Italy binding agreements on transfer pricing issues | KPMG | GLOBAL

Italy: Five-year tax agreement; treatment of cross-border items, transfer pricing

Binding agreements on transfer pricing in Italy

A legislative decree includes provisions that are intended to encourage foreign investment in Italy. Among the provisions are measures that allow multinational entities to enter into a five-year binding agreement with the Italian tax authorities, with respect to certain cross-border tax items including transfer pricing.


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Legislative decree n. 147 (published in the official gazette on 22 September 2015) aims to provide investors with certainty arising from their investment plan. The advance ruling procedure apply for investments not less than €30 million. The decree also allows for five-year binding agreements with the tax authorities concerning:

  • The determination of values in instances of inbound and outbound transfers of residence
  • The existence of a permanent establishment and attribution of profits
  • Domestic and treaty-related tax treatment of cross-border payments of interest, dividends, and royalties
  • The definition of the arm’s length value for, in certain instances, “black list” expenses

Contrary to existing case law, the “arm’s length” rule does not apply to transactions between Italian resident companies.

"Black list"

A 2002 decree provides that expenses related to transactions with related and unrelated suppliers that are residents or established in “low tax” jurisdictions—the “black list” jurisdictions—are disallowed if the Italian taxpayer cannot provide evidence of: (1) the business substance of the supplier; or (2) the genuine business reason for the transaction and the manner in which it was conducted. 

The recent (September 2015) decree changes this rule and provides that beginning in 2015 (for calendar year taxpayers), expenses relating to these transactions are allowed up to an “arm’s length” value.  Amounts above that may be allowed if the taxpayer can establish the genuine business reason for the transaction and the manner in which it was conducted.


Read a September 2015 report [PDF 250 KB] prepared by the KPMG member firm in Italy: Implementation decree on growth and internationalization of companies 

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