Italy has a well-developed and internationally aligned transfer pricing framework, combining comprehensive statutory provisions with detailed administrative guidance. The regime is primarily governed by the Income Tax Code approved by Presidential Decree No. 917 of 22 December 1986 (the “TUIR”). In particular, the central provision is set forth in Article 110(7), TUIR, which establishes that the income components deriving from intra-group transactions must be determined in accordance with the arm’s length principle. The guidelines provided in the article are implemented in the Ministerial Decree of 14 May 2018 (the “Ministerial Decree”), which explains how the arm’s length principle must be applied in practice.

The legislative framework is complemented by administrative guidance. Historically, Ministerial Circular No. 32 of 22 September 1980 (the “1980 Circular”) provided important administrative guidance on transfer pricing matters. More recently, the Italian Revenue Agency (the “IRA”) has issued specific guidance on transfer pricing documentation. In particular, Provision No. 360494 of 23 November 2020 (the “2020 Provision”) sets out the documentation requirements, while the subsequent Circular 15/E of 26 November 2021 (the “Circular 15/E”) clarifies how the required documentation must be prepared. Finally, Circular 16/E of 24 May 2022 (the “Circular 16/E”) serves as an operational clarification on the application of the arm’s length range.

The Italian transfer pricing framework is strongly aligned with the OECD Transfer Pricing Guidelines (the TPG), ensuring consistency with internationally recognised standards while maintaining its foundation in domestic legislation. Although the TPG do not constitute an autonomous and directly binding source of law in Italy, they play a fundamental interpretative role in the application of Italian transfer pricing rules. The Italian regime is centred on the arm’s length principle, which is expressly embedded in Article 110(7), TUIR, as amended by Law Decree No. 50 of 24 April 2017 (converted by Law No. 96 of 21 June 2017), which replaced the previous reference to the “normal value” concept.

The Ministerial Decree, which sets out the general guidance for the correct application of the arm’s length principle, further reinforces the alignment by explicitly referencing international best practices, specifically, the TPG and the OECD/G20 BEPS Actions 8–10 Final Reports. It is also worth noting that the Ministerial Decree contains a final clause under Article 9 that enables the IRA to issue further implementing measures, in light of the OECD Guidelines as amended from time to time. Within this framework, the 2020 Provision was issued to update the Italian transfer pricing documentation requirements and to align them with the OECD approach following the OECD Final Report on BEPS Action 13.

In the Italian transfer pricing context, the relevant concept is that of “associated enterprises”, which broadly corresponds to the notion of related parties used in other jurisdictions. The legal scope is set out in Article 110(7), TUIR, which refers to cross-border transactions between an Italian enterprise and a non-resident entity, that directly or indirectly controls the Italian enterprise, is controlled by it, or is controlled by the same entity controlling the Italian enterprise.

One of the strengths of the Italian framework is the progressive development of a more structured and predictable definition of association and control. While Article 110(7) does not provide definitive guidance on the notion of control for transfer pricing purposes, the 1980 Circular historically interpreted this concept extensively, by referring to any form of economic influence, whether current or potential. This approach was based on an open-ended list, which gave the Italian Tax Authorities a particularly broad margin for interpretation.

In 2018, the Ministerial Decree tried to introduce a more structured framework by identifying more precise requirements. Under this framework, two enterprises are regarded as associated where one of them participates directly or indirectly in the management, control or capital of the other, or where the same person participates directly or indirectly in the management, control or capital of both enterprises.

For these purposes, “participation in the management, control or capital” exists where there is either: (i) a direct or indirect participation of more than 50% in the capital, voting rights or profits of another enterprise; or (ii) the exercise of a dominant influence over the management of another enterprise, based on equity or contractual constraints. This evolution was also confirmed by the Italian Supreme Court on 3 July 2025, with judgments No. 18058, No. 18072 and No. 18080. These changes introduced by the Ministerial Decree have an innovative scope and are intended to replace the previous more flexible criterion, with stricter requirements that tend towards the concept of control under the Italian civil law doctrine.

