Italy: transfer pricing and patent box bill becomes law

by Davide Anghileri

Italy enacted into law important changes to its transfer pricing and patent box regime April 24 with the publication of Decree n. 50 in the Official Gazette.

Decree n. 50 replaces the concept of “normal value” with a transfer pricing method that is in line with the OECD’s arm’s length principle, adds corresponding adjustments to Italian tax law, and updates the list of intellectual property that can qualify for the patent box regime.

Italy transfer pricing

Under the article 110, paragraph 7, of the new corporate tax act (CTA), Italy’s tax authorities may make transfer pricing adjustments if operations between related parties are not in line with conditions and prices that would be made between independent parties performing in a free/open competition and in comparable circumstances.

The new paragraph replaces prior law, which allowed transfer pricing adjustments when operations were not based on the “normal value” of goods transferred, services rendered, or services and goods received.

The concept of normal value, established by article 9 CTA, is not always consistent with the OECD arm’s length standard. In fact, normal price corresponds to the average price or consideration paid for goods and services of the same or similar type, adopted in free market conditions, and at the same level of commerce, at the time and place in which the goods and services were purchased or performed, or, if there is no exact time or place, at the time and place nearest thereto.

In particular, in determining the normal value, reference was made to professional tariffs, taking into account normal discounts. Furthermore, as far as price control is concerned, reference was made to the applicable regulations in force, if any.

The law states that the Ministry of Finance may issue regulations to set up best practices in line with the international consensus to implement the principles stated in the new paragraph 7 of article 110 CTA.

Corresponding adjustments

The new law also includes provisions for corresponding adjustments following a transfer pricing adjustment that results in a decrease in taxable income.

Such corresponding adjustments can be made at the request of a taxpayer if a transfer pricing adjustment involves a country with which Italy has an in-force tax treaty with adequate exchange of information provisions.

Under the new law, corresponding adjustments can also be made to respect agreements concluded with foreign state competent authorities pursuant to a tax treaty mutual agreement procedures or after tax audits carried out in the context of international cooperation activities whose results are shared by the participating States.

Italy’s patent box

The new law updates the list of intellectual property that can benefit from the tax benefits of the patent box regime to include software protected by copyright; industrial patents; business, commercial, design models that are capable of legal of legal protection; and industrial and scientific information and know-how that is secret and capable of legal protection. Registered or unregistered trademarks are excluded.

The new list will enter into force after 31 December 2016 for those taxpayers that have a fiscal year that correspond to the calendar year; while for the others, it will enter into force in the first fiscal year starting after 31 December 2016.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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