New Decree on internationalization: more tax certainties for International business

In line with those practices that some countries offer to investors, Italy is opening the chance to obtain tax rulings on international businesses.

The new Decree of the government which is going to be enforced within September provides the right to agree in advance with tax authorities some arguments that are normally under scrutiny and very often may result in important tax adjustments.

Thus, company having international businesses may access to an agreement procedure on the following topics:

  1. Methods to be used in order to calculate correct and acceptable transfer prices on intercompany transactions, there included the values applicable in case residence is moved inbound or outbound;
  2. The attribution of profit and losses to a permanent establishment of a foreign entity or to a foreign permanent establishment of a resident entity;
  3. The existence of a permanent establishment in Italy;
  4. The concrete application of rules regarding inbound or outbound flux of dividend, interests, royalties and other tax relevant items.

Once reached an agreement, it will be binding for 5 years starting from the date in which it is concluded, if  relevant conditions are unchanged.

If conditions are unchanged, the agreement can be extended also to periods prior to the signing of the agreement, but not later than the date of filing of the request.

The agreement is not intended to provide tax benefits or to grant reductions, even in for of forfeit deductions, but it is intended to provide certainties to companies operating internationally, in order to avoid “surprises” or unclear or retroactive tax adjustments.

Agreements would then be disclosed to tax authorities of the other countries involved in the audited transactions.

It is important to note that OECD considers tax rulings a good practice, provide that they are transparent and communicated to the tax authorities of the other countries involved. Otherwise, they might fall in one of the “Harmful Tax Practices” against which the international community is intended to take measure in the next future (the so-called  BEPS project – Base Erosion and Profit  Shifting).Thus, the Italian rulings procedure appear to be in line with those standards which will be adopted in an extensive way.

The benefit is clear and should be appreciated properly. It requires a new approach both from the private and from the public party, the success of it is still to be evaluated. Nevertheless we can observe that in many cases the business would be audited anyway. Thus it could be a good chance to play the game in advance.

Written by Roedl & Partner

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