ItalyItaly

Legal ReferenceIncome Tax Code (approved by Presidential Decree No. 917 of 22 December 1986): Art. 110 par. 7 as recently updated in December 2024. See also the Ministerial Decree dated May 14, 2018

Article 110, para. 7 of the Consolidated Law on Income Taxes (also referred to as Income Tax Code) incorporates into the law the arm’s length principle set forth by Article 9 of the OECD Model Tax Convention as follows: “Items of income arising from transactions with non-resident companies which directly or indirectly control the enterprise, are controlled by it or are controlled by the same company controlling the enterprise, are determined based on the conditions and prices which would have been agreed between independent parties operating on an arm’s length basis and in comparable circumstances…” Ministerial Decree of 14 May 2018, Article 1: “This decree, taking into account international best practices, provides guidelines for the application of the provisions included in Article 110, paragraph 7, of the Consolidated Law on Income Taxes, referred to in Presidential decree No. 917 of 22 December 1986 (hereafter "TUIR"), for the sake of compliance with the arm’s length principle contained therein.” See also the other Articles of the Ministerial Decree.

Legal ReferenceMinisterial Decree dated May 14, 2018. As for TP documentation see the Commissioner Decision no. 360494 dated 23 November 2020. As for APA program see (Italian version only): art. 31 ter of the Presidential Decree No. 600 of September 29, 1973, and the Commissioner Decision dated March 21, 2016

The Ministerial Decree dated 14 May 2018, in setting out the general guidance for the proper application of the arm’s length principle established by law in Article 110, paragraph 7, of the Income Tax Code, makes explicit reference to the OECD Transfer Pricing Guidelines and to the OECD Final Report on BEPS Actions 8-10 as well. See Preamble of the Ministerial Decree. Also, the OECD TPG are mentioned in the implementation of the law provision regarding TP documentation requirements, as well as in the implementation of the law provision endorsing the APA program.

Legal ReferenceIncome Tax Code (approved by Presidential Decree No. 917 of 22 December 1986): Art. 110 par. 7 as recently updated in December 2024. Ministerial Decree dated May 14, 2018

Art. 110 par. 7 of Income Tax Code, as amended in December 2024, refers to transactions occurred between an Italian enterprise and non-resident companies that: “directly or indirectly control the Italian enterprise, or are controlled by it, or are controlled by the same company controlling the Italian enterprise”. The Decree of the Minister of Economy and Finance dated 14 May 2018 provides for the following details: (a) “associated enterprises” means an enterprise resident in the Italian territory as well as non-resident companies where: 1. one of them participates directly or indirectly in the management, control or capital of the other, or 2. the same person participates directly or indirectly in the management, control or capital of both enterprises; (b) “participation in the management, control or capital” means: a. a participation of more than 50% in the capital, voting rights or profits of another enterprise; or b. the dominant influence over the management of another enterprise, based on equity or contractual constraints;

Legal ReferenceArticle 4 of the Ministerial Decree dated May 14 2018

Transfer Pricing (TP) methods, specifically the methods recognized by OECD, are described in Article 4 of the Ministerial Decree of May 14, 2018. According to para. 5, taxpayers may apply a method other than CUP, Resale Price, Cost Plus, TNMM and Profit Split only if they can demonstrate that: i) none of those methods could be applied with reliable results to determine the pricing of a controlled transaction on the basis of the arm’s length principle; and ii) such different method produces a result consistent with what independent enterprises would be expected to obtain in carrying out comparable uncontrolled transactions.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (not provided)

Legal ReferenceArticle 4 of the Ministerial Decree dated May 14 2018

Article 4 of the Ministerial Decree of May 14, 2018 deals with TP methods.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (not selected)

There is no specific guidance in our domestic legislation on controlled commodity transactions.

Legal ReferenceArticle 3 of the Ministerial Decree dated 14 May 2018

The definition of comparability as described in Article 3 of the Ministerial Decree of May 14, 2018 is the same as that outlined in Chapter III of the OECD TPG. Please, see the Ministerial Decree.

Our transfer pricing framework does not prefer domestic comparables over foreign comparables, the aim is to find the most consistent set of comparable entities with the transaction occurred, considering all the comparability factors.

Legal ReferenceArticle 6 of the Ministerial Decree dated 14 May 2018

Article 6 of the Ministerial Decree dated 14 May 2018 deals with arm’s length range. Remuneration should fall in the arm’s length range of the financial indicator selected in order to apply the most appropriate method, resulting for the comparable companies.