In Italy, transfer pricing rules in the strict sense apply to cross-border transactions and are governed by Article 110(7), TUIR. Domestic transactions do not fall within the scope of application of Article 110(7), TUIR. However, this does not mean that domestic transactions are irrelevant for tax purposes. They may still be reviewed by the Italian Tax Authorities where the pricing or terms of the transaction appear inconsistent with market conditions and may constitute an indicator of antieconomic conduct or of possible aggressive tax planning. In this respect, the Supreme Court, in judgments No. 2777 of 8 February 2026 and No. 5859 of 5 March 2024, reaffirmed that Article 110(7), TUIR does not apply to transactions between resident affiliated companies. At the same time, the Court confirmed that so-called “domestic transfer pricing” may be assessed by reference to the “normal value” of the relevant transactions under Article 9, TUIR, together with an evaluation of whether the transaction is antieconomic. This provision requires, as an evaluative criterion, reference to the normal market value of the consideration and income involved (thus broadly assimilable to the arm’s length principle).

In general, Italian transfer pricing legislation does not provide for any exemptions or exclusions linked to size thresholds. This means that, in principle, all taxpayers engaged in intercompany transactions are subject to the transfer pricing rules, regardless of their size.

However, where taxpayers opt to prepare transfer pricing documentation in order to benefit from penalty protection, certain simplifications may apply to specific categories of entities or transactions (see answer 27 below). Such simplifications do not amount to an exclusion from the transfer pricing rules as such, but rather reduce the level of documentation and analysis otherwise required.

One such simplification, according to the 2020 Provision, concerns small and medium enterprises — namely, companies with turnover or revenues not exceeding EUR 50 million, which neither directly nor indirectly control, nor are directly or indirectly controlled by, entities exceeding that threshold. For these entities, the benchmark analysis included in the local file is not required to be updated on an annual basis. Instead, the same benchmark analysis may remain valid for up to three fiscal years, provided that (i) the comparability analysis is based on publicly available sources of information, and (ii) the relevant comparability factors do not undergo any material changes during that period.

The Italian transfer pricing framework is closely aligned with the TPG, with no significant deviations from internationally recognised transfer pricing principles. Italian legislation incorporates, in particular, the application of the arm’s length principle, which lies at the core of the Italian transfer pricing rules; the guidance on comparability analysis; the simplified approach for low value-adding intra-group services (see answer 27 below); and the recognised transfer pricing methods (see answer 7 below), thus ensuring consistency between domestic rules and global transfer pricing standards.

For other transfer pricing matters that are not specifically regulated by Italian domestic legislation, the practice generally relies on the application of the arm’s length principle, provided by Article 110(7), TUIR, and on the guidance of internationally recognised best practices, developed under the TPG.

In Italy, in line with the international practice set out in the TPG, Article 4(2) of the Ministerial Decree recognises five transfer pricing methods:

(i) the comparable uncontrolled price (CUP) method;

(ii) the resale price method (RPM);

(iii) the cost-plus method (CPM);

(iv) the transactional net margin method (TNMM); and

(v) the transactional profit split method (PSM).

The cited decree, through Article 4(5), also allows taxpayers to apply an unspecified method, other than the five explicitly recognised. This is possible provided that they are able to demonstrate two conditions: firstly, that none of the prescribed methods can be applied reliably; and, secondly, that the different method makes it possible to arrive at a result consistent with what would have been achieved by independent undertakings in comparable non-controlled transactions.

This approach combines methodological certainty with practical flexibility, allowing the Italian transfer pricing regime to accommodate complex business models and evolving economic circumstances while preserving the fundamental objective of the arm’s length principle.

Pursuant to Article 4(1) of the Ministerial Decree, the Italian transfer pricing framework follows the “most appropriate method” approach. The selection of the method should take into account different criteria:

– the strengths and weaknesses of each method considering the specific circumstances;

– the appropriateness of the method in view of the characteristics of the controlled transactions;

– the availability of reliable information, in particular, in relation to comparable uncontrolled transactions;

– the degree of comparability between the controlled transaction and the uncontrolled transaction, also considering the reliability of any comparability adjustments.

This approach ensures that the analysis remains economically focused and allows taxpayers to select the methodology that best reflects the commercial reality of the transaction, rather than applying a mechanical ranking of methods. It has also been confirmed by the Italian Supreme Court in several cases, in particular in judgment No. 26432 of 10 October 2024. Here the Supreme Court reiterates that there is no automatic priority of the methods and that the choice must follow a case-by-case analysis, depending on the economic characteristics of the transaction and the reliability of the available comparable data.

Furthermore, Article 4(3) states that where a traditional method (CUP, RPM, CPM) and a transactional method (TNMM, PSM) can be applied with equal reliability, traditional methods are to be preferred. Moreover, it is specified that the CUP method is considered preferable when it and any other methods can be applied with equal reliability. Additionally, the article specifies that it is not necessary to apply more than one method to assess the arm’s length nature of a controlled transaction.

