An analysis by Alma LED, Taxand Italy
Diletta Fuxa and Giuseppe Ferrisi of our Italian firm, Alma LED, have analysed a recent ruling by the Lazio Tax Commission, examining intra-group financing for transfer pricing in case involving applying an external Comparable Uncontrolled Price (CUP) method.
The tax authorities found the taxpayer’s application of the external CUP unreliable due to control issues. In the ruling, the court emphasised the need to assess “economic influence” beyond formal ownership, considering factors like product sales, board appointments, or participation in cartels.
The ruling highlighted the importance of detailed intercompany agreements for transaction analysis, as per the OECD Guidelines. Additionally, the decision’s strict interpretation of CUP method, disregarding cross-border transactions, raised concerns given the uniformity of the European financial market under EU regulation.
Read the full analysis below…
With Ruling No. 3187/22, the Lazio Tax Commission returned its judgement on intra-group financing for transfer pricing purposes. The Ruling is worthy of further analysis as it addresses, inter alia, the application of the external CUP and the relevance of the control requirement.
In the present case, the Italian tax authorities found the taxpayer’s application of the external CUP to be unreliable, as the transaction deemed to be comparable was requalified as a controlled one, and the requirement of independence of the parties was not met. As a matter of fact, the agreement taken as a basis for the application of the external CUP involved two entities (both resident in Italy) under the common control of another legal entity (i.e., the Italian Ministry of Finance). The 31.24% relative majority was deemed sufficient to consider the control requirement to be fulfilled according to local practice. This interpretation is in line with some recent rulings of the Supreme Court (Corte di Cassazione), which distinguish between control for transfer pricing purposes and the concept of control for civil law purposes, giving a substantive interpretation.
Further, a particularly strict application of the CUP method is noted, as deposit contracts between an Italian company and its Dutch subsidiary and a deposit contract between two entities resident in Italy were not deemed comparable (subject to the control considerations set out in the preceding paragraph). This interpretation does not take into account the uniformity of the European financial market, which is essentially subject to uniform EU regulation. Consequently, the rejection of a transaction due to the presence of a counterparty residing in a different State appears to be critical. A number of considerations may be drawn from the judgment under analysis:
Diletta Fuxa, Giuseppe Ferrisi – Alma LED (Italy)
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