Legal ReferenceMinisterial Decree dated May 14 2018

In our TP domestic legislation or regulations there is no specific guidance on the pricing of controlled transactions involving intangibles. Arm’s length principle applies. Ministerial Decree of 14 May 2018 refers in the Preamble to the Final Report on Actions 8-10 of the OECD/G20 BEPS Project and to the OECD Guidelines approved by the OECD Council on 10 July 2017. Also, it establishes in Art. 9 that any additional implementing arrangement shall be provided for by one or more Commissioner Decision, taking into account the provisions of the OECD Guidelines as regularly updated. As for transactions involving intangibles, references to the OECD TPG are also present in patent box regime (see the answer to question 13).

Legal ReferenceSee art 6 Law n. 146 21 October 2021 and subsequent amendments

Italy introduced in 2021 a new IP optional regime “patent box” based on enhanced deduction linked to qualifying DEMPE expenditures about qualifying IP. This regime allows for a 110% increase in the deduction of costs – both for income tax and regional tax on productive activities purposes – incurred in the development, enhancement, maintenance, protection and exploitation of certain eligible intangible assets. The eligible IP assets are: patents, designs and models legally protected, copyrighted software. In addition, a specific recapture mechanism allows for the claiming of benefits pertaining to research and development costs incurred up to 8 tax years prior to the one in which the intangible asset obtains a patent right.

TP domestic legislation does not provide any guidance specific to intra-group services transactions. Arm’s length principle applies.

Legal ReferenceArticle 7 of the Ministerial Decree dated 14 May 2018

Article 7 of the Ministerial Decree of 14 May 2018 provides for the simplified approach for low value-adding intra group services, as it is described in BEPS Actions 8-10, without thresholds. This approach is consistent with BEPS Actions 8-10.

Domestic legislation does not provide TP guidance specific to financial transactions. Arm’s length principle applies.

Legal ReferenceSee Legislative Decree 29 November 2018, no.142

Italy has implemented the measures in BEPS Action 4 to limit interest deductions and other financial payments (see legislative decree 142/2018 which implemented the EU ATAD Directives in the aim to update art. 96 of Income Tax Code approved by Presidential Decree No. 917 of December 22 1986)

TP domestic legislation does not provide any specific guidance on cost contribution arrangements. Arm’s length principle applies.

Legal ReferenceAs for Master File and Country Specific Documentation, see Article 26 of Law Decree No. 78 of May 31, 2010 implemented – with amendments – by Law No. 122 of 30 July 2010. See Implementation guidance on TP Documentation(Master File and Country Specific Documentation) contained in the Decision of the Commissioner of Italian Revenue Agency dated 23 November 2020. As for CBCR’s references, see the following: Article 1, paragraph 145, in Law no. 208, 28 December 2015; Ministerial Decree 23 February 2017 published in the Gazzetta Ufficiale of 8.3.2017; Provvedimento of the Director of the Italian Revenue Agency (“PROVVEDIMENTO PROT. 275956” dated November 28, 2017 )

The Italian legislation requires the taxpayer to prepare transfer pricing documentation regarding Country-by-country report correspondent to Annex III to Chapter V of the TPG. Law no. 208, dated 28 December 2015 introduced Country-by-Country report. Ministerial Decree dated 23 February 2017 provides for regulations for CbCR... The Italian legislation or regulation do not require the taxpayer to prepare Master File and Country Specific Documentation (Local File) as an obligation. Master File and Country Specific Documentation (Local File) are optional for taxpayers. Taxpayers filing proper TP Documentation will benefit of so called “penalty protection” in case of upward adjustments.

• Master file (not selected)
• Local file (not selected)
• Country-by-country report (selected)
• Specific transfer pricing returns (not selected)
• Other (not selected)

Legal ReferenceAs for Master File and Country specific documentation see the Commissioner Decision dated 23 November 2020. As for CbCR see Ministerial Decree of 23 February 2017

Companies opting for TP documentation (Master File, Country specific documentation) must file it for each fiscal year by the time of the tax return. The Master File and Country Specific Documentation (Local File) must be signed by the legal representative or by a delegate representing the taxpayer by electronic signature with a time stamp to be put by the date of presentation of the tax return. The taxpayer shall submit the TP Documentation to the tax authorities in electronic form within 20 days upon request. The Master file and the Country Specific Documentation must be drafted in Italian. However, the Masterfile can be submitted in English. CbCR is mandatory for eligible taxpayers, as defined in the Ministerial Decree of 23 February 2017. It must be filed for each reporting fiscal year within 12 months from the last day of the reporting fiscal year.

Legal ReferenceAs for Master File and Country specific documentation see the Commissioner Decision dated 23 November 2020

For companies opting for TP documentation (Master File and Country specific documentation) penalty protection is granted if the documentation requirements are met (i.e. the TP documentation is proper, in the meaning that it provides the tax auditors with the necessary data and information to perform an analysis of the transfer pricing applied, with a specific accurate description of the material transactions and comparability analysis, including a functional analysis, regardless of the fact that the transfer pricing method or the selection of comparable transactions or enterprises adopted by the taxpayer are different from those identified by the tax authorities).

