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Italy – Transfer Pricing (2025)

The arm’s length principle is incorporated into Italian domestic law. Article 110, paragraph 7 of the Consolidated Law on Income Taxes (Income Tax Code, approved by Presidential Decree No. 917 of 22 December 1986, commonly referred to as the TUIR) provides that “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.” The Ministerial Decree of 14 May 2018 (the “Ministerial Decree”) complements Article 110(7) by setting out guidance for the application of the statutory arm’s length rule and refers to international best practices.

Arm’s length principle and the role of the OECD Guidelines

The Ministerial Decree of 14 May 2018 explicitly references the OECD Transfer Pricing Guidelines (OECD TPG) and the OECD Final Report on BEPS Actions 8-10 in its preamble and operative provisions. The OECD TPG are also referenced in implementing rules for transfer pricing documentation and in provisions implementing the Advance Pricing Agreement (APA) program. The Commissioner’s Decision of 23 November 2020 provides further implementation guidance on Master File and Country Specific Documentation, and the Commissioner’s Decision of 28 November 2017 contains detailed rules for Country-by-Country Reporting (CbCR).

Article 110(7) of the TUIR, as amended in June 2017, applies to transactions 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 Ministerial Decree of 14 May 2018 defines “associated enterprises” as resident and non-resident enterprises where (a) one participates directly or indirectly in the management, control or capital of the other, or (b) the same person participates directly or indirectly in the management, control or capital of both. “Participation in the management, control or capital” is further specified as either a participation of more than 50% in capital, voting rights or profits, or a dominant influence over the management of another enterprise based on equity or contractual constraints.

Methods and selection criteria

Article 4 of the Ministerial Decree expressly recognises the OECD methods: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split. Taxpayers may use a method other than these five only if they demonstrate that (i) none of the standard methods can be applied with reliable results and (ii) the alternative method yields a result consistent with what independent enterprises would obtain in comparable uncontrolled transactions. The selection criterion in Italy follows the “most appropriate method” approach as set out in Article 4; there is no rigid statutory hierarchy of methods.

Comparability analysis and arm’s length ranges

Comparability analysis in Italy follows Chapter III of the OECD TPG; Article 3 of the Ministerial Decree adopts the same definition of comparability. There is no preference for domestic comparables over foreign ones, and the Italian tax administration does not use secret comparables for assessment purposes. Article 6 of the Ministerial Decree deals with the arm’s length range: the range of figures derived from the selected financial indicator is considered at arm’s length where the observations relate to a number of uncontrolled transactions each equally comparable to the controlled transaction. A controlled transaction is deemed to comply with the arm’s length principle if the relevant financial indicator falls within that range. If it does not, the tax administration may adjust the indicator so that it falls within the range, while preserving the taxpayer’s right to produce evidence that the transaction complies with the arm’s length principle and the administration’s right to dismiss such evidence with adequate reasons. Italian domestic law does not mandate comparability adjustments as a required step under the legislation presented in the profile.

Documentation and reporting requirements

Italy requires Country-by-Country Reporting for Ultimate Parent Entities resident in Italy of multinational enterprise groups with consolidated group revenue of at least EUR 750,000,000, as set out in Law No. 208 dated 28 December 2015 and regulated by the Ministerial Decree of 23 February 2017; the Commissioner’s Decision of 28 November 2017 provides detailed implementation guidance. The CbCR must be filed for each reporting fiscal year within 12 months from the last day of the reporting fiscal year.

Master File and Country Specific Documentation (Local File) are not mandatory by statute but are optional for taxpayers. The content of Master File and Country Specific Documentation follows substantially Annexes I and II to Chapter V of the OECD TPG as implemented in the Commissioner’s Decision of 23 November 2020. Taxpayers opting to prepare such documentation must file it for each fiscal year by the time of the tax return. The Master File and Country Specific Documentation must be signed by the legal representative or a delegate with an electronic signature and a timestamp corresponding to the date of tax return submission. Documentation must be drafted in Italian, although the Master File may be submitted in English. Upon request, the taxpayer must submit TP documentation to the tax authorities electronically within 20 days.

Italian law provides a “penalty protection” regime for companies that opt to file appropriate TP documentation (Master File and Country Specific Documentation) under Article 26 of Decree-Law No. 78 of 31 May 2010, implemented with amendments by Law No. 122 of 30 July 2010. Protection from penalties is afforded if the documentation is “proper”, meaning it supplies tax auditors with the data and information necessary to perform a transfer pricing analysis, including a material transaction description, comparability analysis and functional analysis, notwithstanding differences in the method selection or comparables between the taxpayer and the tax authority.

