Decree n. 50/2017 (entered into force on 24 April 2017 and to be implemented within the next 60 days) modifies art. 110 section 7 of the Corporate Income Tax Code by introducing a new domestic definition of the “arm’s length principle”.
So far, the said provision stated that the price of intercompany cross-border transactions had to be determined based on the so-called "normal value" (valore normale), being the average price for goods and services of the same or similar type, in conditions of free competition and at the same stage of commercialization, at the time and place where the goods or services were purchased or at similar time and place.
Decree 50/2017 removes any reference to the "normal value" concept and refers more generally to the "conditions and prices that would have been agreed between independent parties acting on an arm's length basis and in comparable circumstances".
It is a clarification aimed at aligning the domestic definition of the “arm’s length principle” with the international standards at OECD level, as already applied by the Italian tax authorities, the Italian case-law and by the experts. The new wording allows more flexibility in the adoption of valuation methods that best suit the negotiating dynamics of the market, on one hand, and looks at the conditions, not only at the prices, as the elements to be taken into account for the application of transfer pricing rules, as underlined by BEPS (Actions 8-10).
The Ministry of Finance will issue an implementing decree to set forth guidelines for the application of the new rules, taking into account international best practices.