Article 6(2) of the Ministerial Decree regulates the arm’s length range, consistently with the TPG. The arm’s length range is defined as the set of values resulting from comparable uncontrolled transactions carried out between independent enterprises. In the cited article, it is stated that a controlled transaction is considered to comply with the arm’s length principle where the related financial indicator falls within the range. If not, in compliance with Article 6(3), the Tax Authorities are allowed to make adjustments to bring the financial indicator within the range. In the event of an adjustment, the taxpayer remains entitled to demonstrate that the controlled transaction complies with the arm’s length principle.

In addition, the IRA, through Circular 16/E, provides the instruction to be used in determining the arm’s length range. In particular, it is stated that the full range is acceptable only where all comparables are equally reliable. Otherwise, it is appropriate to use a statistical tool to narrow the range and so increase its reliability. In this context, the interquartile range is the only statistical tool expressly mentioned by the cited circular.

Overall, the Italian framework combines flexibility in assessing comparables with clear guidance on the use of statistical tools, supporting a balanced and reliable determination of arm’s length outcomes.

The Italian transfer pricing framework expressly recognises the importance of comparability adjustments in ensuring that benchmarking analyses produce reliable and economically meaningful results, consistently with the principles set out in the TPG.

According to Article 3(1) of the Ministerial Decree, where comparability differences affect the financial indicator used in the analysis, comparability adjustments may be carried out in order to eliminate or reduce the effects of such differences, provided that this can be done in a reliable manner.

The adjustments that are most commonly applied in the Italian transfer pricing practice are the ones regarding working capital adjustments, accounting reclassification and exclusion of non-recurring items.

Italian law does not provide for specific detailed rules on year-end transfer pricing adjustments. Such adjustments are generally analysed under the ordinary arm’s length principle set out in Article 110(7), TUIR, and the implementing Ministerial Decree.

In practice, a distinction should be made between adjustments reflected in the statutory accounts and adjustments to the tax return only. Where the year-end adjustment is implemented through an actual price adjustment between the related parties, documented by a debit or credit note and properly recorded in the statutory accounts of the relevant financial year, the adjustment may be generally recognised for tax purposes, subject to the ordinary accrual, deductibility and documentation requirements. In this case, the adjustment modifies the price actually booked between the parties and may in principle operate upwards or downwards.

By contrast, where the adjustment is made only in the corporate income tax return, without any corresponding accounting entry, the treatment is more restrictive. Upward adjustments increasing the Italian taxpayer’s taxable income are generally accepted. Downward extra-accounting adjustments are not freely available and may be recognised only under the procedures and conditions set out in Article 31-quater of Presidential Decree No. 600/1973 (the “Presidential Decree”), namely: (i) in execution of an agreement reached under a mutual agreement procedure (MAP) pursuant to an applicable double tax treaty (DTT), the EU Arbitration Convention, or EU Directive 2017/1852 on tax dispute resolution mechanisms; (ii) following the outcome of a joint audit conducted in the context of international cooperation, provided the outcome is shared by the participating States; or (iii) upon a formal request filed by the taxpayer, following a final upward adjustment made by a foreign State — consistent with the arm’s length principle — with which Italy has a double tax treaty in force allowing for adequate exchange of information.

The Italian transfer pricing framework is characterised by the absence of any statutory provisions governing secondary adjustments. Neither Article 110(7), TUIR, nor any other transfer pricing provision expressly grants the Italian tax authorities the power to recharacterise, into a different category of income, the differential amount arising from a primary adjustment. This position is further confirmed by the most recent OECD Transfer Pricing Country Profile for Italy, updated in October 2025.

Despite the absence of an explicit statutory basis, the IRA has, in certain tax audits, adopted specific approaches with respect to intra-group payments of interest and royalties. In particular, following a primary adjustment under Article 110(7), TUIR, the issue may arise as to the tax treatment of the
portion of the consideration exceeding the arm’s length amount.

Where the underlying intra-group transaction giving rise to the payment of interest or royalties is correctly characterised in its substantive nature, but the agreed consideration exceeds the arm’s length amount, the issue no longer concerns the identification or characterisation of the underlying transaction itself. Rather, it concerns the appropriate tax treatment of the differential arising from the primary adjustment.

