Turin, Italy

Italian Revenue Agency explains the arm’s length range in transfer pricing

By Roberto M. Cagnazzo, Three & Partners

The Italian Revenue Agency has provided guidelines on transfer pricing. To comply with the arm’s length principle, the Agency has emphasized that it is important to consider the range of values formed by the financial indicators selected in application of the most appropriate method applicable to each transaction between independent third parties, comparable with the controlled transaction.

If the analysis is reliable and the transactions have the same degree of comparability, the entire range of values resulting from using the financial indicator selected according to the most appropriate method (so called “full range”) will be in accordance with the arm's length principle.

If the transactions within the range of values do not have the same degree of comparability with the controlled transaction, it is necessary to refer to statistical tools to narrow the range and strengthen their reliability. In both cases, all values contained in the range will be in accordance with the arm's length principle.

If the financial indicator falls within the range of free competition, no adjustment is necessary. If the indicator falls outside the arm's length range, the company must provide appropriate documentation to prove that the indicator used complies with the arm's length principle. If the company does not provide this evidence, or if the evidence is not satisfactory, the tax administration will make an adjustment by identifying the point that most satisfies the arm's length principle within the range.

In conclusion, the correct application of the most appropriate method of determining transfer pricing may result in a range of values, rather than in a single value, all complying with the arm's length principle. It is possible to use the full range of values within the arm's length range if all the transactions identified in the range are equally comparable. If some transactions in the range have defects in comparability, it is preferable to use statistical methods and a value within a narrow range.


Roberto M. Cagnazzo

Roberto M. Cagnazzo

GGI member firm
Three & Partners
Auditing & Accounting, Corporate Finance, Tax
Torino, Italy
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Three & Partners is a boutique firm based in Turin and deep-rooted in the North West of Italy but with a clear European identity and a strong international vocation. The firm provides integrated tax, corporate, legal, and business advice and assistance all over Italy on a wide range of domestic, European, and international matters.

Roberto M. Cagnazzo, Founder and Partner, is a chartered accountant and statutory auditor with a considerable experience in domestic and international taxation acquired as Head of Tax in some of the leading Italian multinational groups and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.


International Taxation Newsletter, No. 17, Autumn 2022 l Photo: Boris Stroujko - stock.adobe.com

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