TaxNewsFlash-Transfer Pricing

May 6, 2010
No. 2010-26



Italy: Tax Authority Issues First Report Concerning Advance Pricing Agreements (International Standard Rulings)

The Italian tax administration issued its first report with respect to the advance pricing agreement (APA) program—also referred to in English as the “international standard ruling” program—on 23 April 2010.

The report describes, in detail, applications for “international standard rulings” (unilateral APAs) submitted to the International Ruling Office of the tax authority’s Central Directorate for Tax Assessment. This report follows the introduction of the “international standard ruling” program, which had an effective date of 1 January 2004.*

*Pursuant to article 8 of Decree Law no. 269 of 30 September 2003

The report summarizes statistical information about “international standard ruling” applications submitted from 2004 to 2009, and includes information about the classes of taxpayers, the industries to which the taxpayers belong, and the type of transactions subject to the signed agreements.


The “international standard ruling” program is available for “enterprises with international activity” that intend to agree in advance with the Italian tax administration concerning:

  • The correct transfer pricing methodology applicable to the transactions conducted with related parties and, in some cases, the comparables used as benchmarks
  • The tax treatment provided for by law (including applicable income tax treaty provisions) in respect of dividends, interest, royalties, or other income paid to or received from non-resident persons in specific situations
  • The application of the provisions of the law (including provisions under applicable income tax treaties) in specific situations concerning the attribution of profits or losses to permanent establishments in Italy of non-resident enterprises as well as to permanent establishments abroad of resident enterprises

The process may be concluded with an “international standard ruling” agreement (i.e., unilateral APA) between the taxpayer and the tax administration, pursuant to which the criteria and methods for calculating the value of the subject transactions are indicated.

Applications for an “international standard ruling” (APA) may be withdrawn by the taxpayer, or the application may be considered inadmissible by the International Ruling Office when the application does not comply with certain requirements.

The “international standard ruling” (APA) remains in force for three years starting from the fiscal year in which it is signed, and it may be renewed at the end of the three-year period. During this three-year period, the tax authority can verify that the terms of the agreement are being complied with as well as determine whether any changes have occurred with respect to the conditions on which the agreement’s provisions were based.

2004 – 2009 Report Statistics

The recent report provides general statistics concerning the applications submitted in the period 2004-2009:

  • Fifty-two (52) applications were submitted, among which 19 “international standard rulings” (unilateral APAs) were granted.
  • Seventeen (17) procedures are in progress.
  • Seven (7) applications were rejected.
  • Nine (9) applications were withdrawn.
  • The median completion time was 17 months, and the average was 20 months.
  • In general, 74% of the submitted applications were completed within two years.

More detailed statistics concerning the classes of taxpayers who submitted an application for an “international standard ruling” indicate:

  • The taxpayer’s size expressed by turnover:
    • 48% with turnover less than €100 million
    • 14% with turnover between €100 and €300 million
    • 37% with turnover greater than €300 million
  • Their Industries:
    • 53% of taxpayers are engaged in production, in particular in high-tech areas such as electronics industries
    • 47% of taxpayers operate in the commercial and services sectors

The report’s statistics also focus on the type of transactions and the method used to assess the arm’s length nature of the transactions:

  • The type of transaction:
    • Sale of tangible property from Italy—11
    • Purchase of foreign goods—4 (four)
    • Performance of services by an Italian entity—3 (three)
    • Cost sharing agreement—1 (one)
    • Transaction involving intangible properties—1 (one)
    • Attribution of profits or losses to a permanent establishment—2 (two)
  • Methodology:
    • Transactional profit methods were adopted in 79% of cases.
    • Traditional transaction methods were adopted in the remaining 21% of cases.

KPMG Observation

Tax professionals in Italy have observed that since the introduction of the “international standard ruling” (APA) procedure in 2004, a new type of relationship has developed between the tax authorities and taxpayers—one that recognizes their interaction as having become “preemptive.” For the taxpayer, it is possible to know in advance of implementing a transfer pricing policy whether it would be accepted by the tax authorities (whereas, in the past, this was available only after the fact).

Over the years since the implementation of the “international standard ruling” (APA) procedure, observers have noted that a more cooperative and positive relationship has developed between taxpayers and the tax authorities and now, at the end of what could be described as the “warm-up” period, it has been reported by taxpayers and tax professionals that the procedure seems to be working well—thereby making the international standard ruling (APA) a useful tool for the taxpayers, especially for those whose situations may be complicated or subject to possible dispute.

The statistics indicate that most issues were resolved by means of transactional profit methods (in all situations, the methods applied were among those included in the OECD Transfer Pricing Guidelines) and that the largest number of applicants were subsidiaries or branches of foreign groups which considered it convenient to seek an advance agreement with the tax authorities.

Because of the time and effort normally required to obtain an “international standard ruling,” it may be viewed as a tool that is more suitable for companies with a large taxable base and whose transfer pricing policies are less common or are not as easily recognizable during a tax audit.

For more information, contact a tax professional within KStudio Associato - Global Transfer Pricing Services:

Gianni De Robertis, Partner-in-Charge, Global Transfer Pricing Services, Italy, +39 06 8096 3563, 



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