In this respect, administrative practice does not appear to be entirely consistent. In certain cases, particularly in the context of a negotiated settlement of the dispute, the IRA proceeds to an actual recharacterisation of the excess amount, generally treating it as an interest-bearing constructive loan or, less frequently, as a dividend payment In other cases, however, the tax authorities continue to characterise the excess according to the original nature of the payment, namely as a royalty or interest payment, while denying the application of the reduced treaty withholding tax rate to that portion and instead subjecting it to the applicable domestic withholding tax.

From a judicial perspective (see judgments No. 4698 and No. 4699 of 26 November 2025 of the Milan Tax Court of First Instance, and judgment No. 15864 of 28 November 2025 of the Rome Tax Court of First Instance), the position likewise remains unsettled, as Italian case law does not appear to have developed a clear and consistent approach to this issue. Consequently, significant interpretative uncertainty persists, both as to whether the tax authorities may lawfully recharacterize the differential arising from the primary adjustment and as to the appropriate tax treatment of the amount exceeding the arm’s length amount.

Italian domestic legislation and regulations do not provide specific guidance on the pricing of controlled transactions involving intangibles. Therefore, in practice, the general arm’s length principle applies, as set out under Article 110(7) of the Italian Income Tax Code. Although Italian legislation does not provide a separate intangible-specific regime, the valuation and analysis of intangible assets have been supported over time by relevant administrative guidance and practical experience. Historical guidance, including the 1980 Circular, provided early interpretative principles, while more recent practice relating to the patent box regime has further contributed to the development of valuation approaches for intangible assets. It can be noted that, in its operational practice, the IRA generally applies the principles set out under the TPG – including the valuation techniques contained therein (especially in the chapter VI “Special Consideration for Intangibles” and the chapter IX “Business Restructurings”) – together with the relevant international best practices, including the principles developed in the context of BEPS Actions 8-10.

The Italian transfer pricing legal framework does not contain an explicit reference to the DEMPE concept. As mentioned before (see answer 13 above), Italian practice generally relies on the guidance developed at OECD level. However, explicit reference to the DEMPE concept can be found in the practical approach adopted in relation to the Patent Box regime, where the DEMPE analysis has been reflected in the guidance issued by the IRA.

Accordingly, Italian practice applies a substance-based approach to intangible transactions, focusing on the actual functions performed and value contributions of the parties rather than relying solely on formal ownership of intangible assets. This approach is consistent with the OECD’s post-BEPS framework and supports a more accurate allocation of returns generated by intangible assets.

As mentioned, the Italian transfer pricing legal framework does not contain specific guidance on the criteria for determining which entity is entitled to intangible-related returns. However, consistently with the approach applied in international best practice, Italian practice generally relies on the DEMPE analysis.

The Italian jurisdiction does not provide for any specific transfer pricing rule on hard-to-value intangibles. Therefore, the analysis remains based on the arm’s length principle under Article 110(7), TUIR, the best international practice developed in the TPG and, finally, on the domestic operational practice developed over the years (see answer 13 above).

In the Italian system, cost-contribution arrangements are mentioned in the 1980 Circular. The circular identifies cost-contribution arrangements as agreements among various units of the group, located in different countries, under which the costs related to research and other services available within the group are distributed among the various subsidiaries, in relation to the benefits that each unit can get from their use. Although the 1980 Circular represents an important historical reference point, it does not provide a comprehensive or updated regulatory framework for cost contribution arrangements. Consequently, the assessment of compliance with the arm’s length principle must be carried out with reference to Article 110(7), TUIR, and with reference to the international best practice reflected in the TPG.

The legal framework behind the exchange of transfer pricing information is multi-layered. It incorporates international, EU and domestic sources. The main instruments are: Double Taxation Treaties (DTTs), Tax Information Exchange Agreements (TIEAs) and EU directives.

– DTTs: are largely based on the OECD Model Tax Convention and aligned with Article 26 on the exchange of information. Italy has a broad network of double tax treaties, that provides that the exchange of information may happen when it is necessary or foreseeably relevant for tax purposes. It is important to highlight that broad and non-specific requests (i.e. “fishing expeditions”) are not allowed. Information may be exchanged upon request, automatically or spontaneously.

– TIEAs: are concluded with several states outside of the scope of DTTs in force. Under these agreements, tax information can be exchanged only upon request and only when it is foreseeably relevant for assessing or collecting taxes.

