Italy Tax: Italy releases unilateral APA data

In a bulletin published on 21 April 2010, the Italian Central Revenue had described the results of the Italian unilateral APA (so-called Ruling di Standard Internazionale) from 2004 through 2009. (Note that the procedure has only been in operation since 2005, after European Commission approval.)

In general terms, the Italian APA process is activated through a taxpayer's request to the competent office (Rome or Milan, depending on the location of the taxpayer) and should be completed within 180 days from the filing of the official request, even if parties can agree on an extension of the terms. If an agreement is reached, the APA will remain in force for three fiscal years starting from the same fiscal year in which the agreement is signed. The APA can be renewed by means of a taxpayer's official request to be filed at least 90 days before its expiration.

The following subjects may fall within the competency of Italian APA matters:

- Determination of arm's length conditions with respect to physical goods or services transactions
- Payments of royalties, interests, dividends or of other income items
- Attribution of profits to permanent establishmentsThe following is some of the more interesting statistical data provided by the bulletin:
- On average, the time required to reach an agreement is 20 months (in a few cases, it took more than three years).
- 52 requests have been filed with the competent offices: 19 resulted in an agreement; 17 are still under discussion; seven procedures have been declared inadmissible by the competent office due to the lack of subjective requisites; and nine have been dropped by the taxpayer due to changes in the group structure during the discussion with the tax office.
- Concerning the types of transactions discussed, 15 cover the transfer of physical goods; three relate to the provision of services; one is a cost sharing agreement; one concerns intangibles licensing; and two are regarding the attribution of profits to permanent establishments.
- In relation to the transfer pricing methodologies agreed to for the intercompany transactions analyzed, the traditional transaction methods have been adopted in only 21% of the cases. In particular, the Comparable Uncontrolled Price method was applied in just one case and the Cost Plus Method in three cases, while the Resale Price Method was never selected as an appropriate method. The Transactional Net Margin Method, instead, has been the most commonly applied: it was deemed appropriate in 53% of the cases. Finally, the Profit Split Method was adopted in five cases, but only in the residual version.

In addition, nine procedures concerned transactions entered into by Italian subsidiaries with their foreign parent company and six with other foreign-related parties. Moreover, eight APAs were related to transactions entered into by foreign subsidiaries with their Italian parent company. Two APAs dealt with the attribution of profits to Italian permanent establishments of foreign companies and, in contrast, no agreement has been reached with respect to the attribution of profits to a foreign permanent establishment of an Italian company. Studio Legale Tributario in association with Ernst & Young – Georg Augustin, Davide Bergami, Mario Ferrol and Piera Vitali (Milan); Guido Lenzi and Gaetano Pizzitola (Rome)