Transfer pricing is constantly evolving

Transfer pricing is constantly evolving and the Italian applicable regulation was recently updated. Firstly, the reference to the “normal value” has been replaced by the concept of the “arm’s length principle”: though it is just a formal change, this shows a stronger intention of the Italian legislation, practice and case law to consider OECD Guidelines as crucial interpretation instruments in the Italian system.

The second change concerns the introduction of a new instrument to avoid double taxation, which should allow solving many cases efficiently and more quickly. This instrument is added to other existing ones, which have been updated or strengthened within the internationalization process of the Italian tax system.

Public consultation on the new decree

The Italian Ministry of Economy and Finance has recently issued a draft ministerial decree (then approved) for consultation, (Ministerial Decree no.14 May 2018, published on the official journal dated 23 May), which summarizes the main elements on transfer pricing in the Italian system. The consultation, which Bernoni Grant Thornton took part in, is a further positive evidence of the modernization and proactivity of the Italian Ministry for Economy and Finance and of the Revenue Office with reference to these issues.

The decree provides a very brief explanation of the principles contained in the Guidelines, which should therefore be analysed more in detail. An act implementing the new instrument to avoid double taxation will be hopefully introduced and approved soon, though some time is still needed.

Evolution in transfer pricing is even faster at an international level: the BEPS project and, more in general, the activity carried out so far by the OECD within international taxation is still ongoing. The OECD continues submitting the Guidelines for review, updating and integrating their content with new hints and suggestions. The new projects announced and the discussion drafts published are the evidence of such dynamism and intense activity.

The need to adjust domestic regulations to the principles approved within the BEPS project and subsequent research, have required and will require important changes in many State regulations all over the world, but it is increasingly difficult for multinational companies to deal with such a diversified and constantly evolving world.

In fact, the same OECD principles can be interpreted in different ways, as proven by the different approaches adopted by States with reference to the issues concerned by the multilateral instrument.

The new Transfer Pricing Guide, drawn up by Grant Thornton thanks to the contribution of most part of its member firms, could help. This is a very brief document, containing a dossier for each country providing all essential transfer pricing information in just two pages, i.e. the current legislation and standard practice, as well as the changes introduced or expected following the BEPS project.

The aim is to provide the reader with a clear and brief reference to the main transfer pricing regulations and practices in different countries. The next step is to further analyse and understand if your Group is compliant with recent changes, as regards both substantial and formal aspects, or which are the measures to be taken in order to efficiently manage the tax risk and to avoid exposing the Group to objections, penalties and double taxation.