– EU Directives: have been implemented in large numbers in Italy. These include: (i) DAC3 (Council Directive EU 2015/2376) covering the automatic exchange of tax rulings and Advance Pricing Agreements (APA), (ii) DAC4 (Council Directive EU 2016/881) regarding the automatic exchange of country-by-country reporting, (iii) DAC6 (Council Directive EU 2018/822) for the automatic exchange of information concerning reportable cross-border tax arrangements, (iv) DAC7 (Council Directive EU 2021/514) referring to platform operators in the digital economy, and (v) DAC8 (Council Directive EU 2023/2226) that expanded the framework to include crypto-assets (MiCA).

Regarding joint audits, Italian laws provide instruments of advanced administrative co-operation with foreign administrations carrying out control activities. Recent reforms on this topic have been incorporated into the new Article 31-bis of the Presidential Decree. Where there is a common or complementary interest concerning one or more taxpayers, the Italian Tax Authorities may ask the competent authorities of one or more EU member states to carry out a joint audit. Joint audits may also be arranged with non-EU countries, provided that a bilateral or multilateral treaty allows such co-operation. Foreign tax authorities may interact with the taxpayer and review relevant documents, while Italian rules on evidence collection and taxpayers’ rights continue to apply.

The Presidential Decree also establishes the legal framework for simultaneous controls. In case of common complementary interest, Italian Tax Authorities may carry out simultaneous audits together with the tax authorities of other EU member states, ensuring a structured exchange of information throughout the process. Each authority conducts the audit within its own territory and remains responsible for its own assessment. These audits may also involve non-EU countries provided that a bilateral or multilateral treaty allows such co-operation. Unlike joint audits, simultaneous controls do not require the participating authorities to reach a common conclusion or issue a jointly agreed final report.

Finally, Italy participates in the OECD International Compliance Assurance Programme (ICAP) as a supporting tax administration, taking part in multilateral voluntary risk assessments aimed at providing multinational groups with greater tax certainty on transfer pricing and permanent establishment risks, in line with the broader framework of co-operative compliance and international administrative co-operation.

Under Italian law, information obtained through DTTs, TIEAs and EU DAC directives may generally be relied upon in transfer pricing assessments and litigation, provided it is “foreseeably relevant” and not the result of a generalised fishing expedition. However, such information is not automatically conclusive: consistently with OECD guidance on country-by-country reports, exchanged data may trigger or support further enquiries but cannot, by itself, justify an adjustment. In litigation, it must still provide adequate, verifiable evidence beyond the mere exchanged data, respecting the taxpayer’s right of defence.

This approach reflects the balance achieved by the Italian system: international information exchange provides tax authorities with effective tools to address complex cross-border transfer pricing matters, while ensuring that adjustments are based on properly supported findings and that taxpayers benefit from appropriate procedural safeguards.

The Italian transfer pricing requirements follow the three-tiered approach recommended by BEPS Action 13 and the TPG, structured on (i) the master file, (ii) the local file and (iii) the country-by-country report.

The preparation of the master file and the local file is not mandatory, but optional for taxpayers. Under Legislative Decree No. 471 of 18 December 1997, the Italian legal system provides a penalty protection rule for taxpayers that are able to provide these transfer pricing documents, as detailed in the 2020 Provision. Therefore, in order to benefit from the penalty protection regime, the master file and local file must be prepared with documentation that is consistent with the structure set out in the 2020 Provision and contains the required information.

By contrast, the only transfer pricing documentation that is mandatorily required by the Italian Tax Authorities is the country-by-country report (CbCR), under Law No. 208 of 28 December 2015 (Finance Act 2016) and implemented by the Ministerial Decree of 23 February 2017, in line with the Council Directive (EU) 2016/881. The CbCR, to be delivered to the IRA, should contain comprehensive information on the activities carried out and on the taxes paid in each jurisdiction in which the group operates. The content requirements are consistent with those of the BEPS Action 13 and the TPG.

Under Legislative Decree No. 471 of 18 December 1997, the master file and the local file are optional for all taxpayers and are not subject to a mandatory filing obligation.

It is understood that, in order to benefit from the penalty protection regime, it is necessary to sign the transfer pricing documentation with a digital signature and with a time stamp affixed, applied no later than the deadline for filing the income tax return relating to the relevant tax period, and to declare possession of such documentation in the dedicated section of the tax return.

The only mandatory transfer pricing document required by the Italian Tax Authorities is the country-by-country report, which applies to Italian-resident companies belonging to a MNE group with consolidated revenues equal to or exceeding EUR 750 million. In particular, the document must be filed by the Italian-based Ultimate Parent Entity of a multinational group exceeding the threshold. Italian subsidiaries may also be required to file the report when the foreign Ultimate Parent Entity is not required to submit a country-by-country report in its jurisdiction, where no effective exchange of information agreement is in place with the jurisdiction of the foreign Ultimate Parent Entity and Italy, or where the IRA has notified the Italian subsidiary that the parent’s state of residence has suspended or repeatedly failed to exchange CbCR files.

