TRANSFER PRICING: PROVISIONS AGAINST TAX EVASION

With ruling 6656 of 27 January 2016 the Supreme Court has again
considered transfer pricing rules to be a direct means to fight against tax evasion in the form of surreptitious income transfers
from one country to another in order to artificially benefit from lower tax rates. From this viewpoint, the burden of proof
becomes an important question when it comes to apply transfer pricing
provisions. In fact, this case law requires the tax authority intending to contest
fulfilment of requirements for the application of the provisions to first prove
tax avoidance, what seems to be inextricably linked to an analysis of the tax
rates in the countries in which the companies acting as counterparts of the Italian
company in intercompany transactions operate. Once this has been proved, the
tax authority is required to prove that the fair market value of the
transaction is not the one that is being applied and that it increases the
resident company’s taxable income. In this second stage the Supreme Court ruled
that a comparison between the prices applied by the parties and the assumed fair
market value of the goods or services must be “put in a strong context in terms of quality,
trade, time and place” in order to help identify an average value from
which only the destabilising element of “non-competitiveness” of the price
applied should be taken away.