Safe harbours and simplification measures

Italy does not have general safe harbour rules in transfer pricing. There are limited simplifications: the Ministerial Decree’s Article 7 provides for the simplified approach for low value-adding intra-group services in line with BEPS Actions 8-10 (without numeric thresholds), and SMEs that opt for TP documentation benefit from a simplified update rule in the Country File whereby certain information need not be updated for two subsequent fiscal periods if the comparability analysis relies on publicly available sources and there are no substantial changes. A company is classified as a small or medium-sized enterprise for these purposes if its total turnover or revenue does not exceed EUR 50 million; however, the entity loses SME status if it directly or indirectly controls, or is controlled by, an entity that does not qualify as an SME.

Advance Pricing Agreements (APAs) and Mutual Agreement Procedure (MAP)

Italy provides for APAs under Article 31-ter of Presidential Decree No. 600 of 29 September 1973, introduced by Article 1 of Legislative Decree 147 dated 14 September 2015 and modified by Article 2 of Legislative Decree 32 dated 15 March 2015. Unilateral, bilateral and multilateral APAs are available. Mutual Agreement Procedures are available and Circular Letter No. 21 of 5 June 2012 discusses MAPs. Multilateral control mechanisms, such as simultaneous audits, are provided for in Article 31-bis of Presidential Decree No. 600/1973. Italy also provides for unilateral corresponding adjustments: following a foreign primary transfer pricing adjustment, resident taxpayers can request a unilateral downward adjustment from the Italian tax administration. This procedure is governed by the new Article 31-quarter of Presidential Decree No. 600/1973, introduced by Decree-Law No. 50 of 24 April 2017, with implementation guidance set out in the Commissioner’s Decision of 30 May 2018 (PROVVEDIMENTO PROT.108954/2018). Recognition of a unilateral adjustment requires, among other conditions, that a double tax convention (DTC) is in force with the other State that permits sufficient exchange of information.

Secondary adjustments, year-end adjustments and attribution to PEs

The profile indicates that Italy does not have specific domestic provisions on secondary adjustments nor does it allow/require year-end adjustments under the domestic rules described. For attribution of profits to permanent establishments, Italy follows the Authorised OECD Approach (AOA); Article 152 of DPR 22 December 1986, n. 917 (TUIR) supports the application of the AOA domestically, and some tax treaties have incorporated the 2010 OECD Model Article 7 AOA approach.

Other relevant rules

There is no specific domestic transfer pricing guidance for certain areas such as cost contribution arrangements or financial transactions; for such areas the profile indicates that taxpayers and authorities follow the OECD TPG. However, outside the TP specific framework, Italy has implemented rules on interest limitation and other anti-hybrids consistent with BEPS Action 4 and the EU ATAD via Legislative Decree 29 November 2018, no. 142. For intangibles, domestic TP legislation does not provide specific pricing guidance, but Italy enacted an optional patent box regime in 2015 based on the nexus approach (BEPS Action 5), allowing up to 50% exclusion of income from certain eligible IP provided R&D expenditure requirements are met. The patent box rules expressly refer to the OECD TPG in determining intangible-related income.

Where the profile does not present domestic guidance on a given topic, the material signals reliance on the OECD Transfer Pricing Guidelines: No se proporciona guía doméstica específica en el perfil para cost contribution arrangements and the practice is to follow the OECD TPG.

Conclusion

Italy’s transfer pricing framework embeds the arm’s length principle in domestic statute (Art. 110(7) TUIR) and supplements it with the Ministerial Decree of 14 May 2018 and several Commissioner decisions which align domestic practice with the OECD TPG and BEPS outcomes. The law recognises the OECD methods, applies the “most appropriate method” principle, and provides for arm’s length ranges under Article 6 of the Ministerial Decree. CbCR is mandatory above the EUR 750,000,000 consolidated revenue threshold; Master File and Local File are optional but provide penalty protection where they are properly prepared. Italy offers APAs (unilateral, bilateral and multilateral), MAPs, multilateral audits and a mechanism for unilateral corresponding adjustments under specified conditions. The domestic framework does not include broad safe harbours nor rules on secondary adjustments as described in the profile, and for several specialized topics the guidance defers to the OECD TPG.

References

For more information and other country profiles see https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

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