viernes, 23 de junio de 2017

Italy: New law decree includes measures on the NID, patent box and transfer pricing

A law decree published by the Italian government on 24 April 2017 contains a number of tax rules that are designed to help reduce the budget deficit. The decree entered into force on 25 April 2017, although it still must be converted into law by the parliament within 60 days to be final. The changes that are most relevant for foreign investors are the following:

  • Amendment to the basis of computation of the notional interest deduction (NID);
  • Exclusion of trademarks from the scope of the patent box regime;
  • Introduction of a new downward adjustment mechanism for transfer pricing purposes; and
  • Change in the tax treatment of carried interests. 

The decree eliminates the definition of the arm’s length standard (ALS) in the Italian tax code as it applies to intercompany cross-border transactions, and introduces a new definition that is in line with that in the OECD model treaty. Under the new definition, income arising from intercompany transactions carried out with nonresident related entities will be determined according to the conditions and prices that would have been applied between unrelated parties, operating in free competition and in comparable circumstances.
Although the change is somewhat academic since both businesses and the tax authorities use the OECD definition of the ALS in practice, it still may be relevant in certain cases where reference to arm’s length “pricing” rather than to arm’s length “conditions” could result in different conclusions as to whether a transaction complies with the standard (an issue that recently has been addressed by the Italian Supreme Court).
The decree also introduces additional procedures that will allow Italian companies to avoid economic double taxation resulting from transfer pricing adjustments made by foreign tax authorities under the arm’s length principle. In particular, if a decrease in Italian taxable income is necessary to avoid double taxation, a downward adjustment in the Italian tax return now will be possible not only by means of the mutual agreement procedure provided under the EU arbitration convention and the relevant tax treaty, but also through:

  • Joint audits carried out in the context of international cooperation activities whose outcomes are shared by the participating countries; and
  • A specific request by the Italian taxpayer with the Italian competent authority for a correlative (i.e. compensating) adjustment in Italy. This option, which would allow the taxpayer to recover the higher tax paid in Italy, may be used only where transfer pricing adjustments are made by the tax authorities of a country that allows an appropriate exchange of information with Italy.

Italy’s Ministry of Finance and the head of the tax authorities are expected to issue detailed guidelines on the application of the new definition of the ALS and the implementation of the new correlative adjustment procedure.

Source & more info: Deloitte

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