In an interview published in Milano Finanza and Italia Oggi, the partner, Lawyer Tommaso Fonti, LL.M. explains, with a practical approach, the regulation of transfer pricing and the work of our Transfer Pricing team, headed by him and composed of senior associate Denis Amici and junior associate Lorenzo Ricciotti.
Read the interview:
QUESTION: What is Transfer Pricing and who are the typical clients who seek your advice?
ANSWER: “This is the legal framework under which companies belonging to multi-national enterprise groups must determine, for tax purposes, the transfer prices applied to intra-group commercial or financial transactions. Transfer Pricing is not a practice aimed at tax avoidance, but rather is aimed at properly allocating taxable income and, consequently, taxes between the different countries where the multinational company operates. The clients who usually contact us are multinational enterprise groups with parent companies in Italy and subsidiaries abroad or vice versa.”
D. What are the advantages of adopting an appropriate intra-group transfer pricing policy?
A: “They are mainly twofold: firstly, to avoid transfer pricing adjustments by the Italian tax authorities on the costs incurred and/or revenues earned by the multinational company; and secondly, to monitor and reduce the tax risk associated with intra-group transactions, to ensure that the Italian company – parent company or subsidiary – maintains its corporate value, also in view of a future sale of the same to potential investors.”
D. What does Transfer Pricing Documentation consist of?
A: “In Italy, for more than ten years a law has been in force that allows taxpayers to adopt Transfer Pricing Documentation, namely, a set of documents aimed at demonstrating that the transfer prices practised intra-group conform to market values, the so-called “arm’s length principle”. The document set consists of the Masterfile and the Countryfile: the first document gathers information about the group and describes its operations and internal relations; the Countryfile, on the other hand, describes the Italian resident company. By adopting appropriate documentation, the Italian taxpayer company can avoid adjustments to the intra-group prices charged and thus higher income being subjected to tax by the Italian tax authorities or at least avoid the imposition of penalties resulting from such adjustments.”
D. How does your Transfer Pricing team operate in practice when advising clients on this matter?
A: “We go into the company to understand its business and operations, the industry where it does business, its transactions with foreign subsidiaries and the logic behind the determination of intra-group pricing. With the information gathered, we develop the appropriate economic “benchmark analyses” to support the intra-group pricing from a tax perspective. If we spot issues, we propose solutions to the company to revise its transfer pricing policy. Once the analysis is complete, we draft the documentation. In all phases of our assistance, we work closely with the relevant corporate functions and the company’s advisors, first and foremost the accountant.”
D. What advice do you give companies facing the issue of Transfer Pricing?
A: “For companies approaching Transfer Pricing for the first time, the operational advice is to carefully consider this issue from the very conception of the multinational corporate group and the intra-group transactions that will occur between the group’s various subsidiaries. Secondly, it is very important to have solid and well-drafted intra-group contracts. Lastly, for companies that have already implemented a Transfer Pricing policy and/or have already adopted the Documentation, it is advisable that they constantly verify, at least on an annual basis, that the policy, the intra-group contracts and the information contained in the Documentation reflect the parties’ actual conduct in the context of their intra-group relations.”
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