As the 2020 Provision states, taxpayers that opt to prepare the master file and local file must prepare documentation on an annual basis. The taxpayer must disclose possession of the documentation in the annual income tax return. It must be signed electronically with a timestamp by the deadline for filing the income tax return. In case of request, the transfer pricing documentation shall be submitted to the Italian Tax Authorities in electronic form within 20 days.

Regarding the country-by-country report, as defined in the Ministerial Decree of 23 February 2017, it must be filed for each reporting fiscal year within 12 months from the last day of the reporting fiscal year and has to be delivered to the IRA.

In Italy, the preparation of the master file and local file is not subject to a mandatory documentation obligation. Rather, these documents are relevant for access to the penalty protection regime available to taxpayers that comply with the applicable formal and substantive requirements. To benefit from penalty protection, taxpayers must, in particular: (i) declare possession of the documentation in the relevant corporate income tax return; (ii) prepare the documentation on an annual basis and in accordance with the structure set out by the 2020 Provision; (iii) ensure that the information included in the documentation is complete, consistent and suitable to assess compliance with the arm’s length principle; and (iv) comply with the timing requirements relating to the tax return and deliver the documentation within 20 days from the tax authorities’ request.

With regard to the scope of the penalty protection regime, it should be noted that Circular 15/E clarifies that penalty protection applies only to intercompany transactions properly covered by the transfer pricing documentation. Where penalty protection does not apply, the penalties normally applicable to inaccurate tax returns on income apply, as provided by Legislative Decree No. 471 of 18 December 1997.

As regards the applicable penalties, it should be specified that, for violations committed:

• before 1st September 2024, a range from 90% to 180% of the higher tax assessed applies. In this context, as also specified by Circular 15/E, whenever an instrumental use of the regime by the taxpayer is identified, such circumstances shall be duly taken into account for the purposes of imposing the administrative penalty resulting from the transfer pricing adjustment concerning intra-group prices (through an increase in the penalty proportionate to the severity of the conduct);

• after 1st September 2024, a penalty equal to 70% of the higher tax assessed applies.

It should also be noted that the taxpayer has the option of preparing adequate documentation covering only part of the transactions carried out. Should the taxpayer opt for this approach, only the transactions included in the transfer pricing documentation will benefit from the penalty protection regime, with all transactions not described in the transfer pricing documentation being consequently excluded.

Transfer pricing violations may in principle give rise to criminal liability under Article 4 of Legislative Decree No. 74 of 10 March 2000, particularly where taxable income is understated through the omission of taxable items or the inclusion of non-existent deductible items. However, in light of paragraphs 1-bis and 1-ter of the same Article 4, which reflect the inherently evaluative nature of arm’s length pricing, the risk linked to such liability may be deemed to be substantially low. Nevertheless, criminal liability remains where specific fraudulent intent is established, particularly when the dispute concerns not the valuation of a genuine transaction, but its fictitious or simulated nature.

As regards the filing of the country-by-country report, which is the only mandatory document, Article 1, paragraphs 145 and 146, of Law No. 208 of 28 December 2015 provides for an administrative penalty ranging from EUR 10,000 to EUR 50,000 in the event of a missing, incomplete or inaccurate declaration.

In Italy, transfer pricing compliance is closely linked to the corporate income tax return through specific disclosure requirements designed to allow taxpayers to access the penalty protection regime. In addition to the requirement for a digital signature and a timestamp affixed prior to the tax return filing deadline, the taxpayer must disclose the possession of appropriate transfer pricing documentation by ticking the relevant box in the corporate tax return and reporting the amount of the intercompany transactions concerned. Such disclosure is relevant in order to access the penalty protection regime. The required documentation – the master file and the local file – need not be attached to the tax return but must be retained by the taxpayer and made available upon request. According to Circular 15/E, the documentation must be prepared and signed with an electronic signature, with a timestamp affixed by the filing deadline for the tax return.

