Privacy Policy

The benefits provided by a proper documentation on transfer pricing: two relevant Italian sentences

February 20, 2014  |   Blog,News   |     |   0 Comment

Sentenza 1

The judgements no. 83/1/2013 and no. 84/1/2013 issued on January, 2013 by the Regional Tax Commission of Lombardy emphasize the importance of a proper documentation on transfer pricing, providing guidance to multinational groups in order to avoid adjustments and penalties, since a suitable documentation prevents the application of high administrative penalties in the event of a tax assessment and allows the defence of the transfer pricing policies adopted against adjustments.

Moreover, the two sentences shed some light on the allocation of the burden of proof. In fact, the Court established that in transfer pricing litigations the onus probandi has to be allocated between the Italian Tax Authority and the taxpayer on the basis of the legal principle of the “proximity” of the parties to the evidential facts related to the adequacy of the transfer prices applied. According to the decision of the Supreme Court, the burden of proof should be allocated by taking into account, in practice, the possibility for one or the other party to prove facts and circumstances that fall within their respective spheres of action.

In detail, while it will be on the Tax Authority the burden of «proving to have carefully selected the compared transactions, to have fully evaluated the functions performed and the risks assumed by the parties in relation to the transactions involved in the analysis, to have verified that the operations are at the same marketing level and markets», the taxpayer, for his part, can not merely invoke the failure to meet the burden of proof by the Tax Authority, but should provide the tax inspectors with proper documentary evidence related to the arm’s length value of the goods and services transferred.

Pursuant the documents to be maintained and, in case of tax audit, provided to the tax inspectors by the taxpayers, the two sentences make explicit reference to the Code of Conduct on transfer pricing documentation for associated enterprises in the European Union, to the Italian regulations of the Revenue Agency dated September 29, 2010 (which determines the documentation scheme to be produced in order to avoid penalties) and the studies on transfer pricing carried out by independent experts.

In particular, as already stated by the Oecd in 1995, taxpayers should be aware that the voluntary production of documents facilitates the resolution of problems related to transfer pricing. The EU Code of Conduct, in addition, regulates two kinds of standardized documentation, the so-called Masterfile and Countryfile.

Specifically, the Masterfile contains the general information about the multinational group, its structure, transactions carried out and the correlated flows, the intangible assets held and the intercompany contracts, while the Countryfile (the national documentation) represents is the natural completion of the first document and includes information about the local situation, also in relation to the implementation of the group policy on transfer pricing issues.

It should be emphasized that the choice taxpayers take in the process of filing the Tax Returns, explicitly declaring the possession of transfer pricing documentation that meets the specifications of the aforementioned provision of the Italian Revenue Agency, constitutes the prerequisite necessary for accessing to the penalty protection regime, which excludes the application of penalties in the event of tax audit.


In order to avoid the application of penalties another instrument which is gaining momentum in the italian tax law is the so called “international ruling institute” (ruled by Article 8 of Decree Law 269/2003) on the advance assessment of intercompany prices.

Comment moderation is enabled. Your comment may take some time to appear.

Related Posts