Market overview

Italy has updated its transfer pricing and patent box rules in a decree adopted into law on June 15 2017. Article 59 was passed earlier in April with key modifications concerning the concept of fair market value, double taxation mitigation circumstances and intangibles listed in the patent box regime. The amendments were actioned immediately, in order to align the country with OECD guidelines.

The law modifies the inter-company transaction rules with regards to the Italian concept of fair market value (valore normale). The concept was similar to the arm's-length principle (ALP), but open to interpretation. The revised definition clarifies OECD principles and stipulates that inter-company transactions obey the ALP. Guidance is expected to be updated by Italian officials.

In another key change, taxpayers were provided with new opportunities to mitigate double taxation. Two additional circumstances were presented in which taxpayers can obtain a corresponding adjustment, whereby the distribution of profits is consistent between the two jurisdictions. Before this change, taxpayers could only alleviate double taxation through the use of MAPs.

The first new circumstance is on the conclusion of tax audits performed under international cooperation procedures, where the results are agreed upon by the tax officials involved. The second is through the taxpayer filing a particular application. The last adjustment must be based on an ALP in a country that has a double tax treaty with Italy, which enables adequate exchange of information.

The third significant change removed trademarks from the list of qualified intangibles under the Italian patent box regime. This applies to applications from the end of December 2016 and varies depending on the taxpayer's accounting timeframe.

"Trademarks are the backbone of the Italian economy," said Carlo Paolella, partner from McDermott, Will & Emery. "They are made in Italy, through fashion and branding of Italian companies. These companies got enormous benefits from this incentive. This was certainly a boost to the economy, but now it has stopped."

Tax professionals agree that entities are not confident on how to be compliant with BEPS guidelines on cross-border TP policy. A big challenge is keeping up with change, an aim which can be hindered by the Italian tax authorities, which are famously among the most aggressive in Europe.

"The revenue services are playing good cop, bad cop," said Paolella. "They have nice announcements incentivising the so-called corporate compliance whereby companies should open a dialogue with tax authorities, but then we have increased tax inspector activity and tax audits which may contradict the guidelines. Often these go to court and can have criminal tax implications."

The Ministry of Finance announced in February 2017 that taxpayers obliged to submit country-by-country (CbC) reports must provide information from January 1 2016, in line with the OECD framework.

Tax authorities

Agenzia Entrate
Cristoforo Colombo n. 426 C/D
00145 Rome
Tel: +3906 9666 8933
Website in English:

Tax rates at a glance

(As of July 2017)

Corporate income tax 24%
Capital gains tax 24%
Branch tax rate 24%
Withholding tax
Dividends 1.2/26%
Interest 12.5/26%
Royalties 22.5%
Net operating losses (years)
Carryback 0
Carryforward Unlimited

Source: Deloitte

Firm contact details

Hager & Partners
Maisto e Associati
Studio Associato (KPMG)
Valente Associati GEB Partners
WTS R&A Studio Tributario Associato