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מחירי העברה: איטליה אפריל 2013

11 אפריל 2013

Italian bulletin on international tax rulings

(by Susanna Scapigliati and Francesco Drago, Studio Sala e Associati, BDO Italy)

TransferThe Italian Central Revenue has published its second bulletin (the previous one had been issued in 2010), which resumes the outcome relating to the requests for the International Ruling Procedure made under the Italian tax law. 
The report essentially shows that: 
• Starting from 2004 until the end of 2012, 135[1] applications for ruling were filed, of which 21 for bilateral or multilateral procedures;
• In the meantime, 56 binding agreements were signed with the Italian Tax Authorities;
• The average time needed to reach an agreement is approximately 16 month;
• More than 50 percent of the Advance Pricing Agrements (herein-after, also “APA”) were concluded with the TNMM as the preferred transfer pricing method. 


Article 8 of Law Decree No. 269 of September 30, 2003 - implemented with the Regulation of the Director of the Revenue Agency of July 23, 2004 - introduced the International Ruling Procedure, that became effective when a favourable opinion was delivered by the European Commission on February 2005. The International Ruling Procedure[2] is addressed to companies with a cross border activity[3] that intend to reach an agreement with the Italian Tax Authorities, in the following matters:

•  The transfer pricing methodology applicable to transactions concluded with related parties[4];
•  The tax treatment provided for by the law, including tax treaties, in respect to dividends, interest, royalties or other income paid to or received from non-resident persons in specific cases; and

•  The attribution of profits to permanent establishments.
Access to the International Ruling Procedure is made on a voluntary basis, by means of an application sent to the International Ruling Office - International Division - Central Directorate of Tax Assessment of Revenue Agency, which is split into two offices based in Rome and Milan. The access to bilateral or multilateral APA (not formally provided for by the Law, however started on practice since end of 2010 as reported by the new bulletin), instead, is allowed through an application sent to the International Ruling Office - International Division - Central Directorate of Tax Assessment of Revenue Agency (only Rome office) and to the Ministry of Finance – International Tax Department[5] . Albeit not expressly stated by the Italian Law, the so-called pre-filing procedure has been established as a standard practice[6]. Substantially, the Italian International Ruling Office takes part, upon the taxpayer’s request, in one or more meetings with taxpayer and / or its representatives in order to provide clarifications on how to submit the instance and, generally speaking to provide a clear point of view on the main essential aspects[7]  of unilateral and / or multilateral procedures. This standard practice characterized itself for its informal nature[8], if compared to formal ruling procedure.

the so-called pre-filing procedure has been established as a standard practice. Substantially, the Italian International Ruling Office takes part, upon the taxpayer’s request, in one or more meetings with taxpayer and / or its representatives in order to provide clarifications on how to submit the instance and, generally speaking to provide a clear point of view on the main essential aspects of unilateral and / or multilateral procedures. This standard practice characterized itself for its informal nature, if compared to formal ruling procedure.

As far as the formal procedure is concerned, within 30 days from receipt of the application, the International Ruling Office schedules a first meeting with the tax-payer in order to settle the terms of the procedure. The procedure follows with a variable number of meetings, during which further documentation may be required and also physical visits generally occur, during which the business activity is actually performed in order to obtain a direct knowledge of the information contained in the filed application.

This procedure should be completed within 180 days starting from the date on which the application was filed. However, considering that the above mentioned term is not mandatory, the parties may agree to extend the procedure timing.
The procedure ends with a binding agreement that states the criteria and methods for calculating the arm’s length value of the transactions for which the application has been filed, or the criteria for the application of tax treaties.

During the three years’ period following the agreement’s signature, the International Ruling Office audits the terms of the agreement signed and, furthermore, whether any changes in de facto or de jure[9]  situation have occurred in all the conditions representing the fundamentals on which the agreement has been fundamentals on which the agreement has been concluded. In such a case it is possible to proceed by modifying the existing agreement.

At the end of the three years’ valid time, and no later than 90 days before expiry date, the taxpayer may submit an application for renewal.

It is important to remark that with regard to the issues covered by the agreement, and for the period during which it is effective, the powers granted to the tax administration by art. 32 et seq. (in general, audits and assessments) of Presidential Decree no. 600 of 1973, relevant to possible tax assessments are suspended.


The conclusion of an international ruling agreement, considering it substantially aligned to a unilateral APA[10], significantly reduces, although it does not eliminate, international double taxation risks upon tax bases related to cross-border inter-company transactions. As a rule a bilateral or multilateral APA , ensures that the income accrued to associated enterprises from transactions which fall within the scope of the agreement is not subject to double or multiple taxation, since the agreement has also been accepted and signed by the competent Tax Authorities of the foreign jurisdictions concerned.

Therefore, in order to make the contrast to international double taxation phenomena more effective and to provide certainty for multinational groups with regard to inter-company transfer pricing policies, starting from the last months of 2010, the Italian Tax Authorities have granted the possibility for taxpayers who have an interest, to file an application aimed to the conclusion of bilateral or multilateral APA type.

This attitude reflects a basic orientation already revealed by the Italian tax authority before 2010; the head of the International Ruling Office (now head of the Central Directorate for Tax Assessments Large Business Division) in fact, during a conference of the International Tax Review in 2008, exhorted taxpayers to consider bilateral rather than unilateral Advance Pricing Agreements as an effective mean to avoiding double taxation[11].