Legal ReferenceAs for Master File and Country specific documentation see the Commissioner Decision dated 23 November 2020

For companies opting for TP documentation (Master File, Country specific documentation - please see also answer to question 21) a simplified approach is provided for small and medium-sized enterprises (SMEs) with reference to the information provided in the Country File (Country specific documentation): SMEs are entitled not to update specific information for two fiscal periods following the period which the documentation relates to, in case the comparability analysis is based on publicly available information sources, and insofar as the comparability factors do not incur substantial changes during the above mentioned taxable periods. Companies are qualified as “small or medium-sized enterprises” in the event their total turnover or revenue does not exceed the threshold of fifty million Euros. Notwithstanding this definition, entities do not fall within this definition if they directly or indirectly control – or are directly or indirectly controlled by - an entity not qualified as a “small or medium sized enterprise”. When applying simplified approach for low value-adding intra-group services referred to in Article 7 of the Decree of the Minister of Economy and Finance of 14 May 2018, the companies are required to provide specific information in the Country File (Country specific documentation). As for CbCR legislation, the Ultimate Parent Entity, resident in Italy, of a MNE Group having total consolidated group revenue of not less than € 750 000 000 must file CbCR.

Legal ReferenceAs for APAs see Presidential Decree no.600/1973, Article 31-ter , effective from 01/01/2023, and amended by Law of 29/12/2022 No. 197 Article 1. As for Mutual agreement procedures see Circular letter no. 21 released by Italian Revenue on June 5, 2012. As for Multilateral Controls see Presidential Decree no.600/1973, Article 31-bis effective from 22/02/2024 and amended by Legislative Decree of 12/02/2024 No. 13 Article 3. As for corresponding adjustment see new Article 31 quarter of Presidential Decree n. 600 dated 29 September 1973, effective from 25/06/2020 and amended by Legislative Decree of 10/06/2020 No. 49 Article 22. For implementation guidance of unilateral corresponding adjustment request see also the Decision of the Commissioner of Italian Revenue Agency dated 30 May 2018 (“PROVVEDIMENTO PROT.108954/2018”)

Multilateral Controls (e.g. simultaneous audits). Unilateral corresponding adjustment. Resident taxpayers can request a unilateral corresponding adjustment to the Italian tax administration in case of a primary adjustment notified by another Country resulting in double taxation. In case of a foreign primary Transfer Pricing adjustment, the Italian Revenue Agency can recognize a downward adjustment not only in execution of a Mutual Agreement Procedure but also unilaterally upon formal request by the taxpayer. The newly introduced procedure allowing Italian taxpayers to obtain a unilateral downward adjustment on their taxable income as a result of transfer pricing adjustment made by foreign tax authorities. The Italian Revenue Agency evaluates whether the primary adjustment made by the other State is in accordance with the ALP, provided that a DTC is in force with the other State, allowing an adequate exchange of information.

• Rulings (not selected)
• Enhanced engagement or cooperative compliance programmes (selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• International Compliance Assurance Programme (ICAP) (selected)
• Mutual Agreement Procedures (selected)
• Other (selected)

Under evaluation. N/A

• N/A (selected)

• 20% (not selected)
• 30% (not selected)
• Other (not selected)
• N/A (selected)

Please, on unilateral corresponding adjustment see answer 33

We do not have internal legislation and regulations on secondary adjustments.

The pre-2010 version of Article 7 is included in the majority of Italy’s tax treaties. However, tax treaties that do not contain the AOA may also be interpreted dynamically, to the extent that it does not imply an infringement of the Treaty, given that the AOA is also provided for by domestic legislation. The 2010 OECD Model Tax Convention version of Article 7 has been included in three Tax Treaties already in force and in a number of treaties under negotiation and/or ratification.

• Article 7 as it read before 2010 (selected)
• Article 7 as it reads after 2010 (selected)
• Other (not selected)

Legal ReferenceSee Article 152 of DPR 22 December 1986, n.917

In principle, we would be able to interpret the Treaty dynamically depending on the presence of Art. 3 par.2 of the Model Tax Convention in the treaty. Since the update of 1995, in fact, the Model Tax Convention contains in Art. 3 par.2 explicit reference to the fact that the legislation to be referred to in the interpretation of the Convention is the one in force when the taxation is imposed (see Commentary on par. 2 of Article 3 of the Model Tax Convention). Our domestic transfer pricing framework is consistent with the AOA, which can be applied dynamically. However, a dynamic interpretation would be feasible to the extent that it does not imply an infringement of the Treaty.

Domestic legislation does not contain a specific guidance for the attribution of profits to PEs of non-resident entities. Arm’s length principle applies. AOA is also applicable to non-resident entities.

There is work in progress for updating the internal practice on transfer pricing.