Transactions had taken place between E.I. S.r.l. and a related Spanish company, S. SA, where the pricing had been determined based on the cost plus method.
An assessment was issued by the tax authorities on the basis of a “comparable” transactions (internal CUP) between the E.I. S.r.l. and an independent third company where the price had been higher.
An appeal was filed by E.I. S.r.l. with the Provincial Tax Commission where E.I S.r.l. argued that the price difference was due to volume discounts. The Provincial Tax Commission held in favour of E.I S.r.l.
An appeal was then filed by the tax authorities with the Regional Tax Commission.
Judgment of the Regional Tax Commission
The Regional Commission dismissed the appeal of the tax authorities and decided in favour of E.I. S.r.l.
Excerpts:
“The Commission observes that the judges at first instance correctly and in detail reasoned their decisions, with a wealth of detail and a careful examination of all the circumstances examined.
On the other hand, the Office has slavishly repeated its observations, merely objecting to the fact that they were not given due consideration by the first instance judges.”
“The OECD Guidelines state that: Part 2, B.1, paragraph 2.26: “As a further example, assume that a taxpayer sells 1000 tonnes of a product to an associated enterprise in its multinational group at a price of $80 per tonne and simultaneously sells 500 tonnes of the same product to an independent enterprise at $100 per tonne. In this case it is necessary to assess whether the different quantities should lead to a correction of the transfer price. The relative market should be studied by analysing transactions for similar products in order to determine discounts normally applied depending on the quantity supplied. The example quoted is identical to the case under consideration today; according to the OECD Guidelines, a transfer pricing analysis cannot disregard the need to make an adjustment to the transactions in order to take into account the different quantities supplied to the two parties and to make the quantities comparable;”
“National Jurisprudence, on the other hand, is recalled for the Cassation Civil Section, with sentence no. 20805 of 06 September 2017 states that: “(…) the essential aspect of transfer pricing does not concern the justification of the lower price from an economic point of view, but whether the discounts can be considered justified from a fiscal point of view, that is, whether they respond to the principle of free competition, in accordance with the teachings of the Supreme Court.”
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