Italy: Pending transfer pricing, international tax reform proposals

Italy: Transfer pricing, international tax reform

A draft legislative decree, currently pending consideration by the Italian parliamentary commissions, would allow companies with international operations to enter into five-year binding agreements with the Italian tax administration concerning the treatment of the following cross-border issues: (1) transfer pricing; (2) inbound and outbound transfers of corporate residence, and determination of value of transferred assets; (3) existence of a permanent establishment and attribution of profits; and (4) domestic and treaty-related taxation of cross-border payments of interest, dividends, and royalties. The proposed provisions would also apply for purposes of the Italian regional tax on productive activities (IRAP).


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Expenses related to “black list” transactions

The draft legislative decree would amend the rule for deductions of expenses related to transactions with counterparties that are residents of or established in “low tax” jurisdictions—that is, “black list” jurisdictions.

Currently, such expenses are disallowed as deductions if the taxpayer cannot provide sufficient evidence of either the business substance of the counterparty to the transaction or the genuine business reason for the transaction together with proof of its actual execution. The pending draft legislative decree would allow for expenses from such transactions to be deductible if the transfer pricing is at arm’s length (otherwise, the current rules for the most part would generally apply).


Read an April 2015 report [PDF 228 KB] prepared by the KPMG member firm in Italy: Delegation Law for the reform of the Italian Tax System

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