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Italy Clarifies the Arm’s Length Range

14th June 2022

TP in 5 social image italy

Dealing with the Italian tax authorities over transfer pricing is challenging, not just because they’re demanding but because they’re picky. Take the local file, for example. Italian tax authorities aren’t just looking for information, they want it organized in a very particular way—and taxpayers can face non-compliance penalties if the information is there, just not in the proper format 

Recently, the Italian tax authorities took the time to clarify the particulars surrounding how they view the arm’s length range. In a May 24 published circular (16/E), the authorities confirmed that their position on the arm’s length principle stems from the OECD’s transfer pricing guidelines. Also aligning with the OECD, the circular offered guidance on what should be considered an arm’s length range. When transactions are perfectly comparable, taxpayers can use the full range to determine pricing. But if comparability is at all compromised, then you’ll need to employ statistical tools, like the interquartile range, to narrow the scope and increase reliability. The median of the range is reserved for when there’s insufficient comparability. Should you use it, include an argument justifying why it was the best way to go. And given that will be a piece of your local file, better make sure it’s in Italian.