Transfer Pricing in Italy Successful together! 1
Agenda 01 Legal Framework and Special Topics 02 03 04 BEPS Our Services Contact 2
Agenda 01 Legal Framework and Special Topics 02 03 04 BEPS Our Services Contact 3
Transfer Pricing and Value Creation Transfer Pricing goes hand in hand with economic substance BEPS The Action Plan aims to ensure that profits are taxed where economic activities generating the profits are performed and where value is created. Arm s length principle [Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. Crucial for all Transfer Pricing Analyses: Understanding of the underlying business model, in other words: Understanding of the relevant Value Chain and the Value Drivers The profits (or losses) resulting from a business model should be allocated amongst the companies participating in the respective business model based on their functions performed, risks incurred and assets employed 4
Fundamental Concept: Arm's Length Principle The "arm's-length principle" of transfer pricing states that the amount charged by one related party to another for a given product/service must be the same as if the parties were not related. An arm's-length price for a transaction is therefore what the price of that transaction would be on the open market. The arm's length principle has to be considered on two different levels: In a first step, the charging itself has to be justified In a second step, the amount (i.e. the price) has to be appropriate Furthermore, the arm s length principle has to be considered: ex-post, i.e. within the scope of the transfer pricing documentation and generally even more important ex-ante, i.e. in the course of the determination of the transfer prices 5
Italy: Regulatory Framework and Special Topics Fundamental Legal Framework Art.110, C.7, TUIR Art. 9 TUIR Circular ( Circolare ) # 32 1980/09/22 Circular ( Circolare ) # 42 1981/12/12 Circular ( Circolare ) # 53/E 1999/02/26 Art. 26 Legislative Decree # 78 2010/05/31 Administrative Principles ( Provvedimento ) September 29, 2010 Circular ( Circolare ) # 58/E December 12, 2010 Circular ( Circolare ) # 21 2012/06/05 Art. 1 para. 145 Stability Law 2016 Special Topics with Transfer Pricing Relevant Aspects Patent Boxes, Blacklist-Regulation, Valuation of Intangibles, Custom related topics 6
Fundamental International Transfer Pricing Regulations OECD Art. 9 OECD Model Tax Convention Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (1995) Revision of Chapters I-III of the Transfer Pricing Guidelines (22 July 2010) Report on the Attribution of Profits to Permanent Establishments (22 July 2010) Report on the Transfer Pricing Aspects of Business Restructuring Chapter IX of the Transfer Pricing Guidelines (22 July 2010) BEPS Action Plan: Action 8 10 Aligning Transfer Pricing Outcomes with Value Creation Action 13 Transfer Pricing Documentation and Country- by- Country Reporting 7
Agenda 01 Legal Framework and Special Topics 02 03 04 BEPS Our Services Contact 8
Transfer Pricing within the Scope of BEPS Action 8 Intangibles Action 13 Documentation Action 9 Risk and Capital Action 10 Other high-risk Transactions 9
BEPS Transfer Pricing Documentation Three-tiered Approach Masterfile Base documentation CbC Reporting Country specific reporting Local File Entity specific documentation Risk Assessment In depth TP-Assessment Automatic Exchange of CbC Reports between the Countries relevant for the MNE 10
BEPS Example Intangibles Intangibles Legal Ownership of Intangible is no longer decisive The contractual agreement might form the starting point of the transfer pricing analysis, will however not be the decisive factor. If no key functions are performed by the legal owner, also no share of the profits emerging from the use of the intangibles should be attributed to him. Value Creation Approach An artificial shifting of value creation processes (e.g. within the scope of contract research and development) will no longer be possible. Generally, this means that intangibles and related compensation schemes between affiliated entities will come under greater scrutiny. It is probable that contractual arrangements that do not reflect the economic substance will no longer be accepted by the Fiscal Authorities. 11
BEPS Implementation in Italy In Italy, the OECD-Guidelines are regarded as Soft Law, i.e. the BEPS-Guidelines are already now being applied in tax audits (and tax litigation procedures). Italy is heavily involved in the development of the single action points. Implementation Action 13 Implementation Action 8-10 TP-Documentation regulations follow a similar (please note: not identical) structure as the OECD-Masterfile- Concept does, local regulations are still in force Until now only CbC Reporting implemented: Relevant for entities that show a consolidated turnover of at least 750 million Euro Adoption is presumably related to 2016, which results in an implementation in 2017 at latest Not adhering to this regulations leads to penalties between 10,000 and 50,000 Euro. De-facto implementation through case law and administrative principles ( Circolari ), that have to be considered within the scope of transfer price determination and tax audits Example: calculation methods in the context of the Patent Box Regulation 12
Agenda 01 Legal Framework and Special Topics 02 03 04 BEPS Our Services Contact 13
Our Services Structuring / Definition of Transfer Prices Development of transfer pricing systems Definition and implementation of transfer pricing guidelines Selection of most appropriate transfer pricing methods according to national and international standards Application of appropriate transfer pricing methods Processing of comparable data Performance of database and benchmarking analyses Contract design 14
Our Services Documentation of Transfer Prices Preparation of documentation of facts and circumstances Analysis of functions and risks Description of market and competitive situation Depiction of value chains National and international coordination of the documentation Development of coordinated documentation processes and systems Verification of profit situation through database and benchmarking analyses Review and creation of intercompany agreements Risk assessment of available documentation 15
Our Services Transfer Pricing Audits Risk assessment of available documentation Modification and adaptation of documentation as well as information filtering according to tax audit requests Coaching of transfer pricing responsible Creation of overall defense strategies Defense on special topics through e.g.: Professional opinions Database and benchmarking analyses Analyses of license fees Etc. Ongoing support in tax audits (also on-site) Support in competent authoritiy procedures 16
Our Services Special Transfer Pricing Topics Business restructuring and base shifting Transfer of (tangible and intangible) assets Permanent establishments Secondments of personnel Cost sharing arrangements Valuation of intangible assets Patent-Box 17
Agenda 01 Legal Framework and Special Topics 02 03 04 BEPS Our Services Contact 18
International Presence Rödl & Partner Transfer Pricing Group Our strength your benefit: transfer pricing professionals in more than 30 countries Stay up to date on the latest transfer pricing developments with our TP Global Update. www.roedl.com/services/tax/transfer_pricing/tp_global_update 19
Service Line Transfer Pricing Hans Röll Associate Partner Phone +39 0471 1943-200 hans.roell@roedl.it Giampiero Guarnerio Partner Phone +39 02 6328-841 giampiero.guarnerio@roedl.it Evelyn Nora Fuchs Senior Associate Phone +39 0471 1943-200 evelyn-nora.fuchs@roedl.it Simon Gruber Associate Phone +39 0471 1943-200 simon.gruber@roedl.it Luca Schroeder Associate Phone +39 0471 1943-200 luca.schroeder@roedl.it Each and every person counts to the Castellers and to us. Human towers symbolize in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today. Força, Equilibri, Valor i Seny (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers Castellers de Barcelona in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage. 20