settlement (if the negotiation is successful, the penalties, if any, are reduced to 50% of the minimum applicable). The decision issued by the Second Instance Tax Court may be appealed by both parties before the Supreme Court but only for reasons based on violation of legal provisions (ie, generally, factual circumstances, and amounts cannot be challenged). Starting from 2024, pending the Supreme Court litigation, the taxpayer may further negotiate a settlement (if the negotiation is successful, the penalties, if any, are reduced to 60% of the minimum applicable amounts). It is possible that the Supreme Court, rather than issuing a final judgment, will refer the case back to a different chamber of the tax court to the one that issued the decision (generally the Second Instance Tax Court), so that the litigation process can continue.

Provisional Collection Pending Litigation

The tax assessment notice containing a transfer pricing claim is enforceable (ie, the taxpayer has to pay on a provisional basis, as a rule, one third of the higher taxes assessed and interest pending tax litigation within the appeal deadline, as possibly extended if a settlement application is filed). Under motivated and exceptional circumstances, the IRA can decide on provisional collection for the full amount of the assessment.

If the taxpayer does not pay within the above-mentioned deadline, after 30 days (or immediately after the deadline if the collection is at risk), the IRA will instruct the collection agent to start the collection procedure. After this 30-day period, a “grace” period of 180 days is in any case granted under law to all taxpayers. The “grace” period is not granted when the IRA Office claims that the collection is at risk and, in any case, is not applicable with reference to precautionary measures (eg, seizure of assets).

After the First Instance Tax Court decision, to the extent unfavourable for the taxpayer, the collection agent can collect up to two thirds of the higher taxes and penalties as determined by the decision, plus interest. After the Second Instance Tax Court decision, to the extent unfavourable for the taxpayer, the collection agent may request 100% of the taxes and penalties as determined by the decision, plus interest.

The taxpayer can also ask for a suspension of the collection according to the following procedures.

• Based on the administrative proceeding, the IRA Office is entitled, at its discretion, to totally or partially postpone the collection, upon written request of the taxpayer (possibly by requesting guarantees); this remedy will remain in force until the judgment of the First Instance Tax Court.
• Under the judicial proceeding, the taxpayer can request the postponement directly from the First Instance Tax Court; this request can be filed together with the appeal as well as after it, but no later than the first hearing on the merit – the postponement is granted at the discretion of the court if the judges conclude that:
1. there is fumus boni iuris (ie, the arguments of the appeal are well-grounded prima facie); and
2. there is periculum in mora (ie, there is a well-founded risk that the taxpayer may suffer from financial detriment as a consequence of the provisional collection).

The hearing on the postponement will be scheduled by the court within 30 days from the request. The decision on the postponement can be appealed within 15 days from its issuance.

Italy has a well-developed legal system that puts taxpayers in the position to prevent domestic transfer pricing disputes, through unilateral or bilateral/multilateral APAs, and to resolve them out of court through competent authority procedures (MAPs and arbitration procedures) that can ensure elimination of double taxation, or settlement procedures that allow taxpayers to significantly reduce penalties (where taxpayers did not have proper transfer pricing documentation).

As a result, in many cases, transfer pricing claims are solved out of court. In recent years, there has been a trend to start competent authority procedures instead of court proceedings, particularly where there are no penalties. This is the reason why the number of court rulings on transfer pricing matters is quite limited in comparison with the overall number of transfer pricing challenges.

In the last decade, one of the most notable transfer pricing topics discussed before Italian courts has concerned the procedural ramifications of Article 110(7) of the ITC and, in particular, whether the initial burden of proof lies with the taxpayer, which will have to demonstrate that its transfer pricing policy is in line with the arm’s length principle, or on the IRA, which will have to demonstrate effective non-compliance with the arm’s length principle.

In this context, it should be noted that Italian laws do not indicate the party that bears the burden of proof regarding the existence – or not – of arm’s length conditions. In certain decisions, the Supreme Court has stated that the taxpayer is not required to prove the accuracy of transfer prices applied, unless the tax authorities have themselves first provided proof of: (i) effective non-compliance with the arm’s length principle; and (ii) the low level of taxation in the state of the related counterpart (see, for example, the decisions of the Supreme Court, No 22023 of 13 October 2006 and No 11226 of 16 May 2007).

However, in other recent decisions, the Supreme Court seems to have overturned this position. Indeed, the Supreme Court has stated that the IRA bears only the burden of proof to demonstrate the correctness and legitimacy of TP adjustments. The determination of the transfer pricing adjustment, as a consequence, must be fully justified by the tax authorities (while the reference to the low level of taxation in the other state is no longer regarded as relevant).

In the absence of a specific legislative provision on the burden of proof in TP disputes, the ordinary rules on the burden of proof must be observed. In practice, the IRA, based on the above-mentioned jurisprudence, is the “substantive” plaintiff, and so it bears only the burden of proof. In this sense, it should be underlined that the OECD Guidelines recommend that the burden of proof should not be misused by tax administrations or taxpayers as a justification for making groundless or unverifiable assertions about transfer pricing (see, for example, Supreme Court decisions No 6656 of 6 April 2016; No 20805 of 6 September 2017; No 5645 of 2 March 2020; No 5646 of 3 March 2020; No 11837 of 18 June 2020; No 21828 of 9 October 2020; No 22695 of 19 October 2020; No 230 of 12 January 2021; No 1232 of 21 January 2021; No 2908 of 31 January 2022; No 26695 of 12 September 2022; and No 36275 of 13 December 2022).

Furthermore, it is worth mentioning a recent case decision concerning the role of OECD Guidelines in the hierarchy of sources of law. A recent Italian Supreme Court decision (No 26432 of 10 October 2024), dealing with a case which occurred before the revision of Article 110(7) ITC and the related Ministerial Decree dated 14 May 2018, clarified the role of the OECD Guidelines in the Italian hierarchy of sources of law. In this decision, the Supreme Court stated that the OECD Guidelines: (i) are not part of the formal hierarchy of legal sources in Italy unless specifically included by legislative provisions; and (ii) just represent a technical tool to support in the interpretation of broader legal concepts, such as “arm’s length” conditions.

Outbound payments (eg, royalties) relating to uncontrolled transactions are not restricted by Italian tax laws and/or by IRA practices.

Outbound payments (eg, royalties) relating to controlled transactions are not restricted by Italian tax laws and/or by IRA practices, but subject to transfer pricing rules.

Italian laws do not have rules regarding the effects of other countries’ legal restrictions.

With the exception of the publication of statistics in compliance with international standards, the IRA does not publish any information regarding APAs or transfer pricing audit outcomes.

The use of “secret comparables” is not explicitly prohibited by Italian law. However, as stated, the OECD Guidelines are consistently applied by the IRA. In addition, the Italian legislative system and case law align with the principle that the taxpayer should be provided with the appropriate “right of defence” (ie, being in a position to know the basis on which a challenge is raised). Therefore, it may reasonably be held that the use of “secret comparables” would be permitted only if the IRA were to disclose such data to the taxpayer so as to allow the exercise of a proper right of defence.