Italy has a well-established advance pricing agreement (APA) framework, providing taxpayers engaged in cross-border activities with the possibility of obtaining advance certainty on transfer pricing matters and other relevant international tax issues. The legal basis for APAs is set out in Article 31-ter of the Presidential Decree, which states that prior definition of the methods of calculation of the normal value of the transactions covered by transfer pricing regulation is permitted. Furthermore, the Provision of the IRA’s Director of 21 March 2016 (Prot. n. 2016/42295) establishes the rules for accessing and managing APAs.

The cited provision allows taxpayers with international activities to agree in advance with the Italian Tax Authorities on key cross-border tax matters, including transfer pricing methods, entry or exit values, permanent establishment issues and the tax treatment of cross-border income. It may also cover the attribution of profits to Italian or foreign permanent establishments.

In particular, the agreement is valid for the tax period in which it is finalised and for the following four tax periods. During this timeframe, the IRA may not challenge the transfer pricing of transactions covered by the APA, although the tax office will monitor the Italian company in order to ascertain whether the terms of the agreement are being respected.

The effectiveness and attractiveness of the Italian APA system are reflected in its extensive use by taxpayers. The latest data published by the European Commission show that, as of the end of 2024, Italy ranks as the second jurisdiction in terms of recourse to APA instruments (in the EU), both by number of (i) unilateral APAs in force and by number of (ii) bilateral and multilateral APAs in force. In this context, also according to the statistics published by the U.S. Internal Revenue Service , Italy represents the third jurisdiction by number of bilateral APA applications filed.

In the Italian jurisdiction, unilateral, bilateral and multilateral APAs are recognised. The legal basis is provided by the Presidential Decree, together with the relevant DTTs.

With regard to unilateral APAs, the agreement is concluded between the taxpayer and the IRA. As such, it does not bind foreign tax authorities and does not eliminate the risk of double taxation abroad. A unilateral APA remains in force for the tax period in which it is signed and for the following four tax periods.

The conclusion of bilateral and multilateral APAs, on the other hand, requires the applicable double taxation conventions, which allow for dialogue with the foreign competent authorities involved. In this respect, the legal framework for BAPAs and MAPAs is well known, being generally set out under the DTTs, and specifically under Article 25, Paragraph 3, of the OECD Model Tax Convention, as generally reproduced in the bilateral double tax treaties signed by Italy. Bilateral and Multilateral APAs may cover the tax period in which the request is filed, as well as subsequent years, as determined by the agreement reached between the competent authorities involved. The agreement may also be extended to prior years through a roll-back mechanism, provided that: (i) the foreign competent authority agrees; (ii) the same factual and legal circumstances apply; and (iii) no control activities have begun.

The Italian transfer pricing framework does not provide for general safe harbour rules applicable to specific categories of taxpayers or transactions. Nevertheless, a simplified framework is recognised for low-value-added services within intra-group transactions. Under Article 7 of the Ministerial Decree, services are considered to have low value added if: (i) they have a supportive nature; (ii) they are not part of the main activities carried out by the multinational group; (iii) they do not require the use of unique and valuable intangible assets, and do not contribute to their creation; and (iv) they do not involve undertaking, controlling or generating a significant risk by the service provider. In line with the TPG, the valorisation of low-value-added services is determined by aggregating the total direct and indirect costs associated with the service, adding a mark-up equal to 5% on the relevant cost base. This allows the taxpayer to avoid the use of a benchmark to study the arm’s length range.

In addition, small and medium enterprises may benefit from simplified requirements in the preparation of the local file required for taxpayers opting for the penalty protection regime. In particular, the 2020 Provision provides that small and medium enterprises, namely companies with turnover or revenues not exceeding EUR 50 million and which do not directly or indirectly control, and are not directly or indirectly controlled by entities exceeding that threshold, are not required to update the benchmark analysis included in the local file on an annual basis. Instead, the same benchmark analysis may remain valid for three fiscal years, provided that the comparability analysis is based on publicly available sources of information and that the comparability factors do not undergo any material changes during those fiscal years. The 2020 Provision also sets out the required content and structure of the documentation that the taxpayer must prepare to apply the simplified approach for intra-group low value-adding services.

In recent years, transfer pricing audits in Italy have become increasingly targeted, technically sophisticated, and data-driven. The Italian Tax Authorities generally focus on the substantive consistency between the contractual allocation of functions and risks and the actual conduct of the parties. Challenges commonly concern the alleged misrepresentation of the Italian entity’s functional and risk profile, the reliability of the economic analysis, the selection of the most appropriate transfer pricing method, the attribution of profits to Italian permanent establishments and the identification of the tested party.

