The Italian tax administration has published its first report on the international tax ruling (advance pricing agreement) procedures carried out in the first five years since the program was enacted in 2005.
The Italian international tax ruling is a special procedure through which a domestic enterprise engaged in international activities or a foreign enterprise engaged in investment or business activities in Italy can agree with the Italian tax administration on the tax treatment of certain important items concerning its cross border activities including amount income attributable to an Italian PE, transfer prices for the exchange of goods or services between affiliated companies, Italian withholding taxes on outbound interest, dividends and royalties (for an overview see Italy’s International Tax Ruling.pdf.).
The total applications filed were 52 and 19 agreements have been signed, half of which by foreign multinational companies. The average time needed to go through the procedure and sign the agreement was 20 months. More than half of the rulings on transfer prices are based on comparable profits methods. Overall, the program had a very successful start and there are reasonable expectations for a continuing increase in the use of the program in the future.