TABLE 1 summarizes instances of bilateral APA, in progress at 31 December 2012, split into foreign jurisdiction’s counterpart.

TABLE 2 shows the increase in preliminary meetings relating to taxpayers who have revealed their identity with respect to the total number of pre-filing. This figure indicates the growing confidence in the matter of ruling procedure by taxpayers who choose therefore to communicate with the office in a non-anonymous way.

As reported in TABLE 3, transfer pricing issues cover an important part of total pre-filing activities.

TABLE 4 summarizes data relating to the first bulletin (2004-2009) and to the second bulletin (2010-2012). Data for each column are referred to the 31/12 situation of period under review. Please note that the effective starting point of international ruling has been February 2005. The possibility to access for bilateral or multilateral APA application is allowed from the last months of 2010. 

The data reported in the table show how the applications number has increased in the last three years (2010-2012) if compared to the instances contained in the first bulletin (2004-2009). As reported in table, the first five years’ period was characterized by 52 applications of ruling, against 83 filed over the last three years’ period, starting from 2010 to 2012. Please note that only in 2012, 38 instances to the International Ruling Office were filed. 

The above mentioned results could be explained with the increasing favourable approach aimed to improving collaboration between Tax Authority and taxpayers (“enhanced relationship” advocated by OECD). 

From one side, the trust degree of taxpayers in this procedure is growing especially thanks to the Administration approach as well as an ever better preparation of tax auditors. In light of this focus, the increasing value of resources employed by the Italian Tax Authority can be noticed in order to create a cutting-edge and competent office. This fact had a direct impact on the average time of instances conclusion. More in detail, the filing average timing to reach an agreement has decreased from 20 months (for instances related to time lag 2004-2009) to less than 15 months for instances related to time lag 2010-2012. 

On the other side, it is undeniable that the crisis would lead to the revision of the business models, often complex, and for MNE it may be convenient to sit down with the Tax Authorities in order to discuss these kind of issues, especially from the perspective of legal certainty and also for the assessment of tax risk degree for foreign investment.

[1] As reported in TABLE 4, § IV APPENDIX, of the report
[2] Please note that the provisions relevant to the international ruling agreement, under the Italian law, should be substantially assimilated in the form to an unilateral APA. 

[3]  For Italian residents, the status of enterprise with international activity is recognised to enterprises which alternately or jointly: 
-  fall under one or more of the conditions laid down under art. 110, §. 7, of the Italian Income tax Code; 
-  either hold stakes in the assets, funds, capital of non resident persons or have stakes in their assets, funds, capital which are held by non-resident persons; 
-  have paid out to or received from non-resident persons dividends, interests or royalties. 

[4]  The status of enterprise with international activity is also recognised to non-resident enterprises which carry on business in Italy through a permanent establishment, that qualifies as such according to the relevant provisions of the Italian Income Tax Code. This criteria configure the so called “subjective requirements” to access to the international ruling. 
[5]  In general, according to art. 2 of the Regulation, the application must include, on pain of inadmissibility, information such as the name of the enterprise, its registered office or fiscal domicile, the taxpayer identification number and VAT registration and, if the case, the national addressee for the procedure, different from the enterprise, to whom communications relating to the procedure itself are to be sent. Applications by resident enterprises must be accompanied by documents giving evidence that they are in possession of the subjective requirements, while applications by non-residents must indicate the presence of a permanent establishment in Italy in order to be eligible for the procedure. 
On pain of inadmissibility, pursuant to letter c), §2 of article 2 of the Regulation, the application must also clearly indicate the object of the ruling.
With regard to transfer pricing, art.3 of the Regulation requires that the application specifies the goods and/or the services which are the subject of cross-border transactions between related parties, as well as the non-resident companies with which said transactions are carried out. Finally, the application must illustrate the criteria and methods used to determine the arm’s length value of the relevant transactions and the reasons why they are considered consistent with the law. 
As a general rule, transactions may concern: the transfer of tangible and intangible property, the provision of services as well as cost sharing agreements. Some different objective requirements are requested in cases of tax treatment applicable to flows of interest, dividends, royalties and other income, as well as the attribution of profits to permanent establishments in Italy of foreign entities and foreign establishments of Italian companies. 

[6]  The phase of pre-filing is not mandatory as it is activated prior to the request for activation of ruling formal procedure, upon the taxpayer’s explicit request. This procedure therefore does not fall within the formal structure, that is regulated by law, aimed to ruling procedure activation. It should be considered as a behavioral practices. Please refer to TABLES 1 to 3 in respect of the performance of the practice.

[7]  From an high level of view topic such as conditions of eligibility, documentation to provide, etc.

[8]  Please note that, in the light of the procedure nature, the pre-filing procedure can be implemented granted the Taxpayer’s anonymity. 

[9] It is still not clear when a “variation” is significant enough to actually affect the agreement. 

[10]  Normative references: 
- art.8 of Decree Law n° 269 of 30 September 2003, converted with amendments into Law no. 326 of 24 November 2003 and implemented with Regulation of the Director of the Revenue Agency of 23 of July 2004; 
- art.25, §. 3, OECD Model.  

[11]  Please refer to Bloomberg BNA, Tax Management Transfer Pricing Report 2008, Italy : “Italian Revenue Official Encourages Bilateral APAs, Fiat has five agreements”.  

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