A growing area of scrutiny is represented by financial transactions and, in particular, intercompany loans. Since there is no detailed domestic guidance on this topic, Italian small and medium enterprises and the tax authorities generally rely on Chapter X of the TPG, although audit practice shows that such principles are not always applied consistently or predictably.

A further layer of exposure has emerged following the implementation of the public country-by-country reporting regime under Directive (EU) 2021/2101. Any apparent inconsistency between the figures published under this regime and those reported in the confidential CbCR submitted to the IRA, in the local file, or in the Italian statutory accounts, may draw additional attention from the tax authorities and increase the likelihood of requests for clarification or of a targeted audit, even in the absence of any underlying substantive irregularity.

Another relevant trend concerns business restructurings, especially when functions, risks, assets and potential profit are transferred out of Italy. In these cases, the Italian Tax Authorities may assess whether an indemnity or exit charge should be recognised and whether the Italian entity has been properly remunerated for the loss of business opportunities, customer relationships, intangible-related returns or other economically significant advantages.

Italian domestic transfer pricing case law has developed significantly over time and now plays an important role in shaping practice. The Italian courts, and in particular the Supreme Court, have addressed a wide range of transfer pricing issues, including the allocation of the burden of proof, comparability analyses, the selection and application of transfer pricing methods, intra-group services and benefit tests, financial transactions, royalties, business restructurings and the notion of control. In this respect, the case law continues to provide significant guidance and to influence the development of transfer pricing practice. A recent example is Supreme Court judgement No. 13136 of 7 May 2026 concerning intra-group guarantees, which attracted considerable attention at international level. Consistently with earlier Supreme Court’s judgements on interest-free intra-group loans (No. 13850 of 20 May 2021 and No. 7361 of 19 March 2024), which are expressly referred to in the decision, the Court held that an intra-group guarantee may be granted without remuneration where there are valid business reasons reflecting the interests of the group.

That said, Italian case law does not always provide a fully predictable or consolidated framework. Transfer pricing disputes are highly fact-specific and Italian tax litigation may be lengthy, with outcomes depending heavily on the quality of the taxpayer’s documentation, the robustness of the comparability analysis and the evidentiary record developed during the audit and litigation phases.

Accordingly, while domestic case law is increasingly relevant and may meaningfully influence both taxpayer behaviour and tax authority positions, day-to-day practice remains strongly affected by the approach taken by the IRA and the Financial Police (Guardia di Finanza) during audits, as well as by administrative guidance and negotiated dispute-resolution mechanisms.

In practice, many taxpayers prefer to resolve transfer pricing disputes before or during litigation through settlement procedures, MAPs, EU dispute-resolution mechanisms, or other forms of negotiated resolution, rather than pursue a final court judgment. Once a position has been agreed with the tax authorities or competent authorities, taxpayers will generally align their future conduct with that outcome, particularly where the agreement reflects a recurring fact pattern or a methodology to be applied in subsequent years.

The Italian Tax Authorities frequently challenge business restructuring transactions, especially those involving the transfer or migration of intangible assets, such as patents, trademarks or client lists. Financial transactions are also subject to increasing scrutiny, especially where the authorities may question whether the arrangements are supported by adequate economic substance and are consistent with the arm’s length principle.

Looking five years ahead, transfer pricing practice in Italy is likely to be reshaped by a combination of developments affecting both taxpayers and professional practice.

Firstly, a key development will realistically be the broader use of prevention mechanisms. Taxpayers increasingly seek greater certainty in advance through the use of unilateral, bilateral and multilateral APAs, particularly in the context of complex cross-border structures. It can reasonably be expected that an increasing number of taxpayers will pursue APAs, BAPAs and MAPAs as a means of securing certainty and reducing the risk of double taxation, rather than relying solely on ex post defence of their transfer pricing positions.

At the same time, transfer pricing is expected to remain an area of strong focus for the IRA, particularly where the allocation of profits to Italian entities is considered inconsistent with the economic function performed and the assets used in Italy. In this context, intangibles and business restructurings are expected to remain highly sensitive areas, especially where valuable assets, profit potential or strategic functions are transferred outside Italy. Digital business models are also likely to play a significant role, as they continue to raise complex questions as to where value is created and where profits should ultimately be taxed. Finally, the increasing use of AI tools is also expected to enhance the efficiency of designing transfer pricing policies and conducting compliance activities.

All of the aforementioned developments will reinforce the importance of robust economic analyses, high-quality documentation, and proactive cooperation between taxpayers and the tax authorities.