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Advance pricing agreements
Availability and eligibility
Are advance pricing agreements with the tax authorities in your jurisdiction possible? If so, what form do they typically take (eg, unilateral, bilateral or multilateral) and what enterprises and transactions can they cover?
Taxpayers that wish to seek an advance pricing agreement with the Revenue Agency must file an international tax ruling application. That application allows multinational enterprises to reach an agreement with the Revenue Agency on specific cross-border tax matters (including advance pricing agreements).
An international ruling on transfer pricing matters is essentially a unilateral advance pricing agreement. However, in their second bulletin on the international ruling procedure (March 29 2013) the tax authorities indicated that they have been negotiating bilateral or multilateral advance pricing agreements since the end of 2010.
An advance pricing agreement application can be filed by Italian resident enterprises that are subject to the transfer pricing rules in Article 110(7) of the Income Tax Code and by Italian permanent establishments. The application involves the determination of the arm’s-length price of intercompany transactions. However, the potential scope of an advance pricing agreement is flexible – it may relate to all of the business’s transfer pricing issues or be limited to specific issues.
Rules and procedures
What rules and procedures apply to advance pricing agreements?
The international tax ruling procedure, which was originally regulated by Article 8 of Legislative Decree 269/2003, is now governed by Article 31-ter of Presidential Decree 600/73 (enacted in 2015) and Revenue Agency Regulation 42295/2016.
Taxpayers may request a pre-filing meeting with the tax authorities, which can be anonymous.
Unilateral advance pricing agreement applications must be addressed to the Office for Advanced Rulings and International Disputes of the Revenue Agency in Rome or Milan (depending on the applicant’s tax domicile). Bilateral and multilateral advance pricing agreement applications must be addressed to the office in Rome and to the Directorate General International Relations of the Department of Economy and Finance. Under penalty of no acceptance, taxpayers must include the following in their applications:
- an outline of the transactions covered under the proposed advance pricing agreement;
- a detailed description of the goods and services that are supplied in the context of those transactions; and
- an explanation of the proposed transfer pricing method and reasons why that method is deemed to comply with the transfer pricing rules.
A standard advance pricing agreement procedure involves one or more meetings with the tax authorities, which may also visit the applicant’s premises.
How long does it typically take to conclude an advance pricing agreement?
Generally, advance pricing agreements should be completed within 180 days of the filing of the application. However, this term is often disregarded.
Based on the second bulletin on the international ruling procedure, published on March 29 2013, 37 international ruling agreements were concluded between 2010 and 2012 and it took, on average, less than 15 months to complete the procedure. Based on the EU Joint Transfer Pricing Forum: Statistics on APAs in the EU at the End of 2015 (October 20 2016) in 2015 the average time to negotiate bilateral or multilateral advance pricing agreements in Italy ranged between 39 months (for EU states) and 41 months (for non-EU states).
What is the typical duration of an advance pricing agreement?
Advance pricing agreements remain in force for five years (including the year in which the agreement is signed).
What fees apply to requests for advance pricing agreements?
No fees apply.
Are there any special considerations or issues specific to your jurisdiction that parties should bear in mind when seeking to conclude an advance pricing agreement (including any particular advantages and disadvantages)?
Council Directive (EU) 2015/2376 of December 8 2015 amended Directive 2011/16/EU with regard to mandatory automatic exchange of information in the field of taxation, and was transposed into law by Legislative Decree 32/2007. From January 1 2017 the Revenue Agency is therefore obliged to automatically exchange certain information on advance pricing agreements with other EU member states and inform the European Commission accordingly.
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