Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘Italy’

Italy TP: Greater alignment with OECD

The Italian Revenue Agency issued Circular No. 16/E on May 24th, resulting in audit practices that should be more closely aligned to the OECD transfer pricing principles on comparables and the arm’s-length principle (ALP).

The Circular acknowledges the OECD principles for the arm’s-length range and loss-making transactions, thereby allowing taxpayers following OECD principles to also be aligned with Italian transfer pricing practices.

Italy’s audit premise has generally focused on the median of the range as equating to the ALP, with little or no deviation. However, the relevant OECD principles for ALP and comparables of loss companies are found in Chapter III, Section A.7, commencing with par. 3.55. The ALP focus by the OECD is based on the fact that transfer pricing is not an exact science, and there will be many occasions when the application of the most appropriate method(s) produces a range of figures all of which are relatively equally reliable. Par. 3.60 states “If the relevant condition of the controlled transaction (e.g. price or margin) is within the arm’s-length range, no adjustment should be made.”

Italy has also generally not accepted loss-making companies from the chosen comparables. OECD par. 3.64 is very clear in ascertaining that loss-making transactions can be comparable, with no overriding rule on the inclusion or exclusion of such comparables.

The OECD section is worth reading again, especially if transfer pricing results are not always at the median and/or loss-making transactions are included as comparables, especially with prior COVID-affected years. Italy now seems to be more acceptable to such principles, and taxpayers should assert OECD principles more explicitly in the transfer pricing reports with related justification. This assertion should apply in Italy, and other countries which state that OECD transfer pricing principles are followed.

Italy’s EU DIV WHT; S. Court’s inconsistent position

This recent case underscores the reluctance to assume all EU Member States will interpret the EU Directive in accord with its meaning.

The Lux parent had a dividend exemption regime, thus Italy claims there is really not a dividend, thus withholding tax applies despite the EU Directive and similar court cases.  This reasoning may point to advance planning/rulings for similar transactions, or look for options to otherwise accomplish the cash planning objectives.

EY’s Global Tax Alert provides details on this interesting development.

Click to access 2019G_000316-19Gbl_Italian%20SC%20denies%20WHT%20exemption%20under%20EU%20Parent-Subsidiary%20Directive.pdf

Italy; electronic invoicing

The wave of electronic invoicing has arrived for Italy, with B2B transactions commencing in 2019.

As EY’s Global Tax Alert details, companies should begin to assess procedures for normal accounts payable/receivable transactions, etc.

This is the wave of the future, so ERP systems should be reviewed (or external vendors sought) to perform this function timely.

Click to access 2018G_01269-181Gbl_Indirect_Italian%20Budget%20Law%20introduces%20mandatory%20E-invoicing.pdf

Italy: New web tax & PE

The Italian Budget has enacted a 3% web tax, and a new PE definition based on economic, vs. physical, presence.

The Tax is due by the buyers of the above services unless the supplier declares in the invoice that it has not reached the threshold of 3,000 transactions in the calendar year.

The PE definition goes beyond the OECD’s intent, and will certainly lead to additional disputes in Italy and other countries developing such a subjective measure that also attracts double taxation.

EY’s global tax alert provides additional details as reference.

Click to access 2017G_07179-171Gbl_Italy%20enacts%20Web%20Tax%20and%20new%20PE%20definition.pdf

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