Italian Supreme Court 30 June 2021 no. 18436: Profit Split is a reliable Transfer Pricing method
DESCRIPTION OF FACTS
In 2008 and 2009 the Italian parent company of an international group («ItaCo») provided intra-group services to its foreign subsidiaries («Foreign SubCos»).
Italian tax authorities issued two tax assessment notices arguing that ItaCo omitted to tax profits deriving from intra-group services provided to its Foreign SubCos.
JUDGEMENT OF THE COURT
As regards the intra-group services, taxpayers bear the burden of proof with reference to the existence of the costs and the benefit deriving from such services, which must be supported by adequate documentation.
Transactional Profit Split method is as reliable as the other transfer pricing methods to the extent that (i) it is possible to identify a strong link between the costs incurred and the value added in the intercompany transaction and (ii) the selected allocation keys lead to reliable results.
Transfer pricing is relevant for IRAP purposes also in relation to FYs from 2008 to 2013.